Setting Up an Auto Service Business Development Center

Staffing

Our Service BDC does all inbound/outbound service calls. We also have a Sales BDC that handles all inbound/outbound sales calls.

In addition to the calls that they are paid for (see below), our Service BDC reps also follow up on reservation no shows. Our current no-show rate is about 6%, down from a high of 15% that occurred before we changed our reminder emails/texts (which now go out at the time the Customer makes the reservation, the night before their reservation, and the morning of).

Conversica has also proven useful as a data mining/contact tool. Our results have declined, but the volume of reservations that it generates is still very reasonable for the cost. We just wish that it was able to text Customers, as we find that far more effective than emails or calls.

Metrics

• Answer speed: 94% on the first ring. 100% by 3rd ring.
• Abandon rate: Less than 4%.
• Outbound calls/texts per day: Minimum of 120. Texts are better than calls – they get many more responses.
• Reservations per day: Minimum of 20/rep, goal of 30.

Breakdown of reservations

• 50% as the result of outbound calls
• 20% online
• 20% Service Advisors
• 10% combination of email and snail mail

Necessary Resources

• I highly recommend having a call recording system to playback calls and for training– at least 90 days of storage, ability to track calls by extension, ability to forward calls as .wav files, and ability to generate reports that show call length, successful/unsuccessful outgoing calls, and wait time
• Booking system – The same system has to be used by the BDC and by the Service Advisors; BDC reps must be able to leave notes that the Service Advisors can see, and the BDC reps must be able to see recommended services, including quoted prices; the booking system must be able to report on volume by date, rep, show/no show, service(s) performed
• ACD Reports – answer speed, abandon rate, call volume by day of week, date, time of day (to help figure out staffing), wait time (to corroborate with recording system)

Training
We give each of our BDC reps a training manual. It contains our scripts, a phone operation manual, breakdowns of our processes, a reference guide, maintenance service guide and prices, contact list of Motorcars employees, our department’s priorities and philosophy, and a set of flashcards. We use the flashcards as a fun way to train new reps on questions that they won’t likely get very often but should still know the answers to (see below, after Scripts).

We also have up-to-the-minute versions of all of this – plus the schedules of all employees – in the cloud (Google Drive).

A typical new hire shadows the entire team and begins to make outbound calls within 2 weeks, and inbound calls within 4 weeks. Because there is so much to know, we would rather they learn things well, rather than quickly.

Outbound Calls/Lists

• No shows
• Declined services
• Collect updated email addresses, textable phone numbers
• Purchased recall lists
• Sold not serviced
• ToyotaCare (each cycle, plus late, ToyotaCare Plus, and Toyota ServiceCare)

Compensation
We have a daily spiff to drive the next day’s reservations. The spiff is paid out to every member of the team, and starts at a combined total of 70 reservations for the following day:

• Less than 70 reservations = $0.00
• 70 reservations = $12.50
• 80 reservations = $15.00
• 90 reservations = $18.75
• 100 reservations or more = $25.00

The team can see where they are constantly throughout the day by checking the Workbook in Xtime, and I tell them how much money they have in their ‘bank’ every time it goes up. This has proven to be a winning strategy – everyone makes extra calls to get over the next hump.

Outbound Campaigns

Conquests

• $7.50 for Customers 9 to 16 months without service
• $10.00 for Customers more than 16 months without service
• Recalls – Payout per ‘show’ for proactive outbound contact - $5.00
• ToyotaCare - $0.75 for each ‘show’
• ToyotaCare Plus - $20 for each credit card number collected
• Toyota Service Care - $10 for each credit card number collected

Detail Center

• Complete Detail - $12.00
• Interior Detail - $6.00
• Exterior Detail - $6.00
• Pet Hair Removal - $2.00
• Floor Shampoo - $2.00
• Seat Shampoo - $2.00
• Exterior High-Speed Buffing - $3.00
• Engine Clean & Degrease - $2.00
• Rubbing Compound - $5.00
• Steam Clean Dashboard - $2.00
• Ionizer - $3.00
• Add Fresh Air Scents - $2.00

Recommended Services

• Alignment - $5.00
• Battery - $5.00
• Brakes - $5.00
• Tires - $10

Marketing Plan

We have found that our most successful campaigns have several traits in common:

• They are a combination of email, postcards, and outbound calls.
• They are narrowly targeted – not ‘shotgun’ ads. For example, there are 5 different ToyotaCare email templates – one for each of the 5 services – plus one to transition Customers to ToyotaCare Plus and another to get all Customers, regardless of brand or model year, onto Toyota ServiceCare.
• As a rule, our eBlasts and postcards rarely feature pictures of cars. Instead, we use humor, children, single panel comics, puppies, kittens, and images of the folks who work at our stores. ‘Dad’ humor seems to work best.

