Why $36K Should Be Every Dealer’s Magic Number
For decades, the tried-and-true gross commission structure worked great for dealer principals and salespeople alike: margins were strong and customers relied on the dealership to educate them on makes, models, and vehicle features.
Since the birth of the modern dealership, pay plans have been heavily commissioned to maximize sales gross and vehicle volume. This approach has worked for Baby Boomers and Gen Xers, but it’s no longer working for millennials-who now make up the majority of today’s workforce. With Baby Boomers retiring at an accelerating rate, and Gen Xers settling into mid-career trajectory, appealing to millennials is the only way dealerships can stay relevant in a new connected economy.
But how can you retool your current pay structure to appeal to today’s millennial job seeker?
Introducing The Base Plus Bonus Plan
There is a willingness for dealers to shift to a base pay plus bonus plan, but the base pay is not enough incentive to lure millennials into the retail automotive industry.
Can Your Salespeople Afford To Work For You?
For most markets, $3,000 per month is the minimum salary expectation for the average automotive salesperson. If this seems like a shock, it’s time to become familiar with other sales roles outside of retail automotive. There are a lot of other companies competing for the same entry-level sales candidates and luring them away from the automotive industry.
Companies like Enterprise Rent-A-Car provide first year on-target earnings of $36,000 annually. Management trainees, the entry-level role within Enterprise, are paid hourly and earn overtime most weeks. Similarly, many entry- to mid-level sales roles offer a base of $36,000 on a plan to make $100,000 a year.
In most markets, making $3,000 a month is a livable wage- that’s monthly take home pay of roughly $2,200 before insurance. After accounting for housing ($1,000), a vehicle ($300), insurance ($150), and student loans ($250), your employee is left with $500 for all other expenses including food, entertainment, savings and retirement. Falling below this $3,000 guarantee and the financial burden becomes too heavy and the employee/candidate will disengage.
Rethinking Compensation To Attract Top Sales Talent Back To Dealerships
Beyond this baseline wage, a ‘good’ salesperson can expect to make more than the $3,000 monthly minimum, making between $40,000 and $45,000 annually before OEM spiffs and bonuses. But while this is a livable wage, the 70% turnover rate from these roles show the potential to make higher compensation alone isn’t keeping people in dealership sales roles.
What if you could get your team rallied around selling more units and encourage them to stay with your dealership longer – without needing to pay additional bonuses or commission to do so? Sound too good to be true? It might take thinking outside of the tried-and-true automotive compensation approach to understand this opportunity.
Instead of the all-or-nothing approach to sales, guarantee that you’ll pay each member of your team a base salary of $36,000, with the opportunity to earn an additional $10,000 – $15,000 for additional units sold. With this new compensation model, you can dictate that each salesperson sell a minimum of 10 units a month in order to stay with the dealership. Since you are carrying more of the financial burden, it is easier to dictate behavior. Sales reps become more accountable for activities and tasks which will increase collaboration and productivity.
Why This Shift In Compensation Works Well For Dealers
Under this plan, compensation is more attractive to non-auto candidates and payroll expense is more controlled. By eliminating or reducing the variable component of the plan, you are able to project monthly costs more effectively. Dealers that have implemented this plan saw a decrease in compensation as a percent of gross due to the break even being fixed. The key to maximizing this plan is to hold the reps more accountable for production. The 4 car rep is going to cost you money, the 8 car rep will be cost neutral and anything over 10 is pure profit to your bottom line. The higher you can push the average units up per person per month, the more money you make.
If you’re prepared to structure this new compensation plan for your team, begin planning for the 10- to 12-car expectation of every salesperson to balance fair compensation and sales goals to keep your business moving. This takes a total store commitment to training AND accountability. You are not paying people to stand around and wait for business. Structure, planning, communication and collaboration need to become cornerstones of your operating model.
Every day should start with a huddle where activities are outlined, goals are discussed and a commitment is made to production. Role plays should be completed prior to customers arriving and debriefs about missed opportunities should happen immediately after customer engagements. Production and activity should be top of mind for all employees from the GM down to the newest sales representative.
Appealing To Millennials
As of today, less than 10% of dealers are using this strategy to boost the base pay for entry-level dealership roles while setting the unit expectation higher for all employees. Those that have are seeing great success, and it’s not a surprise why: Plans offering a $1,500 ‘base’ plus bonus are just no longer compelling to millennials who are seeking consistent pay with a variety of other career options outside of retail automotive. For these candidates, a $1,500 base is not going to pay bills, and simply does not reduce financial risk enough to make the position worthwhile.
There are other qualitative benefits to the base pay transition. Shifting to a more consistent pay program will give your team a strong piece of mind. Instead of the stress of worrying about their bills and performance, they can focus their energy on selling to customers without being pushy or overly hostile. This should improve customer interactions and may actually drive significantly more business as customers are beginning to seek out businesses that strive to provide top-caliber experiences and support.
If dealers truly want to attract today’s job seekers, they need to rethink the compensation conversation.