The human factor


WebIn our first installment for this series, we mentioned that personnel expense should not be more than 50 per cent of gross profit. Having said that (and with a thrifty Scottish background we might add), one doesn’t like to see it go over 45-48 per cent.

So let’s take a look at what is often grouped in this personnel account: owner salary (better move on!), supervision salaries, clerical, benefits, workers’ compensation, other salaries, and absentee wages of productive staff. That should pretty well do it.

We like to write down every staff member’s name on a chart to find out what everyone does, and have the manager rate them on a scale of 1-10 based on overall performance, 10 being the best.
Eights or better are fine, but what if you have some fours or fives? Chances are you can coach and train them all you want but ultimately, you’ll never turn them into an eight, which is what you need if the store is to reach its full potential. Quick question: “Have you ever worked out what your full potential actually is?”

As a general rule, there’s approximately one service advisor to every five technicians at most franchised dealerships, but this can vary according to the hours of operation and the volume of work orders. Of course, the fastest way to bring personnel expense in line with gross profit is to sell more and increase the gross profit ratio.

If you have a problem with high personnel expense, the key areas to look at could be low gross profit, or it could be that you are paying staff too much to get the job done.

All too often in this industry, we do a terrible job of making staff accountable for getting work completed effectively or carrying out regular performance appraisals. When the staff try to tell you they are already working at capacity, there is nothing wrong in helping them re-define the definition of the word busy!

Another concern with some managers is that they tend to throw money at a problem rather than leading and coaching staff by giving them a compelling vision of the future. There might be some staff members only putting out 60 per cent of their potential, the key could be in finding a way to unlock the other 40 per cent. Fun business, isn’t it?

Controlling this particular expense account to some extent is the direct responsibility of the line manager, provided they’ve been given a fair allocation of expenses. If you have a good secretary treasurer, then getting that person involved never hurts. It is amazing however that when you ask said treasurer if they can break out the personnel expense how often the response back is a definite “no,” often because they are “too busy.”

One dealer told us recently that he wants his staff to make above average salaries, provided they are linked to performance. His concern was that the staff were being paid extremely well, but that he was not getting a desired return on his investment.

It turned out that some of his long-term key employees were performing well below an acceptable level and that replacing them was going to be very expensive. We know one dealer who has lost six out of seven wrongful dismissal cases — resulting in a policy of putting up with inept staff. It always amazes us when asking a dealer this question, if you hire someone in the showroom and find out they have a poor attitude, low closing ratio and terrible CSI how long do they last? The answer normally is not long! So why is it we seem to put up with low producers in the service department for ever, making it very difficult to get rid of them without it costing huge money?

Review all of your personnel pay plans and see if, along with job descriptions they meet the rigours and challenges of today’s business. Do your pay plans reflect the skill levels of the work being done, or can the work be done by a lower skill level? How many of your personnel are crossed trained? Look to see if there is a more efficient way of getting the job done. If you do decide to change a pay plan, we recommend that you run it parallel for 90 days and pay the greater of each one as a pilot. This gives the opportunity to iron out any concerns.

We know that people are very sensitive to money — we stopped paying people once and got an
instant response!

About Jim Bell

Jim Bell is a writer, consultant and motivational speaker. He can be contacted by phone at 416-520-3038 or by e-mail at

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