Is Your Forecast Done?

I’m betting you’ve either got a lot of numbers already laid out on a spreadsheet for 2018 or you’re scrambling to get it done in the next few days.

I’m a big proponent of forecasting. It lays out a map as to where we are going. Although there are detours along the way it gives us a chance to get to our final destination.

I’m an even bigger proponent of department head meetings. I believe your job as a leader should be to teach, educate, coach and encourage your team to seek ways to improve your operations.

I tend to take a common sense approach to most things in life and I approach forecasting and monthly management meetings no differently.

Dealers, or any business for that matter, tend to forecast based on what they would like to do in the upcoming year. Often it’s based on statements such as “we need to increase our sales by 10%” and/or “we need to reduce expenses by 15%.”

Saying you want to increase your business by 10% sounds good, but if you don’t have a plan to get there what good is it? I’ve always been baffled by annual forecasting.

One of two things usually happens:

1. Someone is overly optimistic and/or they are blowing smoke up someone’s butt.

2. Someone serves up a low ball because they don’t want the pressure of hitting an unrealistic number.

Although dealers want to see an improvement in the next year’s numbers, what they really want is a number they can take to the bank.

In order to do a realistic forecast, you have to take into account staffing, inventory, and market conditions. How can anyone do a forecast and predict what those three pieces of the equation are going to look like 3, 6 or 12 months down the road?

I’m not saying you shouldn’t do an annual forecast, but doesn’t it make more sense to adjust that forecast monthly or quarterly based on those three fundamental elements?

Because most leaders don’t make those adjustments it frustrates the management team and defeats whatever good intentions there might have been. Everyone eventually loses respect and confidence in any type of forecasting and concludes “Why bother?”

While it makes good sense to do a monthly or quarterly review of the actual numbers, managers become disillusioned with these reviews in that they become a “beat up” session rather than trying to figure out what went wrong and how “we” can fix it.

People know when they didn’t perform. What they want from upper management is leadership that gives well defined ideas and direction on how to “fix it” or make it better.

Using more common sense with your forecasting and monthly management meetings will help you grow a solid organization that generates consistent profits and sustained growth.
That’s all I’m gonna say, Tommy Gibbs

How Sharp Is Your Stinger?

In just six more days you’re going to be very, very busy. Next week has the potential to be one of the best selling weeks of the year.

It will only be a great week if you make it a great week. It’s not going to be a great week if you stay in your seat acting like a computer geek.

You can make it a great week by getting up and moving around. You should be like a bumblebee on a pollination mission. You’re here. You’re there. You’re everywhere. Stinging your little heart out.

You can’t just flap your little wings in place and think someone’s gonna sell a car.

You have to create the buzz. You have to go from being weak and meek in order to make it a great week.

I don’t like things to be all about you, but this is all about you. This week is all about you making things happen.

It’s about you contributing as much in a week as you sometimes do in a month. It’s not about you giving 100 or 110%. It’s about you giving 200%. It’s about starting early and ending late.

It’s not about asking others to do it. It’s about you doing it. You sometimes think you’re important. Well, you are important. You’re even more important than you think. At least this week you are.

You may have to sting a few people this week. That’s ok. Some of your team could probably use a sting or two. A little stinging pain for a whole lot of car selling gain.

Wishing you a very Merry Christmas, and an amazing 2018. That’s all I’m gonna say, Tommy Gibbs

What About Pay Plans?

Pay plans are a very touchy subject. I’m always being asked about pay plans. It’s often been said you’d be better off not to discuss religion, politics and let me add one more, pay plans. I’m feeling kind of froggy today so I’m jumping in.

There are as many different pay plans as there are dealerships. It’s fair to say that how sales people’s pay plans are constructed often depends on the dealer’s philosophy of doing business and of course the influence of his/her key managers.

Those philosophies were developed early on, based on the experience and success of the decision makers in their personal and business growth.

We tend to think that everyone thinks like we do, and so if the way we were paid when we started made us successful, then it will work for others along the way. Or we think it’s worked so well for the dealership over the years, why change?

Just because you’ve always done it “that way” and it got you to where you are today, doesn’t mean doing it “that way” will get you to where you need to go.

