Technology advancements have helped many industries increase efficiency and reduce employee headcount. In some cases, new technology has introduced efficiencies that did not exist before– think Starbucks mobile ordering or doctor’s appointments via video call. Some retail technologies have moved tasks that previously required a trained professional into the consumer’s hands–such as self-checkout at the grocery store, or airline check-in kiosks.
Car dealerships have been trending the opposite direction. Vehicles loaded with high tech features have forced dealers to invest in tech-savvy employees known as delivery, technology or product specialists. Growing headcount while profit margins are compressed is a significant issue. Fortunately, it is one that technology can help right size, as mentioned above. But there is a more pressing matter to resolve — one that has a much higher impact on the bottom line — we need to reduce employee turnover.
According to the NADA 2017 Workforce Study, the average dealership turnover rate is 43% across all positions nationally. Even more alarming, the rate is 66% for sales specific roles! That means, on average, well over half of your sales staff will leave within the next twelve months. Think about all of the upfront expenses associated with onboarding and training these short-term employees. Automotive News referenced a study a few years ago that estimated for every 10 point increase in annual turnover, an average size dealership squanders $500,000 in gross profit. Given the margin compression dealerships are experiencing across the country, I can’t think of anything that could positively impact the bottom line more than reducing turnover.
While it’s impossible to account for all the soft costs associated with turnover in sales staff (CSI, the morale of remaining employees, unanswered customer calls, etc.), the hard costs are clear. Let’s look at it from an angle we can all relate to using numbers we monitor regularly. Setting aside the cost of actually hiring someone, we can easily see how it adds up.
Before a sales consultant leaves, whether voluntary or not, his or her performance declines. They are either disengaged while looking for another job or underperforming until they are finally terminated. This sub-optimal productivity period could be anywhere from 3 to 9 months. If they were selling 12 cars per month beforehand and their productivity declines by 25% during this period, they would drop to 9 sales, leaving 3 on the table. If you are lucky, sales managers and other sales consultants will step up and salvage 50% of those deals. They take the showroom opportunity, follow-up, or otherwise take half deals for delivering the car. Let’s assume that out of the 3 sales left on the table, your team is able to save one. Not only have you lost 2 deals, but you end up paying other salespeople higher bonuses because they now have more sales than they otherwise would have had if the departing salesperson were selling at their usual pace.
But that’s not all. In addition to lost sales, service and parts will be missing all the gross profit generated from repair orders, warranty and recall work they would have earned over the coming 3-5 years.
Setting aside the various costs of hiring a replacement, the dealership stands to miss as much gross while the new hire ramps up as they did from the productivity decline of the outgoing salesperson. This cost is often exacerbated by a large new hire “guarantee” for the first 90 days to attract the right candidate.
Just how big of a missed opportunity is this for your store? Grab a copy of your financial statement and your most recent payroll report showing the number of employees you have terminated in the past few months. If you apply your assumptions on productivity reduction, as well as your current pay plan you will be able to figure this out for yourself. Feel free to reach out and we can walk you through it. Even a 10% reduction in turnover would have a significant impact on your bottom line.
Once you understand the impact, you will be left with a burning desire to act quickly, so it is important to also understand what causes this high level of turnover in the first place. A few years back we polled a thousand millennials across the country, and the following traits of dealership employment were found to be huge detractors: high-pressured sales tactics, commission-based pay, and unpredictable schedules. On top of that, 94% said that technology plays a critical role in their ideal job.
We’ll talk more about this in our next post, but I invite you to consider how employee experience and the desired customer experience are very much intertwined. By shifting away from high pressured sales to a more concierge like experience and deploying technology that makes the sales process easier, you can quickly reverse the current margin compression trend while improving CSI. You will need to rethink your pay structure and incentives to align with what employees & customers value, but these modifications will pay dividends in the end. Not only will you retain your existing employees, but you will dramatically increase your ability to attract & onboard new talent, especially today’s younger and technologically advanced generations.
$500,000 a year is a HUGE impact to your bottom line. If you can find a few ways to stop the continuous spin of your revolving door, you will reap the financial rewards. Technology can help, but it is only part of the solution. Message me and we can talk about strategies you should be deploying now to set yourself up for success in the year that follows.