Fred Titensor, C.O.O. Valley Implement explained how his dealership’s compensation method still successfully works with a negative initial margin (see spreadsheet example below). “This might be a case where there was a work order overrun,” he explains. But as seen in the spreadsheet the dealership and sales team can make up ground with the same system, without needing to settle things individually with each salesperson.
As described in “Compensation Plans: A Tale of Two Dealerships, Valley Implement’s concept works by booking zero profit margin on the front end of the deal. Other salespeople are encouraged to participate in moving the next pieces and to “get in” on the shared pool.
So, after two deals at negative margins, a New Holland 7740 tractor came into the picture which was brought onto the books at a negative $6,224. “We think it’s going to bring $19,000. Once the guys sell it, there’s going to $7,062 in margin that will be split up 4 ways for $1,765 each.”
Those negative-margin trades are moved so fast they’re never on the books for more than 30 days, Titensor says. “Those last ones move really fast.”
The system works in a negative margin situation and encourages speedy resolutions, always with 30 days, as the sales team understands the opportunity to once again, participate in a 4-sale deal.