All photos by: Jeff Lazewski
No one compensation plan that is going to work for every dealership, but knowing what has worked at other dealerships can help identify what may be adaptable to your dealership. As market conditions change, it’s important to regularly assess your dealership’s sales compensation structure to ensure it is working for the business.
For Zane Watson, sales manager at Farmers Implement & Irrigation, that means implementing a plan that ignites sales while also incentivizing behavior.
The 2-store New Holland dealership based in Brookings, S.D., tracks its sales team's activity logs and ties that activity to each salesperson’s compensation plan. The activity logs were added to the compensation plan, Watson says, because for 2 years he asked the team to log all their activity and they just wouldn’t do it.
“We finally had to put teeth in it so they would actually get it done,” he says. “Making it part of their pay plan makes them use the CRM better.”
Zane Watson is the sales manager for Farmers Implement & Irrigation, a 2-store New Holland and Kubota dealer based in Brookings, S.D. The dealership rolled out it's washout cycle based compensation plan in 2020. The new program "keeps our salespeople actively working to move trades that they could otherwise lose interest in selling," he says. "Since the new comp plan was implemented, our used inventory turns move faster and at a higher margin than ever before. The plan also incentivizes the team to make better trades with a closer eye on reconditioning costs."
He says 25% of a salesperson’s commission is based on the call log piece of the plan. Breaking it down, the salespeople must log all customer contacts daily in a CRM.
Points are assigned to different contact types, with the minimum points required being 20 on a daily basis.
For example, Watson says 1 point is recorded for a phone call or an in-store visit and 3 points are given for farm visits or trade inspections. Finally, 5 points are given for the close of a sale.
“It’s very attainable,” Watson says. “You could stop at 5 places and that’s 15 points, and then 5 phone calls and you’re done for the day. But I have proof that the number of call points definitely determines the number of sales.
“A lot of times, your points will add up to around 400 a month, depending on how many weekdays there are. I had a salesman that consistently would hit 900. He outsold everybody 3 to 1.
Back (l-r) Steve Beyer, Farm Equipment; Austin Taibemal, Tractor House; John Kennedy, Axon Tire; John Elder, Dawson Tire; Craig Lee, Geringhoff; Tyler Hobson, Iron Solutions; Joe Bryce, Finance Scope; John Boiling, e-Emphasys; Kim Schmidt, Farm Equipment. Front (l-r) Matt Coatman, TractorHouse; Jake Firkins, BigIron; James Massengill, Laforge Systems; Chanse McGuire, Basic Software Systems; Tim McGuire, Targit, Kenny Smith, AgDirect; Tammy Richards, Dealer Information Systems; Roger Murdock, Montag Manufacturing.
"Consistently following up with your customers, making sure that you’re contacting them definitely is going to make a difference in your sales. It does not matter what the market is.”
At the end of the month, Watson goes into the CRM to score all the salespeople based on what they’ve logged. The whole process only takes about 5 minutes, he says.
Farmers Implement had to set up contact types in its CRM, but with that addition it is easy to see how many calls, follow-up calls, etc., each salesperson made. Watson says the program has helped him as the sales manager know what the salespeople are doing and ensuring that customers are being contacted in the way management believes they should be.
Making a Straight Salary Comp Plan Work for Your Sales Team
Salem Farm Supply takes volatility out of comp plan & focuses on long-term value & relationships.
For Salem Farm Supply, the diversity and volatility of its market influenced the dealership to go with a fixed salary comp plan. Pierce Randall, sales manager for the 2-store Case IH dealer in upstate New York, says that while the base of the plan is a fixed salary, it does vary from salesperson to salesperson based on experience and sales history. “It really depends on their experience, depends on their attitude — that’s a big one,” he says. “We work hard every year to review those salary expectations and make sure that we're remaining competitive with where we need to be.”
Pierce Randall is the sales manager of Salem Farm Supply (2015 Dealership of the Year). The 2-store Case IH dealership in New York uses a straight salary compensation plan that also incorporates bonuses.
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For instance, he can make sure that A accounts are being contacted on a more regular basis than B or C accounts, he explains.
