Time and again, I have visited recyclers who realize that they have fallen behind and who are looking for ways to get 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 these 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 nine out of ten 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 get 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%.
- Inventory – It goes faster and is more accurate when they are 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 makes 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% of your total parts sales.
Remember only you can make business great!
Ron Sturgeon, founder of Mr. Mission Possible, small business consulting, combines over 35 years of entrepreneurship with an extensive resume in consulting, speaking and business writing, with seven books published. A business owner since age 17, Ron sold his chain of salvage yards to Ford Motor Company in 1999, and his innovations in database-driven direct marketing have been profiled in Inc. Magazine. After the repurchase of Greenleaf Auto Recyclers from Ford and sale to Schnitzer Industries, Ron is now owner of the DFW Elite Auto suite of businesses and a successful real estate investor. Ron is a web expert, but he is also an expert in helping all types of small businesses become more successful and more profitable. Ron can be reached at 5940 Eden, Haltom City, TX 76117, 817-834-3625 or by email at rons@MrMissonPossible.com.