Manufacturers have been offering incentives — or sales performance incentive funds (SPIFs) — to salespeople for years, but some dealers note that they have gotten increasingly larger in the last few years. “When the incentives were relatively small — $200-$300 — it was not as big of a concern.
However, when they get too large — more in the $2,000-$3,000 range — then we must make sure the deal makes sense for us [the dealership], not just for the manufacturer and salesperson,” says Mark Foster of Birkey’s Farm Store based in Bloomington, Ill.
“Manufacturers see these bonuses as SPIFs. Salespeople see them as regular income that they rely on to pay their bills. This is what makes this such a sensitive and complicated subject …”
Ron Straub, Straub International in Great Bend, Kan., agrees. “There have been some times where a company put out $2,000-plus bonuses and that is just too much of an influence. One thousand dollars should probably be the maximum bonus paid,” he says.
Bonuses hadn’t been a problem for Middletown Tractor Sales in Fairmont, W.Va., until recently.
“In previous years, the bonus might be $50-$100 and was on an item that a salesperson might sell 4 of per year. It has more recently been placed on items that we sell hundreds of per year, and boosted in value to $300,” says Jim Boyers of Middletown Tractor.
Opinions on how dealers and their employees feel about manufacturer paid bonuses range from loving them to hating them to tolerating them at best.
Depending on whom you talk to within a dealership, the way manufacturer incentives are viewed can vary dramatically. Salespeople who replied to a survey conducted by Farm Equipment, for the most part, openly supported the programs.
Dealer principals and managers were a bit more skeptical of the programs, despite many accepting them. “The salesmen love them, without a doubt. However, I’m not certain they do a great deal to stimulate sales that are the most profitable to the dealership,” says Julie Kinne of Columbia Tractor in Claverarck, N.Y.
Bill Seaman with Bremner Farms Ltd. in New Brunswick, Canada, says this is the most hypocritical subject he’s faced during his many years in sales. And while he enjoyed the extra cash, he believes incentives should be paid through the dealership. The sales manager should monitor the programs and work with the salesperson before a deal is presented to a prospective customer, he says.
“The present system seems to imply that the manufacturer does not trust the dealer (and sometimes, probably rightly so). They get by this to move their product to super motivate the salesman,” Seaman says. “That being said, the only way that this practice would be reformatted, or done away with all together, would be for all manufacturers to agree to make the change at a single time, an event I think would be quite unlikely.”
These types of programs can help motivate some salespeople if the bonus is high enough, according to Eldean Reinke of Reinke’s Farm & City Service in Neligh, Neb. But, he warns they need to be monitored closely. If they’re not, salespeople have a tendency to put more into the used. “As a dealer, I do not believe these bonuses are a good decision,” he says.
On the contrary, Dale Martin, Deer Country Farm & Lawn who is paid a base salary plus commission, loves the bonuses. “Our main line manufacturer (Deere) has for the last several years put substantial sales bonuses on sub-compact tractors where they are looking to aggressively grow market share. Our dealership has encouraged the sales staff to go after every deal that makes sense, even to the extent of working with a slightly lower margin than normal for this segment. We, as salespeople, get the sales bonus from the company to more than make up for the lower commission we earn up front on the sale. In a few cases, the Deere bonus equals or exceeds the earned commission on the sale, doubling the amount of money we earn,” he says.
While Brant Bingham of Mesa, Ariz.-based Bingham Equipment, doesn’t think anyone would argue that salespeople earning some additional money by selling is a bad thing, he does say there are varying opinions on whether or not they are the most effective way to increase market focus and share.
“Ideally, sales objectives and resulting sales activities would be set at the dealership level using a comprehensive compensation plan that rewards specific share performance. If the plan is well crafted, the salesperson, dealer and manufacturer will all benefit from an aligned effort. Coaching by professional sales management firms and other experts can offer dealers a more long-term strategy for accomplishing market share goals and eliminate confusion caused by having two bosses,” says Bingham.
Shawn Skaggs, Livingston Machinery in Chickasha, Okla., describes the subject of manufacturer-paid bonuses as complicated and sensitive. In “old school” dealerships, he says, many dealer principals or owners often encouraged these bonuses as a way to motivate the salespeople as well as a way for their sales team to make money without the dealership having to pay them.
He says this was particularly true where salespeople weren’t paid on a commission basis. Sometimes it works and sometimes it doesn’t. “This kind of system takes control of what the dealer’s people are selling out of the dealer’s hands and puts that control into the hands of the manufacturer,” he says.
