By Kathryn Pomroy
Motivated by money and driven by the adrenaline of a major payoff, commissioned auto salespeople fit the image of a slick-tongued guy or gal who’s more than happy to overpromise, yet underdeliver.
They pounce upon customers as soon as they drive into the lot and waste no time shaking hands, handing out business cards, following would-be car buyers around like a stray cat, offering them coffee, tea, water and anything else that will entice them to stay put. Is this always true? Absolutely not. But, the stereotype lives on today as it has since cars were first sold by dealers.
However, in the past decade, there seems to be an acceleration in non-commissioned auto sales, with dealerships around the country opting for customer service and repeat business over selling the highest priced vehicle on the lot.
At many dealerships, salespeople earn a commission for each car sold. The amount earned fluctuates depending on how expensive the vehicle is. With lower profit margins earned on new car sales, come smaller commissions. That means that selling the most expensive vehicle at the dealership is often a priority, for obvious reasons.
Selling higher-priced cars and trucks is also more profitable for the dealership, but can often lead to an unhealthy culture of competitiveness, neither of which is in the best interest of the customer. Yet, many car dealerships continue to use commissions because they work, if only in the short-term. Monthly sales numbers are the measuring stick of success in nearly every American dealership; commissioned sales is the tried and true answer for how dealers achieve their monthly goals.
Likewise, if well-executed, commissions can foster team culture, increasing collaboration across individuals and departments. Many commissioned salespeople will contend that they hustle far more when there are no caps on what they can earn. Even so, the average yearly salary of a car salesperson in 2018 was just $47,000. To put that in perspective, many new cars and trucks sitting on the dealership lot cost more than that.
The Customer Experience
By the same token, there are a number of dealerships within the industry that have started focusing less on commissioned sales and more on positive customer experience. Some dealers have found this to be a better long-term business solution than simply hitting monthly sales goals..
The amount of information available to customers has given them more transparency into car pricing. The majority conduct their own research online before ever stepping onto a showroom floor. They know more, they are better positioned to negotiate a lower price, and their expectations are higher.
Unfortunately, there is no universal way of measuring customer satisfaction beyond traditional sales metrics. As a result, many auto dealerships struggle to find a balance between building customer relationships and tracking their bottom line month-to-month.
In any case, as customers continue to raise the bar on customer-focused service and relationship building, sales teams find themselves positioned squarely on the front line.
The “Krenzen Way”
One dealership, located in Duluth, Minnesota, discovered more than 18-years ago that a non-commissioned sales team meant greater customer retention and employee satisfaction. It also saved time and streamlined internal processes.
With commission, the Krenzen sales team were often left questioning what they’d earned at any given time of the month. So, to give their team the assurance they’d be paid fairly and on time (this can be an issue at some dealerships), Krenzen formulated a non-commissioned sales strategy that is both simple and transparent.
Not only did this sales program make for a better work environment, it also simplified paying the sales team for a set period of time on a given date. And, although it has been amended over time, 75% of the original plan still remains intact.
In fact, the non-commissioned sales strategy has been so successful that turnover is far below industry standard, with an average sales team tenure of a dozen years. Considering the average turnover rate for auto sales consultants is about 72%, with a three-year retention rate of only 33%, the ‘Krenzen Way’ yields results.
Beyond Non-Commissioned Sales and Team Retention
Historically, the auto industry has high rates of turnover. Maybe not the only reason, but certainly a contributing factor is that most vehicle salespeople don’t earn a hell of a lot of money. There also seems to be a vast discrepancy between what the average salesperson makes and what great salespeople make.
On average, a dealership salesperson sells about 10 cars per month. If they make about $300 per car, that’s about $36,000 per year. Obviously, if they’re really good at their job, they can make much more. The opposite is also true, with some team members likely to earn minimum wage. It also takes a lot of money to recruit, hire and train salespeople, with the average salesperson costing thousands of dollars to bring on board or replace.
To stifle turnover, some dealerships turn to a non-commissioned strategy with base pay, plus a set amount for each unit sold. They may set this up as a tiered system, so the more units sold, the more per unit they are paid. Salespeople may also get spiffs, bonuses, and other incentives, and earn more by taking a vehicle in on trade, or selling a luxury brand over a domestic or used car.
Retaining a sales staff long-term, like Krenzen has managed to do, is effectively in the best interest of both the dealership and its customers.
A significant concern for most dealerships, employee turnover, costs the industry billions of dollars every year in hiring and training, lack of continuity with customers, and ultimately, lost vehicle sales.
Krenzen’s success has bred jealousy among a few local competitors who criticize Krenzen for overpaying their sales team. Krenzen maintains that by breaking the status quo and redefining the business of selling a vehicle, they have effectively moved the company and the industry forward. Customer loyalty is at an all time high, with the focus less on building a culture of cutthroat competition and more on driving more business for the entire group.
Whether a customer is looking for a $5,000 pre-owned vehicle or a $40,000 Nissan, Honda or Lincoln, Krenzen’s commission-free sales team finds the perfect vehicle for their needs, not just the most expensive vehicle on the lot.
Gaining Momentum for the Future
Even today, many car dealerships continue to operate as if customers have few choices, are only loyal to one brand of car, and enjoy haggling with a member of the sales team as if it is a rite of passage. Unfortunately, most customers no longer have the time or energy to squeeze the best price out of a salesperson – instead opting to shop online.
A non-commissioned sales staff will focus first on pleasing the customer instead of pressuring them into buying the highest-priced vehicle. Deals go easier, and customers have a better experience, which means they are more likely to come back to the same dealership for a new car or for service. Salespeople also stay longer in their jobs, which leads to less turnover and a more experienced team.
As the auto industry employs nearly two million people throughout the US, with sales expected to reach 106.6 billion in US dollars by 2020. Dealerships that have broken the mold by offering an alternative to straight commission for their salespeople are reducing employee turnover and increasing customer retention. In light of their success, it remains to be seen if dealerships operating under straight commission will be able to succeed in the long-term.