High turnover amongst employees has been cited as the #1 challenge for dealerships. Recruiting, hiring and retaining top talent has a price tag. How does the revolving door of employees impact your profitability? We have all experienced the pain of reduced margins which continues to impact profits and how sales consultants are compensated. From management perspective, CSI plays a more dominant role in revenue, inventory and retention.
First, let’s look at employee retention. The cause for this high turnover has been a matter of contention for management and staff. At a high level, the 2013 Dealership Workforce Industry Report released by the NADA stated that:
- Nearly 40% of the people who are hired into sales consultant positions leave the dealership within 90 days
- The 90-day revolving door is due to two factors: poor “fit” hiring decisions and commission-based pay plans
- About 62% of sales consultants quit or are terminated over the course of a year
- Change rate for female sales consultants is at 76%
The customer and employee retention impact
Customer loyalty bears a direct relationship to employee retention. Have you ever had a job where you were dissatisfied? How did that impact your attitude and job performance? If your position involved direct contact with customers, how did your satisfaction impact their experience?
Now flip it. Have you ever interacted with an employee that obviously did not like their job? The non-verbal presentation (body language) is one aspect, many times they will tell you directly. Take it one step further…with how many people did you share this experience? Did you share it online as well?
Here’s an interesting observation from this study:
Sales consultants working 50 to 60 hours per week earn 4 percent more a year than their counterparts working 40 to 45 hours, the NADA report noted. But there's a caveat.
When employees work over 45 hours, turnover increases and retention decreases, implying a change to the incentive system may be due.
So…how much DOES the revolving door really cost?
Everyone incomes depend on the performance of the store. In our research, customers have stated that recruiting a new employee can cost between $4000 and $5000. How many new sales people have you hired in the last 12 months? Now do the math…
Once you add in loss of possible sales, productivity of others, and training, the number rises much higher. In a survey published by CareerBuilder, 41% of companies estimate a bad hire in the last year had cost them at least $25,000, while 25% of companies surveyed say that a bad hire in the last year had cost them at least $50,000. How many new sales people have left in the last 12 months?
As discussed earlier, the true cost is the store's customer retention. The marketplace reputation which is primarily driven by its’ employees is your most valuable asset. For several automakers, such as Ford and VW, employee retention is becoming a global retail KPI (Key Performance Indicator). How is it measured in your store? What is your turnover rate? And, what have you identified as root causes to this issue?
Accessories are a win-win-win
Accessories are a great source of additional revenue for dealers. While actual amounts vary by both brand and store, we typically see 40-50% margin…more if selling aftermarket. This additional revenue is shared across sales, parts and service.
Customer Win: Customer takes delivery of the vehicle “personalized”, feeling great about their purchase and ready to share the experience. That’s great (free) word-of-mouth advertising and an increased probability for your retention efforts.
Sales Consultant Win: Dealers typically pay 10% of the gross sale as commission. Now they are selling more, earning more, and excited to offer personalization.
Dealership Win: CSI UP (more revenue). Sales Consultants have a new revenue stream, improving retention and reducing turnover expenses. And of course, the increased front-end gross revenue, per new unit, generates more revenue.
These are simply the highlights. Reach out to Insignia Group to learn more about how offering vehicle personalization, at the point of sale, will impact your dealership.