Skaggs says he’s often heard people say they don’t think the bonuses affect what they sell, but he finds that hard to believe. “My boss used to tell me, ‘If you can lie to yourself, you can lie to anyone’ when he saw someone in denial, and that is exactly what is going on in this scenario. These bonuses do have an effect on what your salespeople are selling. It effects some more than others, and if you’ve been in this business long enough you have probably seen both extremes,” he says.
Dave Stalker of Trails West in Benson, Ariz., views the bonuses in a similar way. He says he takes all of the bonuses, otherwise the manufacturers dictate what the sales staff sells, often over another brand that the dealership carries. However, taking all of the bonuses at the dealership level can be a touchy subject, as Kinne of Columbia Tractor points out.
“I know of a lot of dealerships that keep all manufacturer-paid bonuses and do not pass them on to the salesperson. That, coupled with a good commission system, would give the dealer more control over their salespeople, their inventory and the incentives that are offered.
“It all sounds good in theory as long as you are a brand new dealership starting from scratch. We do allow our salespeople to keep manufacturer-paid bonuses/incentives,” she says. “This is not because I believe it is the best thing to do. It’s because we have a lot of good salespeople who view taking those incentives away as me handing them a pay cut, regardless of what other incentives we had to offer them in their place. When I was in sales, I felt the same way.
“Manufacturers see these bonuses as SPIFs. Salespeople see them as regular income that they rely on to pay their bills. This is what makes this such a sensitive and complicated subject. We all want our salespeople to be successful and make money; we just don’t want them to do so at the expense of the dealership’s cashflow or bottom line.”
Spread the Wealth?
A number of dealers who responded to the survey say they accept the bonuses, but either pool the money or divide it among different employees and departments. “Salesman bonuses are viewed in our dealership as a nice little perk for all the hard work that they put in to make the sales,” says Randall Osterbur, Shaff Implement in Urbana, Ill. “That said, we normally divide the total amount up equally during the year between the salespeople involved, as it takes a team effort a lot of times to make sales.”
Reinke doesn’t think the salesperson should be rewarded simply for being in a sales position. Reinke’s Farm & City Service deducts the bonus amount and splits it between the employee and the dealership “because the dealership personnel are really what the
“If it’s not monitored, it could mean lower sales margins for the dealership. It could also mean high trade allowances and a burgeoning used equipment list from overpriced used …”
— Art White, White’s Farm Supply
is buying and all the parts and service personnel should receive that bonus,” he says.
He adds that sometimes splitting the bonus among the staff can be challenging because many companies send bonuses to the salesperson’s home. “We’re never quite sure if and when the money is received and it becomes a bookkeeping problem,” he says.
Instead, he’d like to see a program where the bonus is added as a deduction to the settlement so all personnel receive a bonus for the sale.
“Unfortunately, the manufacturers don’t agree with me. We try and put the business address down as where the bonus goes, but manufactures have started using direct deposit or debit cards to send the bonus, making it very hard to reward the dealership team. It also makes it hard [to calculate] the percentage each department is to get because for some deals the sales department does the work and in others the service department sells the unit or the parts department sells the unit and the sales department only closes.
“The question is this: is the salesperson the only one to be rewarded for the sale or should the team be rewarded and at what percentage should each get? We try to give 50% to the salesman, 25% to service and parts, and management and bookkeeping get none because management is part of sales. Unfortunately, it has not worked out as we would like because of how and where the money goes,” Reinke says.
Are SPIFs Necessary?
Most dealers agree that SPIFs (sales performance incentive funds) aren’t necessary for moving specific lines of equipment, or at least they shouldn’t be. “If you have a good quality product that delivers what is represented and priced fairly, it will sell. If a salesman sells a product line just to get the salesman bonus, he is not worthy of being called a professional salesman,” says Urias Miller of PrairieLand Partners in Andale, Kan.
“There is no bonus big enough that is worth having to deal with an unhappy customer because I sold him the wrong product. That goes against all proper sales processes. The bonus should have nothing to do with what you sell the customer,” he says. “You should only be selling what produces the results a customer is asking for. If that product has a bonus, that’s great. Use half of the money to take the customer’s family out for Sunday lunch and he’s sure to come back and buy from you the next time.”
Kinne of Columbia Tractor doesn’t view the incentives as necessary either when it comes to moving specific lines of equipment at the dealership. Rather, she thinks they are geared more toward the needs of the manufacturer than the dealers.
“I believe the manufacturers have a certain dollar amount they allocate for sales expenses in the form of low rate financing, discounts on equipment that go into the dealership coffer and SPIFs that go directly to the salesperson. I would like to see a shift back to more discounts for the dealer that would result in a lower price to the customer that would generate more sales. SPIFs have gotten too large, to the point they become a factor in the sales negotiations. It’s a great win for the manufacturer. They want us to move their product and are not so concerned with the profit we generate on sales of their equipment,” she says.
