I am a firm believer in providing employees with a competitive wage and the opportunity to earn more through incentives. However, any additional incentive bonus must pay for itself. That means any additional incentive compensation must not eat into company profits. While we typically look at payroll as an expense, everyone in your company must be productive enough to support their compensation plan. This is especially true with service advisors.
Too often, shop owners don’t properly establish sales and gross profit goals. What occurs then is that the incentive pay, which is above the base pay, reduces overall gross profit, which decreases net profit.
Here are a few guidelines when considering a pay plan for service advisors. First, you need to know your breakeven and calculate it at least twice a year. Remember breakeven is never a goal, it’s just the sales number your company must attain BEFOFE it makes any profit. Next, you need to establish sales and net profit goals above breakeven. Many shops shoot for a 20% net profit, so you need to determine your desired labor and part gross profit. If you don’t know how to calculate your breakeven or gross profit, please reach out for help from your accountant or a business coach.
After that, you need to establish minimum sales and gross profit goals that must be achieved consistently before any incentive is to be paid. In other words, if you determine that achieving a 20% net profit requires on average $30,000 in sales per week with an overall gross profit of $20,000 per week, then that becomes your minimum required weekly goal that must be maintained by your service advisor team every week.
This is important because you don’t want three weeks where your sales and gross profit were below your goals, and pay an incentive bonus in the fourth week, just because your service advisors had one good week. Additional pay incentives can only be paid when the company is consistent in achieving its required sales, gross profit, and net profit. One thing, if the goal is too high and perceived as unattainable, your service advisors will give up. Lowering the bar in some cases may be needed, just have a plan in place to incrementally raise the bar to ultimately achieve your desired financial goals. Please also note that for you to have a consistently profitable business requires a healthy work environment, training programs, systems, processes, and of course a great technician team.
One last thing, the service advisor’s base pay must meet the individual’s basic needs in life. And as I said earlier, incentive pay is the opportunity to earn more. However, they must consistently produce, after all, incentive pay should be earned, and never an entitlement.