Pay for Performance
What are you waiting for?
Time and again, I have visited recyclers who realize that they have fallen behind and want to return to their former level of profitability. Usually, the owners want to try to increase sales, which is a great goal, but difficult to do.
Increasing sales often takes months and requires the capital to buy more cars and absorb more marketing expenses. Finding more cars and getting the marketing right are both tough tasks.
The good news is that I can get yard owners back to the level of profitability they once enjoyed by helping them to lower their costs. The beauty of increasing profits by cutting expenses is that it can be done immediately and often produces better cash flow and profit numbers within weeks. Having achieved better cash flow and profits, these owners can then use the surplus to buy more cars and get the inventory to drive higher sales.
In 9 out of 10 yards I do business operations consulting for, I find the most wasted money is in labor costs because many yards do not have the right incentives in place to promote productivity.
More than 20 years ago, I switched my salespeople from salary to straight commission. Gradually, I developed systems to pay nearly every department of my yard for performance. I really started to grow right after I made these changes.
In this set of articles, I will discuss pay for performance. I have helped dozens of yards roll it out successfully. You can implement a successful pay for performance system in your business.
Here is how a salvage yard pay-for-performance compensation system should look:
- Sales – Sales staff, with few exceptions, should be on straight commission.
- Delivery – Paying by the stop will increase production at least 50 percent.
- Inventory – It goes faster and is more accurate when paid for performance.
- Parts pulling and order fulfillment – These employees thrive in a pay for performance environment!
- Dismantling – Expect to almost double production or to decrease the number of dismantlers by half for the same number of cars
- Outside sales – Pay for performance will make your sales rock stars shine and help motivate average performers to become exceptional.
- Extended warranties – This is found money, with almost no associated costs.
- Cradle to grave dismantling – Eliminate the need for so many employees in the dismantling-cleaning-stocking process while improving quality and increasing accountability.
You can’t afford to continue waiting; your most successful competitors have already lowered their labor expenses. A good benchmark is that your labor expenses as a percentage of sales should be at or below 20 percent of your total parts sales.
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Ron Sturgeon is past owner of AAA
Small Car World. In 1999, he sold his six Texas locations, with
140 employees, to Greenleaf. In 2001, he founded North Texas
Insurance Auction, which he sold to Copart in 2002. In 2002,
his book “Salvaging Millions” was published to help
small business owners achieve significant success, and was recently
reprinted. In June 2003, he joined the new ownership and management
team of GreenLeaf. He also manages his real estate holdings and
investments. You can learn more about him at WWW.autosalvageconsultant.com
He can be reached at 5940 Eden, Haltom City, TX 76117, firstname.lastname@example.org or
817-834-3625 ext 6#.