Developing the Right Pay Plan for Service Advisors

Last week, George Gowen wrote about the importance of service advisors to retaining your customer base. This naturally leads to the question: How much should I be paying them?

Taking Stock of Service Advisor Pay

Before you make any decisions about your dealership’s pay plan, you need to carefully evaluate the current market, as well as your budget constraints. In general, NCM recommends that you consider the following questions:

What's your philosophy towards advisor compensation? What’s the right amount to budget for advisor compensation? Should advisor productivity affect advisor compensation levels? In addition to monetary compensation, what other elements do you want to include in a well-balanced advisor pay plan?

What’s your philosophy towards advisor compensation?

Most dealerships have begun to view their service department as a “selling” organization, not just a “fix it and smile” division. When you adopt that philosophy, your compensation plans must focus on sales activities and results. To achieve this, your advisors will need to improve their customer R.O. transactional quality while decreasing their customer R.O. transactional quantity. This could result in the need to add more advisors.

What’s the right amount to budget for advisor compensation?

When it comes to service advisor compensation budget, NCM recommends using 12.0% of department gross (before any parts gross transfer) as the metric for budgeting service advisor compensation. This budget guideline may vary sometimes—a little higher for domestic franchises and a little lower for luxury franchises—but relating compensation to performance is an important step. And, remember: budgeting refers to how much you should pay, while structuring refers to how you could pay.

Should advisor productivity affect advisor compensation levels?

Advisor productivity is a critical component of compensation. You must clearly define this connection, and let your service advisors know that their income will be dependent on it. Set expectations and get their commitment to this approach. After all, it’s advantageous to them: an advisor with high transactional quality and CSI, could earn as much as 14% of the gross he/she generates; meanwhile, an advisor with below average transactional quality and CSI, might earn as little as 10%. When your service directors understand this, they will do what’s necessary to improve their pay.

What other elements do you want to include in a well-balanced advisor pay plan?

This is harder to answer. Here’s the thing: there is no “one size fits all” solution to automotive pay plans. What works brilliantly for one dealerships may be an absolute disaster in your shop. Each dealership has a different business culture that impacts pay plans. And your franchise requirements, personal priorities and state and local laws will all significantly influence the decisions you make on pay plans.

Structuring Service Advisor Pay Plans

While you must keep in mind that every dealership is different, here are the general recommendations that NCM has for any service advisor pay plan:

1. Service advisor pay plan structure should be 100% incentive based, with a reasonable underlying guaranteed draw against commission.
2. As billable hours is the force driving service and parts profitability, the main determinant for pay should be Hours Billed per Individual Advisor per Month, with $x.xx paid for each hour billed, in all labor categories. We’ve seen this as a stand-alone compensation metric, as well as combined with either customer effective labor rate or hours per customer R.O., sometimes both. This category might represent 55% – 70% of the plan structure.
3. CSI Performance is usually the next element. The advisor should be rewarded for achieving world-class service. The payment can be quantified as “an additional $x.xx paid for each hour billed” (see #2, above). Depending on how much manufacturer money is tied to CSI, this category might represent 10% – 20% of the plan structure.
4. Next up are the Spiffs and Incentives, which cover such things as: (a) Parts Sales per Customer R.O.; (b) Customer Effective Labor Rate; (c) Menu Closing Percentage; (d) Tire Sales; (e) Service Contract Sales; (f) MPI (ASR) Closing Percentage. The payment might be quantified as an additional $x.xx paid for each hour billed (see #2, above), as a flat amount or as a per item amount. This would represent approximately 15% of the plan structure.
5. 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 focus on one number—total shop production capacity— throughout the month. Their goal is to achieve or exceed full capacity operations. You may quantify the payment as an additional $x.xx paid for each hour billed (see #2, above) or as a flat amount. This should be about 7% – 10% of the plan structure.