Conventional management wisdom suggests that calculating monthly sales per parts employee is the method for determining when another employee should be hired. But there's another, better way to figure that.
Conversations with folks at one store suggest a monthly figure of $32,000 to $33,000 for sales per parts employee. Other sources may recommend slightly higher sales and gross figures, and your particular dealership or dealer group might have a standard of its own. Also, there is the question of the average dealership versus the high-line dealership.
First, let me address the issue of using sales-per-employee as the guide for determining when to hire a another person. While this method does have its uses, I don't recommend it.
Look at the following example:
|PARTS DEPT. A||PARTS DEPT. B|
|Prior Monthly Sales||$100,000||$100,000|
|Total Dept. Employees||3||3|
|Dept. Gross Retention||32%||40%|
|Cost of Sales||$68,000||$60,000|
|New Monthly Sales||$134,000||$134,000|
|New Cost of Sales||$91,120||$80,400|
Parts department A and B both have prior monthly sales of $100,000 with three employees. However A has a gross profit retention of 32% while B has a total gross profit retention of 40%. Both departments increase sales to $134,000 per month (see New Monthly Sales table) retaining the same percent of gross profit.
Accordingly, A's cost-of-sales (sales minus gross profit) is $91,120 while B's is $80,400. That's $10,720 less than A's. The problem is both departments would probably be considering adding a person to support the higher sales of $134,000 if they used the formula of calculating monthly sales-per-employee.
This example indicates A has a real need for another person while B has a seemingly exaggerated need due to its higher gross profit. In essence, the higher gross profit retained by B distorts personnel requirements. Basing staff size on sales alone can result in overestimating or underestimating personnel needs.
I recommend that parts department staffing requirements be based on cost-of-sales per employee rather than just sales-per-employee. The first is a more precise productivity gauge because cost-of-sales per employee relies strictly on volume of goods sold, and cost-of-goods sold is the same for all customers.
Furthermore, unlike sales-per-employee, phantom influences such as increases or decreases in profit margin or changes in discount structures have no affect on cost-of-sales per employee.
To calculate for cost-of-sales per employee divide the total cost-of-sales for the month by the total number of employees.
I recommend the following staffing guidelines: Non-high-line dealership parts departments and those with mixed brands use $22,000 cost-of-sales per department employee; high-line dealership use $25,300 cost-of-sales per department employee. Special conditions and circumstances may warrant adjustment.
Applying this method for determining parts department staff size to the example in the table at left reveals notable difference.
Using the non-high-line guide amount for cost-of-sales per employee for parts department A indicates that the prior cost-of-sales of $68,000 supports three employees ($68,000 divided by $22,000 equals 3.09 employees) and the new cost-of-sales of $91,120 for department A supports four department employees ($91,120 divided by $22,000 equals 4.14 employees).
On the other hand, parts department B to some extent would be overstaffed. For B, using prior cost of sales of $60,000 there is a near-potential need for a third person ($60,000 divided by $22,000 equals 2.72 employees).
Likewise, with the new monthly sales of $134,000 and with a cost-of-sales of $80,400, B would not quite support four employees based on the calculation of $80,400 divided by $22,000 equals 3.65 employees. Using actual new monthly sales of $134,000 in the calculation (instead of $80,400 cost-of-sales) misleadingly indicates otherwise.
Hiring another employee based on the new monthly parts sales of $134,000 could mean adding an extra person prematurely.
Gary Naples is a parts consultant to dealers and manufacturers. He's authored two books on parts management. He's at 570-824-1528/Gss83@aol.com.