By Ed French
Most Sales Managers know what each vehicle in inventory costs the dealership… even the daily carrying costs. The high-performance sales manager will also know the somewhat hidden costs associated with each salesperson under his supervision. So what is your “Cost per Salesperson Chair?”
Let’s create an example for illustration purposes:
Total New & Used Expenses $300,000
Less Salesperson Compensation of $60,000
Leaves us an Adjusted Sales Expense not covered by commissions etc. or $240,000
In our proforma example we have a salesforce of 15 individuals.
Divide the Adjusted Sales Expense by the number of salespeople.
The Cost Per Salesperson Chair in this example comes to $16.000/month
Your “Cost per Chair” refers to the other expenses that are not related to compensation of the salesperson.
When we typically speak of salesperson metrics, we mention measurements like…
Total Gross Produced
A more complete view is to look at the costs that the dealership incurs so that a salesperson has the infrastructure needed to make those revenue producing transaction happen.
So to begin, you need to identify all Expenses related to New and Used Sales. In our example above, this was determined to be $300,000.
From this gross figure, subtract all Compensation related to New and Used Sales. In our example $60,000
This leaves us with an Adjusted Sales Expense; not covered incrementally by the transaction. In this case $240,000 that must be accounted for.
In our example there are 15 salespeople. Divide the $240,000 by 15 and we find that (in our example) it costs this dealership $16,000 per month per salesperson to make the “machinery” required to support the salesperson’s activity.
What is that “Cost per Chair” in your dealership? Run the numbers, you may be shocked.
Now that you have and know that Cost per Chair, you need to evaluate each person occupying one of those chairs and to determine if they have what it takes to produce the sales necessary to cover your Cost per Chair. Please keep in mind you must cover this cost just to break even.
If you consider each salesperson a Profit Center… then it is reasonable to calculate your Return on Investment. Breakeven is not why you are in business… you want a measurable return.
In our example, if this dealership seeks a 30% Net to Gross, you must add that 30% to the Cost per Chair (in the example $16,000). To reach the Net to Gross target, each salesperson must produce $20,000 to cover the Cost per Chair, including a return for the dealership.
You could address insufficiencies in this area by looking to cut your costs. This is always a necessary part of business. But, more commonly, the capacity of the salesperson to reach these goals is more related to a lack of tools and raining.
If you want to improve the bottom line, spend time and resources teaching and training the salesforce. After supplying the Tools and Training, if a satisfactory Return on Investment cannot be attained by the salesperson… consider replacing them.
Do employees “sitting” in that chair know what you need in terms of production of gross?
Is your training plan “robust” enough to achieve this gross goal?
Is your sales process “efficient” enough for your people to easily create the throughput needed to achieve the goal?
Ed French is the author of a remarkable new resource… Advanced Guide to Pre-Owned Success. Ed takes you step-by-step through what it takes to compete in the digitally efficient used vehicle business of today. See the details at https://www.dealersedge.com/french1. If it is your goal to adapt, compete and expand your Used Vehicle Departments… this is the “How to” of 2020 and beyond.
Edward French's career spans over 30 years of executive automotive experience. Today he serves as President of Auto Profit with a focus on dealership turn-around and profit expansion. He assists his dealer clients with financial management, process improvement, leadership and profitability. Currently, he serves on the Board of Directors for TruWorth Auto, a digital first, pre-owned group. He has served as NADA 20 Group Moderator and as Director of Operations for Community Auto Group. He is a graduate of Purdue University.