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by RON STURGEON, AutoSalvageConsultant.com

One of a continuing series of articles on increasing profits and cash flow.

Many of the yards that hire me to help them become more profitable want to begin by working on increasing sales. That’s not always the right way to go. Consider that it often takes months and requires the capital to buy more cars and pay for added marketing to give sales a boost.

Often, the right place to start is the expense side. For yards, a substantial expense is employee pay. Yards that pay hourly wages are far less productive than those on pay for performance in every category.

Pay for performance makes yards more profitable because employees complete more tasks that are the most profitable.

Once the extra money starts coming in, then you can start to buy more cars and get the used part inventory to drive higher sales.

You can get back to the level of profitability that you once enjoyed by making the move to pay for performance.

In previous installments in this series, I have talked about pay for performance for sales people, dismantlers, parts pullers, delivery drivers, and inventory people. This article will cover pay for performance for outside sales.

The first question: Should you have an outside sales force? Unless you have a very high percentage of wholesale sales, you shouldn’t. In my decades in the business, I have never seen a highly effective outside sales force.

I’m not saying no one should have one. In some cases, an outside sales force can help you penetrate a new service area and earn business from shops who are buying parts from another supplier. Calling on the shops may be the only way to get them to switch.

If you are going to have an outside sales force, how you compensate them is crucial. I suggest that you give them a list of accounts and pay them commission only on the increase in total dollar volume from their account list in aggregate.

If you pay on increases in individual accounts, you will be paying commissions for a normal ebb and flow of business because garages will order more parts some months than others based upon the repairs they are doing.

You should not offer a large base salary to an outside salesperson. I suggest a modest base and commission on the increase in business in aggregate. Do not just pay the salesperson a percentage of the total sales for the accounts because he can coast and still earn commissions on everything that is sold in his territory.

Make sure that your outside salespeople have the authority to fix issues and that you are accessible to get feedback about what issues they have in servicing accounts.

If labor is consuming more than 20 percent of total parts sales, your labor costs are too high. Switching to a pay-for-performance compensation plan is the fastest and most effective way to make your people more productive and your business more profitable.

Next month, I will discuss how to use pay for performance to milk the extended warranty cash cow. 

Published in the September 2014 Edition of American Recycler News