The Key To Effective Service Advisor Pay Programs -

The Key To Effective Service Advisor Pay Programs

As with any compensation program, the first thing you'll need to do is conclude what you want to accomplish with any change in employee behavior. Where most shop owners get into trouble is they'll immediately say they want to see higher sales when it comes to their service advisors. So they'll put their advisors on a commission program that's based on sales, and as you can imagine, their sales typically go up. Unfortunately, so do their expenses and customer complaints.

By Bob Cooper

As with any compensation program, the first thing you’ll need to do is conclude what you want to accomplish with any change in employee behavior. Where most shop owners get into trouble is they’ll immediately say they want to see higher sales when it comes to their service advisors. So they’ll put their advisors on a commission program that’s based on sales, and as you can imagine, their sales typically go up. Unfortunately, so do their expenses and customer complaints.

The reason for the unintended consequences is simple. The advisors will typically try to generate a higher income by increasing their sales, but at the same time will pay less attention to controlling your costs, and in many cases, less attention to customer satisfaction.

The answer? All that you need to do is be clear about the behavior you are looking for, and take the unintended consequences into consideration. When I was still operating shops, I always looked for my service advisors to generate three things: sales, gross profit, and happy customers. Everything else was secondary. So here is what you need to do…

Set clearly defined sales goals for your advisors, and put a fair and equitable commission schedule in place. If your advisors have flexibility in pricing, or if they have any significant control over your direct labor costs, then let them know that in order to earn the added sales commissions, they have to reach a predetermined gross profit goal (as a percentage of your total sales), and they’ll need to reach a predetermined customer satisfaction goal as well. By taking this approach, your advisors will realize that with each and every sale they’ll need to consider the profitability of the job, and they’ll need to ensure 100% customer satisfaction as well. If you take my advice, your sales, profits, and CSI scores will go up!

For additional help running a more profitable, successful auto repair business, learn more about Elite’s auto shop management solutions.

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I’m not a financial scholar by any means, but I know what return on investment (ROI) is. It’s a mathematical formula that yields a representation of the profitability of any type of investment. In the automotive repair industry, we primarily associate this with equipment. Admittedly, I’ve never used the term much, more often approaching things from the standpoint, “Am I making money with this or not?” As technicians and shops, our typical thought process centers on each individual job, how much time and money we have into it, so we’re used to thinking profit or loss, and also pretty good at knowing if we made money, or if we lost our “back quarters.”But over time I’ve learned that the thought process alone is not always the best approach, and making money doesn’t necessarily mean a good ROI. Even if you don’t go crazy with an exponentially long, complicated equation, if you understand the basic idea and process of calculating ROI, it can help you make good purchasing decisions. The base calculation would be dividing your net profits by the cost of the equipment. That’s your ROI. Then, if you want to take it further, you can divide that number to get a time-based ROI average.Let’s look at a basic calculation. You buy something for $10, then sell it for $14. Your profit is $4. Divide profit by investment, ($4/$10) and you get an ROI of 40%. Not bad, but if it took two years to make this profit, then your ROI would be 20% annualized, which is not as impressive. You can use this basic formula to compare products you sell as well, and it may help you decide what’s best to keep in stock or not.Now let’s try something with equipment. You have an old tire machine that’s paid for. You average one set of tires per week and it takes 1.5 hours to complete the job. You decide to buy a new tire machine that is much quicker and more efficient but it cost you $20,000. Now the same job only takes one hour. Based on the cost of technician salary, you calculate that it saves you $30 per job with this new equipment. In this case you would use the formula: savings (additional profit)/investment. At one set of tires per week, that works out to $1,560 per year. $1,560/$20,000 equals an ROI of approximately 8%. That’s not too good. It will take you almost 12 years to pay off the new machine.On the other hand, if you average five sets of tires per week, then your additional profit for the first year is $7,800. $7,800/$20,000 equals an ROI of 39%. That’s pretty good. A general rule of thumb is to pay off any piece of equipment within two to three years. This puts you right on track.But now, here is the problem. This is where we throw the proverbial wrench into the plans. Equipment is tricky. You should also calculate in installation and maintenance costs, as well as the cost of training for the new equipment, and factor in how long the equipment is going to be relevant. This is an especially important factor when considering a scan tool, the required updates and how long before it’s potentially obsolete. In the case of a tire machine, you can also calculate in savings from other benefits of a new machine, such as no more damage to wheels or tire pressure monitoring system (TPMS) sensors, which the new machine can eliminate.Some of this can be overwhelming, and it makes me realize why it’s easier just to fly by the seat of your pants and wonder, “Am I making money or not?” It’s an important business aspect, however, to know what is behind the idea because it can benefit you in so many ways. Even without math, you can almost visualize the numbers in your head.I’ll try it by leaving the formulas out to decide whether it makes sense to buy a dedicated TPMS tool when you already have a full-function scan tool with TPMS ability.If you get a TPMS problem every day and you use your full-function scan tool to diagnose it, most likely it takes much longer to boot and longer to navigate to the function. Even then, it may not cover all you need. Because there’s such a vast amount of information that a full-function scan tool has, it simply takes more for the manufacturer to keep everything current. Plus, you often must still rely on service information for certain procedures and then, if it’s the only scan tool for your shop, it ties it up for use in other diagnostics.Now, let’s compare that to a dedicated TPMS tool. 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