As you would probably surmise, I get called in often when departments are losing money – usually big dough. The onset of a typical rebuild is launched by examining personnel expenses, which as you well know constitute the largest one group of expenses by far. Over the years, I have watched this category creep upward unconstrained, while the bottom line has taken a nose dive to a proverbial face plant for way too many otherwise good operations.
One Size Fits All
And no department is immune from this overtaking. Even sales person comp as a percent of gross profit in new and used sales, thanks to the unbelievably low front gross per unit most are suffering, is higher than I have ever seen it. And that’s over 40 years! Instead of one or two phone operators, we invented misnamed so-called “Business Development Centers” consisting of two to four, along with the one or two phone operators. Instead of sales personnel and assistant service managers (writers) catching calls from operators, a costly staff steps in for the interception. And in due time, this assemblage has to have a well-paid manager-ish. Frankly, I just don’t see many earning their pay, let alone generating actual additional income as was the original plan.
In many cases we have further peeps to handle loaners, car washes, shuttles, transfers, swaps, filing, scanning, warranty, cashiering, web-building, picture taking, lot maintenance, human resources, customer relations, as well as those who pick up the ongoing plethora of consultants, trainers, pundits, fixers, motivators, and truth-tellers regularly showing up for various departmental guidance. As I recall, when I started in the business, most if not all of these additional personnel expenses plus benefits (there were few then) didn’t exist at the dealers I worked for and with.
I recall sales people doing lot duty, on phone assignment, doing swaps, washing vehicles, and the ASM staff answering the phone, cashiering, quality control testing, and coding warranty. Managers handled customer relations, techs cleaned up, parts drivers worked in other departments shuttling and doing bank runs; while vehicle washing was only done when a large job was completed (i.e. engine rebuild). There were regular and consistent in-house meetings to review important factory correspondence and training, since there were no email or texting faculties. Parts and service swapped an administrative person to post parts and warranties, and since most parts people came from the shop, parts and service was essentially one big cooperative department. Sales people were the BDC by assignment, and since most ASM’s were technical, highly respected blokes, educating benefits and consequences created purchases upfront – no follow-up needed. And, dealers literally owned the service market – no way, yes, way.
So, back to today mi amigo. When I am examining a struggling operation, staffing numbers and related payroll are at the top of the list since that is where most of the bill-paying monies are drained. When the personnel expenses are taking an overwhelming amount of the available gross profit, the obvious thing to look at is the number of employees, their “necessary” duties, and how their pay fits a typical budget for those responsibilities. One view of this act is to have each support employee write down what they actually do and what percent of time of their whole day they spend doing it. The times I employed that technique always provided surprising results (at least to management).
Budget? That’s a car rental company
The reality is most managers don’t manage numbers with a tangible budget in mind. Hiring is done by surmised need and pay plans written based on sketchy data, seldom calculated with both the best and worst-case scenarios reviewed with the employee. Explanations to new workers are covered once and calculations often hidden or not understood after that. I am sad to say that more than half of the employees I interview do not fully understand their pay plan. Too often I get this type of reply: “Pay plan? I donno it. I just get a check dude.” How motivated by the concept of “pay to perform” do you suppose these minions are? So, I find unfortunate over-expense bad enough; but also paying no dividends when the receivers don’t have intimate knowledge of the formula they are being overpaid on.
Many reading this discourse will be getting emotional thinking that paying the amount they designed was necessary to attract the right performer (you don’t understand Ed). Since there are so fewer capable bodies these days, paying to the so-called market-pay is the only answer. I get that, but I also witness plenty who aren’t in the same over-expense box because they insist on growing their own capable and loyal players, and they pay attention to a planned budget of expense. Employees who are content aren’t looking for the next buck; however, when managers hire outside and overpay, they usually inherit that attitude, and the itch continues. I see plenty of continuous turnover when a different approach years ago would have solved the management challenges ongoing. I also fear the outsider’s contamination of the loyal insiders – you have seen that if you have one awareness bone in your worn body.
Easy To Say…
Well, I have covered a lot of thought here. Clearly, establishing a program of training, continuous assessing, coaching, and promoting within to minimize outside hiring is the better approach to future filling of positions. Secondly, keeping a reasonable budget in sight when developing pay plans, including making a thorough study of the expected, worst, and very best results before presentation is smart. Regarding budgets, I have developed a simple Excel worksheet measuring service and parts individual key pay plan results versus reasonable budgets for key support personnel. Just email: Ed@NetProfitGroup.com and put on the subject line, “Gimme Pay Versus Budgets, Dude” and I will send it along. If you don’t like my budgets, make your own – those cells are open – but at least make one you can pay for and still make a profit. Losing money isn’t an option I have found, at least one that can be sustained.
Author: Ed Kovalchick
Ed Kovalchick is the CEO and founder of Net Profit Inc., Alabaster, AL, an international fixed operation consulting and training firm located in Alabaster AL. Mr. Kovalchick and his firm have assisted hundreds of dealers and manufacturers, and conducted workshops throughout the world for thousands of students since 1979. He has written columns for Dealer Magazine since its inception.