Scripts

Incoming Call

• Thank you for choosing Motorcars. This is ___________ speaking and I can help you!
• My pleasure, I’ll be happy to assist you with this.
• Please allow me to gather some personal information from you. May I have your home telephone number?
• (If Customer does not appear under the phone number given, let them know, and ask if they have brought vehicle in for service before.)
• (If yes, thank them for being a loyal Customer and try to find them by last name.)
• (If no, thank them for the opportunity to earn their business and create a Customer profile for them in XTime.)
• Which vehicle is your call regarding? (Year/Make/Model)
• (If Honda) What service codes appear on your Maintenance Minder?
• (If Toyota) Your next recommended maintenance service is XXX. Is this the service that you wish to schedule?
• (Check Dealer Daily for Toyota recalls. If there are open recalls, let the Customer know, and ask if they wish to have them taken care of during their visit.)
• Anything else that you’d like us to check out, since it’s coming in anyway? We also offer complete Detail services, if you would like to schedule that at the same time.
• Will you be arranging your own transportation or taking advantage of our shuttle service? (Unless oil change or other Waiter. If the concern is an electrical concern of any kind, it must be a drop off. The Customer’s SA will be able to give the Customer a good idea of how long it will take once the technician has an opportunity to see the vehicle.)
• What day works best for you?
• Let me check our service calendar for a convenient drop off time… We have an opening on ______ (day) at ______ (time) - will that work for you?
• What email address/textable phone number may we send your confirmation to?
• We have you scheduled to meet with your Service Advisor at ____AM/PM on _____ (day). You will be meeting with _______________. Our goal is to complete your visit in roughly XX hours, but your Service Advisor will be able to give you an exact time when they check in your vehicle.
• (If new Customer, explain service drive and shuttle process.)
• Again, my name is ____________and if for any reason you need to reschedule, will you please give us a call?
• Have I answered all of your questions and provided you with excellent service today?
• Thank you for calling and have a great day!

Declined Service(s)

If You Get Voicemail
Hello, __________, this is __________ calling from Motorcars. Please call me at XXX-XXX-XXXX. Thank you! Have a great day.

If a Human Being Answers
Hello, this is __________ calling from Motorcars. Is __________ available?

Hello, __________, this is __________ calling from Motorcars. Your Service Advisor recommended some work during your most recent visit, and I’m calling today to schedule your reservation.

We have an opening today at __________. Will this work for you, or would another day be better?

If They Push Back
I understand. Do you mind letting me know what obstacle we might be able to help with?

If It’s About the Cost
I realize that this might be an unexpected expense. If it will help, we have a special coming up next week on (depending upon which service was declined):
Alignment - $95.96 (normally $119.95)
Brakes - Save $50

We also offer a deferred interest credit card that allows you to take up to 6 months to pay for any work that you have done. It can also be applied to needed parts, such as tires and so on. Would this be helpful to you?

IF IT’S ABOUT BEING WITHOUT A CAR (only applies to brake jobs)
If it will help, I can offer a 1-day rental at no cost to you while you have this work done.

IF YES
Great! What I’m going to do is to schedule your reservation and I’ll add a note to your Service Advisor, so they’ll know about this.

(Make sure you schedule them with the same Advisor who made the original quote.)

IF NO
That’s fine. When you are ready to schedule this service, please let me know. My name is __________ and you can reach me at XXX-XXX-XXXX ext XXX. Is there anything else that we can help you with today? (Pause) Thank you! Have a great day.

No Show Follow Up

Hello, this is _____ calling from Motorcars. The reason I’m calling is that it looks like you may have missed your recent service visit. We understand – life happens.

Would you prefer to reschedule in the daytime, evening, or on a Saturday?

I have 3 times open on __________ … one at __________, one at __________, and one at __________. Which is best?

Great! I have you scheduled on AT . We have you scheduled for . Is there anything else that you wish to add?

Excellent, we’ll see you at ON . Have a great day!

IF THEY PUSH BACK
I understand. When you’re ready to reschedule, just call us back at XXX-XXX-XXXX. We look forward to seeing you again soon!

Recall Script
If You Get Voicemail
Hello, __________, this is __________ calling from Motorcars about an urgent safety recall.

Please call me at XXX-XXX-XXXX extension XXX. Thank you!

If a Human Being Answers
Hello, this is __________ calling from Motorcars. Is __________ available?

Hello, __________, this is __________ calling from Motorcars. Your vehicle is subject to a safety recall by Honda/Toyota, and I’m calling today to schedule this service. This service is intended to improve the safety and reliability of your vehicle, and it’s completely free to you. If you like, we can schedule the recall service at the same time as your next maintenance service.

We have an opening today at __________. Will this work for you, or would another day be better?

If They Push Back
In addition to improving the safety and reliability of your vehicle, Honda/Toyota requires this service to remain compliant with your vehicle’s warranty.

Would an evening or weekend reservation work better for you?

ToyotaCare

If a Human Being Answers
“Hello, this is __________ calling from Motorcars Toyota. Is __________ available?

Hello, __________, this is __________ calling from Motorcars Toyota to schedule your ToyotaCare service. This is a free maintenance service that we provide that includes everything but air filters and wiper inserts for the first 2 years that you own your vehicle. We have an opening at __________ on __________. Will this work for you, or would a little later be better?”