See how much of this rings true:

1. You’re paying a lot of flats.

2. You’re pricing your used cars (even new) online with killer prices designed to drive traffic to the front door.

3. You’re working harder and harder to hold the line on your pricing when the customer shows up.

4. Because of #2 and #3, your sales staff have very little control over gross profit. Certainly not like they did in the good old days.

5. You’re not a one-price dealer yet, but you’re moving more in that direction.

6. It’s becoming more and more difficult to hire people, especially millennials, willing to be paid on gross profit.

In today’s market, it doesn’t make much sense to continue to pay on gross profit. What does make sense is to move more to a volume-based pay plan.

Some of your concerns:

1. You’re afraid to change pay plans because you’ll lose some of your key people.

2. You’re afraid your sales person’s compensation percentages will get out of line.

3. You’re afraid gross profit will go further south.

Let me clear those concerns up for you:

1. Some of those key people will actually like the change. But, if you have some people that you’re concerned about, then tell them that if they sell the same number of units over the next 12 months as they did the previous 12 months and if they don’t make the same or more money that you will pay up.

2. If you do your homework, analyze your history, analyze your grosses, trends and really think it through, you won’t screw it up and get out of line.

3. Gross profit could very well get better. Yes, your management team will have to work harder and harder to hold the line on pricing. If we spent a little more time on selling the sales staff that we’ve got the price right, gross might just go up.

When you dissect all of this, it is not so much about changing pay plans that’s all that hard. It’s about changing the mindset and culture of your organization.

I’ve attached a spreadsheet that you can change around to fit your style. Might be worth your time to take a peek. That’s all I’m gonna say, Tommy Gibbs

Pay Plan In Excel

What’s The Real Issue?

The odds are pretty good that your internal labor rate is $75 to $125 or more depending on a number of factors. Thus, your average reconditioning costs could be somewhere in the $800 to $1400 range.

Or, if you are a big time “Certified Dealer” then your cost per unit would be higher because of the factory requirements.

Let’s round the reconditioning number off to a nice $1000 per unit or whatever number you feel comfortable with.

The next part of this dissection is those wonderful little packs you add on to protect yourself from paying too much in salesman’s compensation and other little safeguards you feel you have a need for. I come from the “Pack Generation.” I’ve always loved packs, but this business has changed, I’ve changed and you should too.

Stop trying to justify it to yourself by saying you’re adding it back into gross and the managers still get paid on it.

On average, hard and soft packs combined run $500 to $1000. So let’s round that number off to $800. When you add the reconditioning cost and packs you have a total of $1800.

You are starting off from “jump street” with an $1800 cost disadvantage against those dealers who aren’t doing it the old-fashioned way. (CarMax and Texas Direct to name just two of them.)

The problem with the pack and recon “drug” is that it still sorta works and you can’t shake ‘da habit.

We can debate the way you charge the sales department in service all day long. But your theory of if we don’t charge them full retail or close to full retail, that they will just give it away in the sales department is old, tired and a worn out theory. By and large, we’re not working from cost up anything like we used to. Hello to the world wide web.

You cannot continue to rely on the sales department to prop up the service department. Sooner or later the folks in service are going to have to get better with how they sell and develop your customer base.

What compounds the problem is your pay plans. As long as you keep paying salespeople and sales managers on gross you are going to fight a losing battle. Changing pay plans is more about changing the culture in your store as much as it is about the pay plans themselves.

Can we agree that the pricing you put on the Internet has an impact on the amount of traffic that shows up? Aside from doing the right things when the customer shows up, how much control do the sales people and sales managers really have on gross profit? For sure it’s not as much as they used to have.

What if you changed the pay plan, took gross out of the equation and went to more of a one-price concept? Under that scenario what you charged in service and the need for packs would be irrelevant. The fact of the matter is you’re being pushed into less and less negotiating whether you like it or not.

If reconditioning and packs were not screwing up your “cost basis” then you could absolutely buy and trade for more cars and no doubt you would sell more because you would be in them right and have a pricing advantage over the competition.

I’ve asked this question a lot lately: What if you had a clean sheet of paper and started over from scratch; how would you do it in today’s world?   That’s all I’m gonna ask, Tommy Gibb