“The system seems to be working quite well now that they have to log their calls,” he says.
“It’s important because the service department, parts department, sales department, accounting department — they all rely on those call logs to know what’s going on with a customer.”
One Size Does Not Fit All: Custom Pay Plans that Work
Virginia Tractor creates customized pay plans for all new hires based on experience, motivation what’s best for the dealership & individual DEL Virginia Tractor, a 6-store John Deere dealer that covers Virginia and West Virginia, has found that it can’t have cookie cutter compensation plans for its 24-person sales team. DEL Federico Lamas, vice president and sales manager, says any compensation plan needs to work both for the salespeople and the dealership. “The greatest pay plan in the world accomplishes nothing if it's not properly supported and endorsed by the company leadership. So it starts at the very top and it trickles on down to your people.” DEL Lamas has found that because of the differences in experience and motivations, he has needed to create customized compensation plans for each member of his team. DEL While there may be similarities in each plan, they are all different. Most of the plans are salary plus commission and are based on gross profit. Where the differences come in is the commission structure.
Federico Lamas is vice president and corporate sales manager for 6-store John Deere dealer Virginia Tractor. He specializes compensation plans to each individual salesperson.
To read more, click here.
When asked if salespeople can fudge the numbers, Watson acknowledges that it can and does happen. “Eventually, they’ll get caught,” he says.
“They might take a year, but eventually the sales don’t add up and your close rate is not what it should be. And you start digging into it and you find out what’s really true.”
Washout Cycle Ties
In addition to tracking call activity, Farmers Implement also pays straight commission tied to the washout cycle. “What that means is we can improve our inventory turns and sell our used equipment faster,” Watson says.
This aspect of the plan holds the sales team accountable because they don’t get paid their commission until the last trade is gone. Watson says this helps align the sales team with the dealership’s goals and fosters teamwork.
“We try to do a zero-365 with no inventory over a year of age, and it improves the teamwork among the team,” he explains.
“A lot of them, if I’m selling your trade, it works out way better. We can work together. We meet on a weekly basis. If we know we have a trade coming in, we might have a salesman that says, ‘Hey, I got somebody for that’ — it goes right back into that pre-selling of trades.”
What’s a Washout Cycle?
A washout cycle, as described by Casey Seymour of Moving Iron, is the number of units generated from the sale of a new machine until the last used unit does not generate a trade. “It is a dealership’s ability to sell the used equipment generated from the sale of new equipment and have a clear understanding of the volume of used equipment it can digest in a given amount of time,” he says. The washout cycle is the best method for controlling current and future inventory, helps predict effects on ratios and matrices based on current sales situations and helps predict what will happen if the market turns up or down. For more on the washout cycle, click here.
Watson explains it like this: Salesperson A sells a new unit and gets a $10,000 margin on the trade and then sells that trade-in unit for a $20,000 margin. Salesperson B is going to take the trade-in from the last sale with a margin of $25,000. But, salesperson C sells the 3rd trade at a loss of $10,000 in margin. The total margin available for commission is $45,000.
“We’re paying on commission,” Watson says. “Who wants to sell a machine that has no paycheck? Salesperson C didn’t have anything to do with it, but he’s still going to get paid because they take the total margin dollars.”
The payout is 20% of the margin, so in this example $9,000. Salesperson A gets half the commission ($4,500) and the other two, B and C, each receive $2,250.
To help keep salespeople from becoming complacent, Farmers Implement also has a bonus structure as part of its comp plan.
Watson says after $300,000, salespeople start to receive a bonus of up to 1% of what their total margin is. “Where we’re at, we figure that $300,000 is the threshold for bare minimum,” he says.
“If you’re not moving $300,000 worth of margin, it’s questionable if you’re working a full week.” So, if a salesperson sold $350,000 worth of margin, Watson says he is going to get 1% of that — or $3,500 — at the end of the year.
- Watch the full Dealer to Dealer Panel, “Compensation Plans that Ignite Sales,” from the 2023 Dealership Minds Summit. This and all the Summit videos are brought to you courtesy of DeLaval. Click this link for more articles on dealer compensation plans, including: