How Should You Pay Service Advisors?

by Garry House, Garry House & Associates Co.

Not by design or intent, but rather simply by circumstance, over the past 30 years I have become known as a subject matter expert (SME) in the arena of dealership compensation planning and implementation. Based on the phone calls and emails I receive, it would seem that the hottest compensation topic on the minds of my client-dealers is service advisor pay plans. The common questions that I am asked most frequently are as follows:

​

"Has there been any significant change in advisor compensation philosophy over the last three year period? How should advisor compensation be budgeted? How should advisor productivity affect advisor compensation levels? What elements should be included in a well-balanced advisor compensation plan?"

​

The first question is pretty easy to handle, because it relates primarily to a changing “mission” within the community of better dealers. Most of the clients with whom I work are attempting to transform their service department staff from a “fix it and smile” organization to a “selling organization.” And in so doing, these clients recognize that compensation plans need to be oriented to sales activities and results. There is no longer a place for an “order taker” in the service drive. So the mantra now seems to be that for advisors to enjoy the income they’ve previously experienced, they will need to a) increase their customer R.O. transactional quality, and b) reduce their customer R.O. transactional quantity. This will result in the need to add more advisors.

As a general rule, those of us who work regularly within the service department training and consulting arena use “12.0% of department gross (before any parts gross transfer)” as our guide for budgeting service advisor compensation. This budget guideline is sometimes a little higher for domestic franchises and a little lower for luxury franchises. However, please understand that budgeting compensation and structuring compensation plans have different meanings; budgeting refers to “how much” we should pay, while structuring refers to “how” we should pay.

​

The relationship between advisor productivity and advisor compensation is critical, and this needs to be clearly defined and communicated when we set expectations and seek to gain commitments. An advisor who has superior transactional quality, superior CSI, and who handles an adequate number of customers could earn as much as 14% of the gross he/she generates. On the other hand, an advisor with below average transactional quality, below average CSI, and who handles a below average number of customers might earn as little as 10% of the gross he/she generates.

The fourth question is the most difficult to answer. I’m going to try talking about how to structure a well-balanced compensation plan without getting myself in trouble. First I need to say that, like any other dealership compensation plan, there is no “one size fits all.” There are numerous reasons for this, such as, but certainly not limited to: a) each dealership, each service department, and each advisor staff might operate within different cultures, and culture certainly has an impact; b) the dealership franchise might impact the advisor compensation structure. c) the individual priorities of the dealer principal might impact the advisor compensation structure; and d) state and local wage and hour laws might impact the advisor compensation structure.

​

Here are my general recommendations for advisor compensation structure:

​

As is my philosophy with most sales compensation plans, the structure should be 100% incentive based, with a reasonable underlying “guaranteed draw against commission.”

​

Since “Hours Billed” is the force that drives service and parts profitability, the predominant driving force within the plan should be Hours Billed per Individual Advisor per Month, which might mean $x.xx paid for each hour billed, for each labor category. I have often seen this as a stand-alone compensation metric, but I often see it “matrixed” with labor gross profit, or total R.O. gross profit, or a mix of these elements. This category might represent 55% - 70% of the plan structure.

​

Achieving “acceptable” or “world class” individual CSI Performance is usually the next ingredient in the compensation structure. The advisor should be rewarded for achieving either of these levels. The payment should be quantified as “an additional $x.xx paid for each hour billed (second bullet point above. Depending on how much manufacturer money is tied to CSI, this category might represent 10% - 20% of the plan structure.

​

The next category is what we refer to as “miscellaneous spiffs and incentives”, that are typically defined as the Top 3 Sales Initiatives for the Month and might cover such things as:

​

Parts Sales per Customer R.O.

Customer Effective Labor Rate

Menu Closing Percentage

Tire Sales

Service Contract Sales

MPI (ASR) Closing Percentage

The payment might be quantified as “an additional $x.xx paid for each hour billed (second bullet point above), or as a flat amount, or as a per item amount. I normally like to see this category represent approximately 15% of the plan structure.

​

The final category is a team incentive based on Percent of Total Monthly Shop Hours Objective Achieved. The intent here is to have all service and parts personnel focused on the same number (total shop production capacity) throughout the month, trying to achieve or exceed full capacity operations.  The payment might be quantified as “an additional $x.xx paid for each hour billed (second bullet point above) or as a flat amount. I normally like to see this category represent approximately 7% - 10% of the plan structure.