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Developing a compensation plan

April 19, 2004
Filed under Archives

Since money is quite often a big motivator, many dealers have found that a good commission plan offers both the salesperson and the dealer the best results.
The most common plan in use is that which pays a commission on each unit sold. The commission is most often based on a percentage of the gross profit on each unit.
Compensation Plans There are a number of different compensation plans which are popular in powersport product retailing. Be sure the one you select or design fits your dealership’s plans well.
Here are some typical compensation plans:

  • Percentage of gross profit per unit.
  • Percentage of total selling price.
  • Graduated percentage levels changing as gross profit or selling price increases (10% of the first $1,000… 20% of everything above that, etc.).
  • Salary plus a small commission.
  • Established flat fee per type of product sold.
  • Hourly wage plus special bonus package based on performance.
  • Percentage of Sales Department profit.

Keep The Plan Simple And Put It In Writing It is very important to remember these next two points. First, keep your compensation package simple and easy to understand. Second, always put it in writing. These points will help ensure that your salespeople feel confident that the dealership is being completely fair and honest in calculating their pay. One thing you want to avoid is unhappy salespeople who feel they’re being poorly paid or cheated out of money they feel they’ve earned.
Follow Your State And Federal Laws If your salespeople are full-time employees, they are covered by federal minimum-wage laws and other regulations. They must be guaranteed at least minimum wage, must be paid time-and a half for all hours over 40 hours per week, etc.
In order to comply with these regulations, it is not uncommon for a dealership to give its salespeople a “draw” twice a month. A “draw” is an advance against future commissions. The dealership then pays once a month on commissions earned over the draw.
Develop Your Own Special Incentive Programs The most effective incentives used to motivate salespeople are spiffs. Spiffs serve the dual purpose of delivering instant recognition and an immediate reward.
A spiff need not always be money. Often, dealers reward sales efforts with gift certificates to local stores or mail-order companies, dinner for two at a nice restaurant, even expense paid trips for exceptional results. Just remember that spiffs, regardless of the form or manner of payment, are considered income and thus taxable. Check with your accountant for the particulars and be sure to inform your salespeople up front of any applicable taxes.
Spiff programs can be effective motivators for a number of purposes.These can include:

  • As a reward for the salesperson who produces the highest total gross profit, the greatest number of units sold, or both.
  • To motivate salespeople to sell older or hard-to-move inventory.
  • As reinforcement for advertised specials.
  • To promote units that carry factory to-dealer rebates.
  • As incentive for selling demos, consignments, or repossessed units.
  • As a reward for making the first sale of the day (weekend, month, etc.).
  • As a reward for moving units on traditionally slow selling days.
  • To give added incentives for getting a customer to a certain point in the sales process. One dealer gives spiffs for writing up a customer. Another has a point system and gives a point for each customer on the customer log. Still another has a bonus for sales arising from kept appointments.
  • As an incentive for promoting the dealership’s Finance and Insurance programs to customers.

To get the most out of your spiff program, keep these seven important points in mind:

  1. Make sure every spiff program or contest is fair and equitable to all participants. li>Always pay promptly.
  2. Present spiffs and gifts at sales meetings. The added recognition means your expenditure will go twice as far.
  3. Pay spiffs in cash whenever possible. Cash carries a much greater impact than a check. (Be sure to check with your accountant about having your salespeople sign vouchers for the purposes of taxing these cash payments).
  4. Alternate the spiff programs on a regular basis to keep things fresh and interesting.
  5. Whenever using a points system, use a bulletin board or other visible method so that all salespeople can track their progress. It also helps make them more competitive. They’ll try harder to beat the others.
  6. Above all else, make sure the spiff program or contest is simple and easy to understand. psb

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