If You Get Voicemail
“Hello, __________, this is __________ calling from Motorcars Toyota to schedule your FREE ToyotaCare service. Please call me at __________ ext. __________ to schedule this service. I’ll be happy to help. Thank you!”

ToyotaCare Plus

If a Human Being Answers
“Hello, this is __________ calling from Motorcars Toyota. Is __________ available?

Hello, __________, this is __________ calling from Motorcars Toyota to schedule your next maintenance service. I see that your ToyotaCare service plan is about to expire/has expired. Would you like to extend your ToyotaCare coverage?

Extending your ToyotaCare will extend your coverage for maintenance for an additional 2 years. This will cover your first major service, which is normally $160. It will also cover 3 additional services after that. Extending your plan will also extend your roadside coverage for an additional 2 years. This covers flat tires, no starts, running out of gas, and they will get you to the nearest Toyota dealership anywhere in the United States.

There are 2 ways that you can extend your ToyotaCare. One is to pay the total amount of $329 plus tax.”

If They Say No
“That’s fine. Let’s go ahead and schedule your next maintenance reservation.” (Continue with service scheduling process.)

When They Say Yes
“Excellent! Let’s go ahead and schedule your service, and then I’ll take your credit card information so that we can extend your ToyotaCare coverage.”

Pay for Value

Here's a crazy idea: Pay everyone in your organization based on what they contribute to your bottom line.

Before you call the fellows with the straitjacket or start gathering torches, slow down for a moment and really think about this. I grant you that it will take a lot of time and thought up front, but there are some important payoffs involved that may work for your business, including having a compensation system that is fair, equitable, and transparent.

When you hire someone, how do you currently determine what to pay them? Do you fall back on the age-old method of looking to see the median wage for that role and experience level, then come up with a range slightly above or below it? Why? How does what 'the average' is have anything to do with that role's value to your company? What if 'the' average is wrong, or comes from companies that are much larger or smaller than yours? Doesn't this seem awfully arbitrary for something as important as someone's paycheck - something that's probably your single greatest business cost?

Maybe you look at what the prospective employee makes in their current position, or average the highest and lowest wages from their last few jobs. Again, what does any of that have to do with your organization, their role within it, and your needs?

Nothing.

Salespeople are easy. How much did they sell? Pay them a percentage of that. Piece workers, too - how many gimcracks have they made today? Where the real work comes in is looking at every other role within your organization the same way.

Do you employ an accountant? How much money do they collect for your organization? How much do they save? Don't you think they'd be incentivized by getting a little something extra based on that?

How about your marketing department? Did their latest campaign increase sales? By how much? Do you think they would work harder or longer if they had skin in that game?

IT, HR, Customer Service... everyone has value based on revenue they create or money they save. Especially if you are just starting out, and can't afford to pay 'the average', you can build loyalty and ownership by paying people for going above and beyond the bare minimum. And I don't mean some kind of hokey award or slap on the back - I mean a culture where such things are measured and comped on a daily basis.

What's wrong with everyone knowing what everyone else makes? If the goals and their incentives are clear, nothing. How can you complain about what you're paid if you have the means and the incentive to do better? You might, but no one else will listen, and you won't last long. Everyone will be too busy raising their own pay.

And if they are doing what needs to be done to justify that pay, imagine how much faster your organization will grow. Do you think your employees will tell their hard-working friends what a great place your organization is? Especially if you give them an incentive to help you find great employees?

"Yes," I hear you say, "but what if they decide to work somewhere else that will just pay them more?" Folks, there is always somewhere else that will pay your employees more; that's how free enterprise works. You have to be able to show the value of your organization and its incentives in a way that makes sense to prospective employees. Do you really want someone who will leave the moment they're offered more money, or do you want employees who believe in bettering their condition by having control over their own value?

Just because you do something the way that you'e always done it doesn't make it right. In a world of constant competition, you have to question everything you do, re-examine it, and not be afraid to face change if it doesn't make sense any more.

What Goes Up Can't Come Down

There is a truism about incentives that applies equally to Customers and Employees: What goes up can't come down.

When you consider an incentive program for employees, regardless of whether it's a spiff program for Customer Service, a bonus structure for Salespeople, or a shared pool for people within your organization who find ways to save money, it's always best to start conservatively, with the smallest incentive that you believe actually is still an incentive. If it turns out that the incentive is too low (depending on whether or not your business is seasonal, it can take anywhere from 90 days to a year to figure this out accurately), it's easy to lift it a notch or two down the line.

But what happens if you start too high, and have to trim back?

Even if none of your employees hit the incentive minimum, scaling it back will immediately be seen as a negative - as you 'taking away' something (even if no one ever received it). And it will be grumbled about behind your back for months and months to come. Who needs that kind of grief? Especially grief that you caused for yourself?

There's nothing wrong with incentivizing behavior; there's no doubt that, when done correctly, it works. But the 'when done correctly' part is key. Consider carefully what you are incentivizing, and start slow and small.

The same applies to Customers. The author Terry Pratchett tells a story about a bounty that was placed on rats in his fictional city of Ankh-Morpork. To curb the city's rat population, citizens were given a fixed amount for each rat tail that they brought in. The result? The rat population increased, because the citizens were farming the rats to earn extra money.