Other dealers say the sales incentives are necessary, though. “They are necessary for a number of reasons. First, the margins on tractors and equipment keep getting shorter and shorter. Sometimes, to be competitive with other dealers, it is necessary to take extremely slim profits. If the salesman is paid on commission, it’s not worth the time it takes to properly present and demonstrate the product,” says Jim Overracker, of Abele Tractor & Equipment Co. in Albany, N.Y. “It becomes a price war. The only winner is the customer.”
Overracker adds that the big incentives also attract professional salesmen to the dealership, and they are the ones who can really move product. “For salespeople who are salaried, and work 60-70 hours a week, it offers a way to make a few extra dollars.”
Joe Pavlovsky of PrairieLand Partners in McPherson, Kan., says the sales bonuses are good and help motivate the sales team to sell. “It seems like we all have a tough time gauging the markets because they shift so fast. These incentives help clear out some aged items that we have in stock. If you have these items in stock all ready, it does make it tough to order more of the same units,” he says. “More and more is required of the salespeople and there is so much to keep up with today. This business has gotten more complicated and more competitive.”
What are the Pitfalls?
Despite the motivational benefits, dealers say there are still drawbacks to these types of programs. “You cannot properly manage inventory, especially cashflow, with a so-called manufacturer trying to run your dealership,” says Stalker of Trails West Inc.
“One concern over incentive programs is they put such a high reward on hard to move items that salespeople spend their energy selling the impossible while missing sales on sellable items,” says Tim Brannon of B&G Equipment in Paris, Tenn.
Osterbur of Shaff Implement has a similar concern. “We have to make sure salespeople aren’t spending too much time on the lines that carry a bonus and not putting the effort into the other important lines we sell,” he says. “Salespeople might also get carried away with giving away profit margins to make that sale with the bonus. In both cases, it is up to the sales management team to monitor this.”
Another drawback say dealers is the manufacturer focus — or even the salesperson’s focus — may not line up with that of the dealership.
“Our concern is when the manufacturer’s desires are not aligned with our own, particularly if they are incentivizing new sales at a time when we are under pressure to move used equipment,” says Rob Rosztoczy of Stotz Equipment, Avondale, Ariz.
“Normally, a few hundred bucks is a nice SPIF for the guys. It’s nice that we don’t have to worry about it and the manufacturer handles it. In tough times, it can create a conflict and we’d prefer to have some input before incentives are offered to our people.”
PrairieLand Partners’ Pavlovsky says sometimes salespeople need to be reminded that they still have to make good decisions for the company and the right decision for the customer.
Dealers say the potential pitfalls can usually be avoided if management monitors the programs. “If it’s not monitored, it could mean lower sales margins for the dealership. It could also mean high trade allowances and a burgeoning used equipment list from overpriced used,” says Art White of White’s Farm Supply in Canastota, N.Y.
“I’ve heard of different ways to deal with the minuses such as not giving the SPIFs to the salesmen if they take in a used unit or the check may be forwarded if the used is sold within so many days. The margins must be watched on all sales so the company doesn’t lose and the salespeople don’t get rewarded for lower profits for the company they work for,” he says.
Salesperson’s Bonus or Dealership’s Bonus
While many dealers say they’d like to see the bonus come back to the dealership. Boyers of Middletown Tractor says the problem with SPIF programs came when manufacturers began giving dealers the option of keeping the bonus to add gross margin to the deal or allowing it to go to the salesperson.
“When we hire salespeople, we calculate their income on a base plus commission basis, and anticipate them making a good living. That being said, we are in business to make a profit,” says Boyers.
“In this industry, with costs growing higher, margins growing smaller and more fierce competition than ever, any extra money added to the bottom line would certainly make a difference to the business. It would behoove us to take the bonus money when it is available, and wouldn’t alter the salesperson’s bottom line. The issue comes in when the manufacturer offers it as a ‘salesperson’s bonus.’”
Boyers adds that even more rare than high margins these days are good people and he believes human resources are as much an asset as anything else at the dealership. “It puts us in a precarious situation to retain the bonus dollars for the business when it’s been labeled a salesperson’s bonus and we’re viewed as keeping it from the salesmen. It drives a wedge that could hinder retention and create turnover,” he says.
In addition, Boyers would like to see the money split between the dealership and the salesperson on a moving scale, with the bonus becoming larger when more units are sold. “This would reward high performers at a greater rate than low performers who rest on their seats,” he says.
While the debate over SPIFs will probably never be settled to everyone’s satisfaction, one thing nearly all dealers will agree on is that they must be monitored closely to make sure the sales team is keeping the dealership’s best interest in mind.