During the New Years Eve celebrations, my wife and I were watching the Times Square festivities when one of the commentators gave a list of people's top New Year's resolutions for 2011. The top three were:
- Save more money.
- Lose weight.
- Quit smoking.
My wife asked, “What are your resolutions for 2011?” I replied, “Since I don't keep them I don't make them.” She said, “That's terrible. You need to do something for self improvement during the new year”.
So my resolution was to write more articles in 2011. So here goes, a bit late.
With the No.1 resolution being to save more money, let's look at fixed-operations sales and expenses.
How much did it cost you to produce $1 of sales in your after-sales department this year. Complete the form below and see for yourself.
Facing an array of operational details, we sometimes lose focus on the fundamental profit structure of our business. Sustainable profitability plays an essential role in the way after sales are designed and structured. All structure has to focus on two fundamentals: Customer retention and profitability.
To increase profitability, some of the structural options are:
- Increase sales.
- Control cost of sales.
- Increase gross-profit retention.
- Decrease expenses.
The area that I would want you to focus on is expenses in your after-sale department.
A tracking expense is where, regardless of what happens to the sales, the expense or compensation tracks proportionally. Percentage-type pay plans are usually considered a tracking expense.
For example, if a 5% commission on parts and labor sales is paid and there is an increase in parts or labor sales, the expense or commission always tracks at 5%.
A non-tracking expense is just the opposite of the tracking expense. The expense will track disproportional to the sales line so that when sales increase the expense will remain the same or decrease disproportionally.
Consider this when it comes to pay plans. They are either tracking or non-tracking, and can be designed to be either structural or operational.
A structural technique is where the service advisor is paid on the number of flat rate hours produced. Since this information is recorded on a daily basis for the technicians, it takes little or no effort to provide this information to the service advisors.
Since the process of recording and accounting daily flag hours is structured, management's responsibility is to pass the information on to the service advisor.
An example of an operational technique is where a commission is based on reaching different levels of parts and labor sales. A different percentage of commission is paid according to the levels achieved.
The manager performs daily sales projections and meets with the service advisors to share those projections. The manager must intervene on a continuous basis for this type of plan to have a cause-and-effect relationship.
Part of a pay-plan design is expense control. How well we do this job has long-range implications to the financial statement. Let's examine the pay plans for all of our after sales team members and see if we can't make relative improvement.
I'll be writing more on this subject in future installments so please stay tuned.
For those of you who want the electronic spreadsheet for the cost to produce $1, or if you have additional questions, contact me at 1-800-692-2719 or firstname.lastname@example.org.
David Linton is chairman of Applied Transportation Concepts (ATcon), a fixed-operations training firm, and is an owner of OnCourse, a training development company.