If your incentive has a loophole or a flaw, I personally guarantee that one of your Customers will find it. In fact, many of them consider it their job to do so. And you know what? They're right, and shame on you if you missed something, because getting it right the first time is your job.

It's important not to create incentives in a void; don't ever let Marketing do it alone. Run it by every Salesperson and Customer Service rep you have; they are terrific at finding holes and faulty logic. Plus, by having them take part, they will also take ownership. How can that be a bad thing? Marketing, Sales, and Customer Service all talking to each other? Fantastic!

And, again, until you know what response rates are going to be, start slow and small. It's no good ordering 500 free iPads to give away for every new Customer signed if 5,000 show up. They will blog, Twitter, and Facebook your reputation back to the Stone Age, turning a campaign that you planned as a big plus into a potentially lethal minus.

Look. Listen. Learn.

Quid Pro Quo

Here's a rule that managers and employees must learn, regardless which department they belong to:

The amount of a manager's time (and the company's money) that any employee is entitled to is directly proportional to the amount of revenue that that employee creates or the amount of spend that that employee saves.

Simple, clear, appropriate. Notice that I do not use the word 'fair'. Fair is a fuzzy term; its definition depends upon who is speaking, and never the twain shall meet. But 'appropriate' is something that we can agree on, even if neither side particularly likes it.

Take a look at how your Customer Service and Business Development teams are comped. If your organization is like most, the first is too low and the second is much too high. And I know that the next words out of your mouth are these: "How can we compete for BD reps if we pay below the going rate?"

First, half the reason that you need BD reps is that you lose Customers because they don't receive Customer for Life service. Fix that - maybe by increasing retention among your CS reps and comping them for hitting Customer retention goals - and half of your BD needs go away.

Second, you are not looking for BD divas; you want BD reps who consistently hit 100% of goal (not above or below that) and who take the long view that taking care of Customers up front leads to more and better referrals which leads to higher revenue which leads to more money.

When you comp by value, there is less jealousy and distraction from doing work, because the math is there for all to see: Produce more or save more = get more.

You can't fulfill the American dream any simpler than that.

Ass Kisser of the Month

You know what's wrong with Employee of the Month awards? Their existence. In nearly every organization on the planet, it's an excuse for management to perk someone they like. The problem with this sort of popularity contest is that it does nothing but cause resentment among employees, who see it for exactly what it is: Another way for management to reward their buddies for being their buddies. Bear in mind, this comes from a guy who's won these types of awards many time before, and who's been in management for a long time.

If you have any illusions that your organization is a business and not a club, don't ever utter the words "employee of the month".

Okay, having said that, I'm going to say exactly the opposite, and you're going to agree with me that both answers can coexist in the same space-time continuum without causing the annihilation of this universe, okay? Here's how it works if you really want to do Employee of the Month properly:

• Management has no say in who is nominated or who wins. Let's face it, management gets to choose winners and losers in everything else; they have no business here. Every nomination must come from someone who is not a manager, and only non-managers get to vote. 
• As part of the process, each person who nominates a colleague must explain in their nomination why they believe the other employee is a lifesaver. None of this, "So-and-so is always so nice" or "Treats Customers well". They should be doing that all the time. Never reward someone for fulfilling their job description; it sends the wrong message. The nomination must be for something that was above and beyond the call of duty. 
• If no one nominates anyone in a given month, there is no Employee of the Month. Period. The moment you jigger this, you're back to belonging to a club, and not running a business. 
• Make the prize something of value to the recipient. And by value I don't mean something that costs the company a bundle. You know what most non-managers want? More time off. So award the winner an additional paid day off of their choice. Screw what HR says; the winner will truly appreciate it - it feels just like playing hooky - and their friends will want it, too, which generates more above and beyond behavior. 
• Record it in some lasting way. A plaque that you add names to, if you're old school, or a permanent page on your blog, intranet, and / or FaceBook page. Something that the recipient can look at when they're having a bad day. Something that others can see is part of your organization's commitment to recognizing and rewarding extra effort (not popularity). 

I throw these pearls out there so you can add them to your strands and shine. But it's up to you to pick them up, and to share what you've found on that beach with us, too. Got anything shiny?

Sales Lift

I'm going to tell you a secret that every Sales Manager should know. It works best if your Salespeople are new to sales and/or if you have recently changed your bonus/commission plan, even better of you pay Salespeople their commissions quarterly, biannually, or annually, but it works to some degree with all Salespeople and it can lift your sales revenue by as much as 10% to 15% with almost no effort on your part.

If you are not already paying commissions monthly, start. There are 3 reasons for this, and they're all simple:
1. Salespeople work best when they have immediate, tangible rewards and/or punishments.
2. It encourages them to work harder the next month, rather than to mope for 3 months.
3. You want your Salespeople to get used to the idea that they have extra money at least once a month so that they use this money to buy things on credit. This usually happens within 60 - 90 days of the new plan.

