Question: I am curious about how your salespeople own inventory. Do they have their own set of books? I did not quite understand that.
Answer: They do. They are responsible for their trade. They have a certain level of authority to come up with their trade value. We have a system in the background that is a completely different topic. But they set most of their bookings. There is an approval process that we have. Then that particular piece of equipment stays in their inventory.
When the reserve amount comes out of each deal, it goes into essentially an insurance policy. It ensures that I know they are going to move their used equipment because they want to get paid out on that margin quarterly as long as they have a 3.75 turn.
We are tracking that. If you traded for 5 pieces in our quoting tool, you will see on your home screen that these are 5 pieces you own. You will know how old they are. Then quarterly, we will pay that reserve out to you if you continue to move your used equipment.
It gives them a lot of incentive to buy it first, and secondly to pay attention to it daily. And, because they are getting paid out on that reserve dollar as margin, it helps their store. The sales manager or store manager, which essentially is a sales manager as well, is constantly on him or should be, if he is doing his job, to capture those dollars.
Question: On that reserve, I am assuming you guys did not have one and then you implemented it. How did you get the buy-in? Was it that opportunity to earn it back? Because I am sure the salespeople…
Answer: Well, I remember when it was implemented. Not a happy camper here. But the effect of it was perfect. It was not my plan, but I have had to implement it and live off of it, so I understand it very well. Nobody is going to be happy when you do that because they see it as taking a percentage of their margin away.
It had two effects. Let us say a salesperson was used to making an average of 6%, and he still wanted his 6%. Now, the company made one more percent or any percent you put on top of that, resulting in us making more money. We are going to stretch the margin out which is what we all want to do. We want to try to ask for more from the customer but is ultimately something we fail at.
Then it also made him look at that trade-in and say, “Oh, man. I want to get my 1% back.” It had great effects on both sides. No, no one was happy about it at first. We had a lot of conversations, salesperson to salesperson, about quitting mostly. I am glad I did not.
Question: Do any of your sales managers sell equipment, too? Do they generate trades in your business? Or do all sales go through a salesperson?
Answer: We do. Personally, I try to do as much as I can … I do not want to be in competition with the salespeople that I am trying to manage, but I do maintain accounts and I am responsible for my trades as well. I am not paid exactly the same, but at the end of the day, we are all paid off of used equipment turn.
Question: If they sell your trades, is there compensation for them?
Answer: We have splits. We will split the profitability within 60 days. But after that, it is not that hot.ave
Question: Could you explain how a salesperson can sell someone else’s trade? How does it become split that way?
Answer: Any salesperson can sell any piece of equipment in our inventory at any time. Salespeople under our plan are encouraged to market their piece of equipment externally and internally in the company. I am sure we all have a sales team with different levels of ability. Let’s say we have one salesperson who goes out and looks at equipment and always puts too much in it. They do not look at it correctly. The brakes are out, and the clutch is gone when they trade for it. Those guys are usually ostracized inside our company. Everyone knows that this is the guy that makes the mistakes, so everyone helps get him up because his used equipment sits.
Within the first 60 days, we protect that salesperson who made a good trade. We encourage them to move money to the back end of the deal, obviously to get their reserve payout. We do not want someone coming in and cherry-picking those good products. Within the first 60 days, we let them split that commission.
After that, it gets to a point where it is time to move that product. There is not enough margin in it to make everybody excited about it, so that is how we do it.
Other Related Content:
- Our Dealer Story Podcast: H & R Agri-Power (Wayne & Steve Hunt) https://www.farm-equipment.com/articles/16713-podcast-our-dealer-story-hr-agri-power
- Compensation Plans: A Tale of Two Dealerships https://www.farm-equipment.com/articles/17540-compensation-plans-a-tale-of-two-dealerships
- H&R’s Valuation Process Minimizes the Risk That Comes with Trade-Ins (David Gibson) https://www.farm-equipment.com/articles/14651-hrs-valuation-process-minimizes-the-risk-that-comes-with-trade-ins