This last reason is the charm. The moment a Salesperson buys something on credit, they now have to at least hit the goal that they did in the month that they incurred the debt just to make the payment on the item. And because they made enough money that month to buy what they consider a 'luxury' item (ie, a big TV, newer car, boat, etc.), that artificial lift in what they have to make is now a monthly must. And if they want to have any fun with their friends, they have to earn even more than that.

You did nothing, and your Salespeople lifted their quota all by themselves. If they are younger, the lift tends to be higher. If it is a new commission plan or you have just moved to monthly payouts, the lift tends to be higher. But even if you have always paid monthly and you have a veteran Sales team, a simple change in commission structure that elevates pay for 30 - 90 days... such as rolling out a new, progressive pay plan that coincides with your busiest season, you'll see some lift. Again, with almost no effort on your part.

Once your Salespeople get used to hitting the higher goals they've set for themselves and are comfortable with it (typically 6 - 12 months), they'll start to realize that they deserve a reward for and a break from working so hard. That takes us to step 2 of Lift: Planning the Big Vacation. This vacation is typically something that will take 'extra' money from several commission checks - 3 to 12, depending upon the destination and the number of luxury goods the Salesperson has purchased. The important thing is, to go on this vacation that they've promised themselves, they no longer have to just hit their new, higher goal... they have to start planning to hit an even higher goal over the long term.

Now your Salespeople start strategically planning how to even out their revenue stream by elevating every month, making the 'slow month(s)' less slow... sometimes even making them even better than what used to be your better months.

Of course, all of this is predicated on having hired Salespeople who are intelligent and not afraid of hard work. As long as you've done that, sales lift happens the moment you apply its driving factors. The best part: No one can get mad at you, because they did it to - and for - themselves. And if you've hired the right people, lift continues to happen when they decide to get married, have a child, have to pay for college for that child, put aside money for retirement, and on and on.

But you absolutely must do the following to make lift work:

• Payouts must be perfect each and every month. The moment a mistake is made on someone's check, their confidence in that money being there collapses, and will never return. They may even begin to sandbag.
• Your pay plan must be so simple that a 4-year-old understands it. Every moment that a Salesperson has to spend figuring out how much money they should be making is a moment that they're not selling. If they can't figure it out, why should they trust it?
• Lift doesn't work if no one knows how much money they've got coming, updated at least weekly (and daily is better). Make it something every Salesperson can see at a glance, no matter where they are, so that they can watch those dollars accumulate toward making that boat payment or paying for that vacation. If they're worrying about where they're at, they're not selling.

Cretins Cap Commissions

If your organization is like most, you have Salespeople (whatever you may actually call them). And, if you are doing your due diligence, your Salespeople have goals to hit. But suppose your Salespeople surpass those goals?

Many organizations make the mistake of capping a Salesperson's (or Sales Manager's) bonus and/or commission once they hit a certain percentage above goal. This is the dumbest idea since the square wheel. Here's why:

No matter how much over goal a Salesperson sells, the company makes revenue that is beyond its goals. Some companies make the excuse that keeping all of this money is a buffer in case other Salespeople fail to hit goal. If you built your sales goals properly, this buffer should have already been factored in.

You're just being greedy.

The worst part is that it encourages your Salespeople to sandbag. There is more possible revenue out there but, since there is no incentive for the Salesperson to bring it in now, they will either 'save it for a rainy day' or let it go to a competitor. Either scenario creates a hole in your market share, and an opening that your competitors are sure to exploit.

Think about this a little deeper, and you'll realize that your Salespeople feel like they're actually being penalized for being terrific at their jobs. How is it their fault that you set their goals too low? If you were them, and you came in ahead of goal, wouldn't you start looking for another company that values your skill and consistency more?

Of course you would.

Capping commissions and bonus at a certain percentage in a tiered compensation plan is fine, as long as the amount of money that the Salesperson (or Sales Manager) can make is uncapped. For example, let's say you have a commission structure where Salespeople make nothing until they hit 85% of goal. From 85% to 90% of goal, let's say they make 1% of net margin (or whatever makes sense for your industry), then 1.5% of net margin for 90% to 95% of goal, 2% for 95% to 100% of goal, and 2.5% of margin for anything above 100% of goal. This is fine. But if you say that a sales rep can only make 110% of their base pay in commission, regardless of how far above goal they are, you are begging them to sandbag (if they're merely competent) or leave (if they're terrific).

You want Salespeople to be hungry, so it makes sense for a substantial portion of their compensation to be commission-based... at least 25%, and probably not more than 50%. (This assumes that your Salespeople spend the bulk of their time selling, and not doing non-sales-related tasks.) You also want to be sure that they sell at least 10 times as much in revenue as they make in compensation (again, depending upon your industry and your margins).

How often do you pay commissions?

If it's less often than monthly, you're missing the boat. Salespeople respond to immediate feedback, positive or negative. If they push hard during a given month, they should be rewarded at the end of that month (or punished, if they did poorly).

You want the reward to come as soon after the action as possible.

I don't mean 2 weeks into the following month; that's ridiculous. If Accounting tells you they can't do it, tell them to go bugger themselves and find a way to get it done. I guarantee that the number of Salespeople who hit goal after you make this happen will dramatically increase. Part of the reason is that, if commissions come at least once a month, Salespeople begin to shift their lifestyles up a notch in anticipation of this reward. In other words, they buy things on credit, and then have to hit those higher goals just to keep up the payments.

This is why you will encourage your Salespeople to buy new cars, boats, nicer houses, big vacations, and so on. The more they spend on themselves, the more they'll begin to feel that they deserve those things and more, and the more they will have to sell to perpetuate that self-image.

And while you're talking to Accounting, remind them that a Salesperson should receive repayment for business expenses no later than the paycheck following the date that they turned in their completed (and accurate, please) expense report. You want your Salespeople to spend every waking moment thinking and talking about selling, not wondering when or if they're going to get paid back for that cab ride they had to take to the airport.

Double Dipping is Dumb

Many organizations break their Sales teams down into 2 functional groups: Business Development (sometimes called Outside Sales) and Account Management (sometimes called Inside Sales). While the names might be misleading (for example, Inside Sales reps might actually travel to see Customers and Outside Sales reps might spend a considerable amount of time on the phone, depending upon the industry and the organization's needs), what we really mean is that one group consists of Hunters and another group consists of Farmers.

Hunters find new Customers. Farmers grow the spend of existing Customers.

Some organizations add a 3rd layer: Sales or Account Administration. Typically, this layer appears when the organization's internal processes have become so dysfunctional that you need a whole other - and cheaper - person to make sure orders are entered, processed, completed, and delivered. If your organization has this layer, usually everyone agrees that it's a necessary evil. "We have these extra people," goes the argument, "because our Sales Reps' time is too valuable for this type of work, plus it would cost too much to improve our processes to make a change."

So you teach your Salespeople that certain tasks - like entering and following through on the orders that they are paid for - are beneath them? That certainly is an interesting culture you're building. Of course, it inevitably leads Salespeople to believe that other tasks might be beneath them, too, like returning Customers' calls, but hey - it's your business, and you can make everyone who actually does those tasks resent the Salespeople who have been taught to dump on them if you really want to.

But let's look at that second excuse a minute, shall we? You don't have enough money to improve your process. Fair enough. It might even be true. But just to be sure, let's kick the tires of that argument. Let's say you have just 3 Sales Admins (3's not too bad, right?), and you pay them $30,000 a year or, by the time you add healthcare and other overhead, let's conservatively say $45,000 each. Per year. For as long as your business exists. Which won't be very long if you keep paying 2 people to do one job.

Get the picture?

If you apply just one year of what those 3 admins cost to process improvement - even if it means investing in a much better CRM, accounting system, or whatever it takes to make that job practical for a single person to do - you have $135,000 to work with. And, after the first year, that savings (plus any cost-of-living adjustments you would have had to add on) goes right to your bottom line.

Friend, you can't afford not to be lean. And you never will.

Now let's look at another example of paying 2 people to do one person's job. Let's say you have Hunters and Farmers. Do you pay your Hunters only for a new Customer's initial purchase, or do they receive some type of residual pay for each order thereafter? If the latter, for how long? If you continue to pay a Hunter after they have handed a Customer over to a Farmer, you're double dipping.

Never double dip.

"Okay," you say. "Fair enough. But let's say a Customer took a long time and a lot of work to land. Plus their initial purchase was small, but later purchases weren't. How do I motivate a Hunter to hunt if we immediately take a Customer away from them?"

The issue isn't comping your Hunter for landing the Customer. The issue is paying them a) when they no longer have any connection with the Customer, and/or b) making it easy for Customers to keep going back to their Hunter, preventing the Hunter from hunting.

The secret to handling this situation properly is as follows:

• Bring in the Farmer on the day the Customer signs with you. Identify them as the Customer's Account Manager. Never for a moment suggest that they are the Hunter's assistant, or allow anyone else to suggest this (especially the Hunter).
• Pay the Hunter for the initial purchase, and for every subsequent purchase for a maximum of one year. (If your margins and/or commission percentages are high enough, you can and should gradually wean this amount down. If not, just cut them off after one year.)
• After one year, only the Farmer gets paid for this Customer's purchases.

This approach keeps your Hunters from being able to live on residuals - every year, they have to completely replenish their Customer base. This will encourage them to help make the transition to their corresponding Farmer as smoothly and as quickly as they possibly can. The quicker and the smoother this happens, the more money both reps make, and neither one feels subservient or entitled.

And, since we're on that topic, anyway, if you are like most organizations, chances are that you pay your Hunters more than your Farmers. Am I right? But if a Farmer retains Customers and grows each one's spend beyond their initial purchase, don't they typically make more money for your organization than your Hunters?

Then why do you pay your Hunters more?

The argument that I hear most often is that landing a Customer is harder than keeping one. This hasn't been true for awhile, and it's time that your culture caught up to reality. Keeping Customers is harder than it's ever been, and it's much harder than taking Customers from a competitor. Landing a Customer is a finite period of time, no matter how long it seems. Plus, if you follow the model above, you get to walk away from any problems after the initial order or two and wine & dine the next Prospect.

Am I saying that you should pay Farmers more than Hunters? No - but only because I don't think you're ready for that yet. But paying them in such a way that they end up making about the same if they hit their respective goals? Yeah. If anything, I think you're overdue for that one.

And if you think this was fun, just wait until we talk about the right way to split a territory.

Paying Your People

One of the more difficult business concepts for most people to understand is compensation. How much do you pay your people, and why? How often do you increase - or decrease - their comp (and why)? Do you offer an annual bonus? If so, is it a gift or an incentive (and why, always why)?

Let's start with the basics. Every pay plan, regardless of employee or department, must do the following:

• Reward production 
• Punish lack of production 
• Cause the extinction of undesirable behavior

People tend to do the things that reward them, avoid whatever punishes them, and stop doing what does neither.

Your job is to figure out what each employee's goals must be in order to reach your organization's goals. Sales is easy, but your accountants must have goals, too, and your IT folks. This requires that you understand each employee's role well enough to know what those goals must be. If they hit each goal, they receive the corresponding pay (everything is a transaction, remember?). If they don't, there must be a clearly defined (and clearly communicated in advance) penalty (your company is punished in a very real way when employees miss goals; to drive success, employees must feel the pain, too). If they surpass a goal, there should be a corresponding - and well-defined - reward.

Any behavior that is neither rewarded nor punished tends to go away on its own, with the exception of sexual harassment, bullying, prejudice, etc., where the behavior itself is the reward. Your other employees have enough to do without worrying about losers who engage in any of this crap. Fire them on the spot, and throw rotten tomatoes at them all the way out the door. Remember to follow through so that you get a nice, solid impact.

As I've mentioned before, performance is not a once-a-year report. You (and your managers) must meet with direct reports at least monthly to assess progress, obstacles, and provide requested resources and support. Performance review is an ongoing responsibility for both you and the employee. If they're doing better than planned, they have a right to expect recognition and a reward. If they are experiencing difficulty, they have a right to expect you to pay attention and mentor them (but not do it for them). In both cases, your attention is required.

The simpler your pay plan - including your pay plan for salespeople - the better. If an employee has to use a calculator or some kind of an outline to figure out how much money they're going to make, you didn't do your job. A 10-year-old should be able to figure out any given employee's paycheck in their head. You want employees to spend their time working, not worrying about how much they're going to make (or when they're going to get it). Because it is usually the most important thing on any given employee's mind, it must always be:

• Transparent 
• Accurate 
• On time 
• Simple

This includes reimbursements for business expenses. And when I say on time, I am a big fan of paying salespeople their commission no less often than once a month. I do it weekly, if I can. I've found that salespeople perform better when they have immediate feedback, whether reward for effort or punishment for lack of effort.

I'm also a firm believer in transparency. That means I have no problem with everyone knowing how much everyone else makes. This topic always starts an argument, but here's my reasoning:

If you are running your organization correctly, everyone knows exactly what milestones must be hit to make a given amount of money, right? Likewise to advance. If your employees know that the criteria is objective, and you're not going to promote someone just because you happen to go to the bar with them from time to time, they will work harder to reach the next level. And anyone who doesn't want anyone to know how much they make is hiding something.

My mom always said that, if you have to sneak, it must be wrong. I agree.

As a side note regarding promotions, it is vital that you be objective. If someone hits all of the necessary goals and does not advance, even though a position is open, they will leave. And you know where they'll go? To your competitor, who runs a business instead of a social club.

Also, never advance someone as an excuse to give them more money. Organizations that do this invariably become top-heavy. This makes your organization less profitable, slower to react to the market, and makes communication and the chain of command a complete mess. Always have as few managers (and employees in general) as you possibly can. Lean is healthy!

Last idea for today: Yes, of course you should know what other employers in your area pay their people for the same job. Don't bother with national tables; they tilt toward both coasts, neither of which may be realistic for your region. While you want your pay for a given job to fall about in the middle of the pack (too low, people leave; too high, people get lazy), there are other factors to consider besides pay. Employees leave managers much more often than they leave jobs. If you provide supportive, growth-oriented management, the right people will work to stay, even if a competitor pays slightly more.

People value being valued.

Margin, Margin, Margin!

To run a business, you must have a basic understanding of a few key metrics. Margin is about as key as you can get. If you don't understand margin, you are already losing money, plus you're a sucker. How did you even get this job? Let's cover the basics quick before someone finds out you don't already know them.

Margin is a percentage of the total revenue produced by a good or service. What the percentage means depends on what kind of margin we're talking about - gross margin or net margin. Gross margin is the relationship between gross profit and cost-of-goods-sold (COGS, also known as 'cost-of-sales' - how much it costs to produce the item or sell and provide the service; it doesn't include office expenses, rent, administrative costs, etc.).

Let's do some math:

(Revenue - COGS)/Revenue * 100% = Gross Margin Percentage

Let's say we sell a particular product for $50, and our COGS is $12:

($50 - $12)/$50 * 100% = 76% (or $38 per product sold)

The amount of Gross Margin that you assign to a given product is not arbitrary; although COGS covers your overhead and fixed costs such as wages, etc., it does not necessarily take into consideration the things that make your business last, such as future product development, future growth (including additional payroll), future technology requirements, etc. All of that has to come out of that $38. And if you are partnered with a venture capital firm or your organization is part of a public corporation, you may not see any of that $38 at all.

Another pressure on Gross Margin is competition. If you have a competitor who can produce a similar good or service to yours for a lower COGS, your margin is going to be squeezed. (Think of how the iPad squeezes other tablet makers, and how the Kindle Fire squeezes the iPad.)

In general, depending upon sales frequency (or inventory turns, if you're in retail), you want to choose a Gross Margin percentage that allows you to cover all of the tangibles plus unforeseen expenses such as the above. Once you figure out what that percentage is, and you know the COGS, it's easy to figure out how much to sell the product for:

Gross Margin + COGS = How Much It Costs the Customer

If we know that we want a GM of 6% and our COGS is $32, it goes like this:

((6/(100-6)) * $32 = $2.04 (this is your Gross Margin in dollars)
$32 + $2.04 = $34.04

Here are couple more formulas to add to your tool box:

Net Sales = Gross Margin + COGS

(Gross Margin/Net Sales) * 100 = Gross Margin

And here's one more that is always a toughie: Suppose you have salespeople (even if you don't call them that). How do you figure out whether or not what you pay them (or their manager) is "right"? Easy, and it's a formula that will help you stay out of trouble when it comes to compensation:

An adequate salesperson (or sales manager) should sell 10 times their wage (including commissions, bonuses, and other perks).

See how easy that was? Now gimme 10 laps and hit the showers.

Compensation as Behavior Modification

A currently popular saying regarding compensation goes like this: Hire 5, work them like 10, pay them like 8.

This philosophy is interesting, if a bit simplistic. You should of course keep your boat's crew as lean as possible, not only because it keeps costs low and productivity high, but because in the long run it will also save the overhead and stress of layoffs. Rewarding people for working hard is also good compensation policy, but the real issue is that lumping all of one's employees into this pot means that some are going to make more money than they earn, while others will make less.

There is a tendency to see compensation as one of two things: a necessary evil (in the case of hourly and salaried employees) or a means to drive performance (for salespeople and executives). But compensation is actually one of the most powerful tools that you have to shape all employees' behavior.

Employees tend to do what they are rewarded for, and tend not to do what they are penalized for. Setting an employee's entire compensation package according to some arbitrary measurement (such as local cost of living) or fixed rate (a so-called "industry norm") does not drive a desired behavior or penalize an undesirable one. Instead, why not start with a base package of some kind that is based on the lower end of the suggested range for a given position, and let anything above that - up to 20% of the employee's total possible compensation, let's say - be earned according to the accomplishment of specific, beyond-the-minimum-effort milestones over the course of the year?

The milestones, of course, must be mutually agreed-upon, and the reward clearly spelled out. You must schedule regular meetings to closely follow progress and ensure that the employee has the resources necessary to accomplish the agreed-upon tasks. And there should be public recognition for those who do (for some, this is even more motivating than money).

If employees fail to accomplish agreed-upon goals, they should not be rewarded. This may seem obvious, but it is amazing how often it happens. If you're running things correctly, only those who perform according to clearly defined metrics should get anything - not those who go out for a beer with you or happen to work in the home office, where promotions seem to happen faster than at any other location in the company.

A reward system allows employees in each department to communicate where they think the holes are in the organization, empowers them to address them, helps them to grow (and shows you who is ready to move up), rewards employees for doing more than the minimum, and even makes them feel good about it.

If you're lucky, it might even take that chip off of everyone's shoulder about how salespeople are paid.

Don't Work Below Your Pay Grade (or Let Anyone Else)

Have you ever said, “It’ll be faster if I just do it myself”? Of course you have; it’s human nature, we all do it, and there’s nothing wrong with thinking that. It only becomes an issue if you act on that impulse, and do work that someone with a lower pay grade should be doing.

In a way, doing work that is someone else’s responsibility is pure snobbery - you do it because you think that you can do it better or faster than someone else. You may even be able to do it better or faster. That’s not the point. The point is, you are being paid to do something else - supposedly something that no one else can do - and, by avoiding your own work, you are cheating your organization by becoming the world’s most expensive office manager/technician/dishwasher/automobile porter/accountant/snowplow driver/etc./etc./etc.

You are paid more because the tasks assigned to you have a higher monetary value for your organization. By not performing those tasks, you are essentially goofing off. Goofing off costs your organization money because you are not being as productive as your pay grade requires you to be.

Aside from sheer monetary concerns, the ‘I can do it better’ attitude is condescending at best. If the person who is tasked with performing a certain function really can’t do it faster or better than you can, it’s your fault for hiring the wrong person, or not training them properly, or not thinking the job requirements through before deciding that you needed someone to fill a position.

Then consider this: Just because they may do things differently than you would doesn’t make them wrong.