How a simple philosophical change can set a dealership's Accessory Sales on FIRE!

In my years of experience interfacing with dealerships, Accessory sales are often put at the bottom of the "To Do" pile; however, with a couple simple tweaks, this can all change. These changes, though simple, require a mental shift for dealership management and to think beyond traditional solutions.

In most dealerships I found have departments operate in silos, with pay plans that motivate behaviours that are self focused. Fixed Operations (Parts and Service) rarely talk to Sales and vice versa, and in fact they sometimes view each other as enemies taking each other's profit away. Sometimes I would hear comments like "I could have sold $3,000 of parts and labour, but NOOOO you had to go and sell them a new car!" The problem boils down to how pay plans are structured, with each earning a percentage off what their department sold.

Fixed Operations and Sales sometimes view each other as enemies taking each other's profit away

It's worth also spending a moment understanding the customer's desire for Accessories as a product compared to other automotive parts. Most people only replace automotive parts when they need a new one. For instance, people only purchase a wheel bearing because the one they have has failed, or is about to fail. There is no intrinsic desire to own a wheel bearing on its own.

Accessories, on the other hand, are different. They can add a new look or purpose to a vehicle, and people will buy them when they can understand the benefit that it adds to their lives. For instance: New 19" alloys make the car look great, rubber floor mats protect my car from getting dirty inside, the tow hitch allows me to attach a bike rack and tow a small trailer.

There is no intrinsic desire to own a wheel bearing on its own, but Accessories can add a benefit to people's lives.

Because the desire to purchase is different, so should the sales process and hence the people selling the items. A normal automotive part, like a wheel bearing, requires a person to take an order and find exactly the right part for that make and model. These people are order takers. Effective Accessory sales requires a person to show how a given accessory fits into a person's life, and the benefit they can derive from the purchase. The person required is a sales person.

However, few pay plans for sales people reward them for selling accessories. Many dealerships have Parts sell the Accessory to Sales at MSRP (or close to it), so there is no margin and therefore absolutely no incentive to sell them. Sometimes a customer may ask, and even then, chances are they will be talked out of the purchase. A simple philosophical shift is needed - Sales people are good at selling, so reward them and results will come.

Thus the best way to encourage Accessory sales is for a sales person's pay plan to be adjusted so that they are fairly compensated for selling Accessories. In my experience, 10% of MSRP is an appropriate commission, and this usually acts as a significant incentive. Typically, most accessories have 30-50% gross profit, so there is plenty of room for a sales person to make good money, while still enabling both Parts and Sales departments to earn a piece as well. Of course a Sales Manager also needs to be incentivised, so ensuring that the Sales Department retains a piece of the profit is also important. This system is called the Accessory Revenue Sharing model.

Sales people are good at selling, so reward them and results will come.

A good start to the revenue split would look something like this on a $100 MSRP accessory:

- Cost - $70

- Sales person commission - $10

- Sales Department profit - $5

- Parts department - $15

In this model, every department gets a cut of the profits, and all are motivated towards success. As Parts still retains 15% there is still enough profit for them, and above the typical wholesale rate of cost + 10%.

The 10% of MSRP for a sales person is appropriate for 2 reasons:

1) It easily becomes worth their while to promote and sell accessories as there is a significant financial reward to do so

2) 10% is a number that is easy to calculate. If a salesperson sells an accessory for $500, they know straight away that they will put $50 in their pocket.

So what does success look like? Typical results I have seen for dealerships who actively develop and work towards successfully selling Accessories using the Accessory Revenue Sharing model, generate a sales lift of 50-100%. Dealerships quickly find that Sales people (and Business Managers) are very good at selling, so sales take off.

What are some of the push backs that I have encountered?

1) Lower profit per item for Parts, and for the dealership as a whole. If a sales person is to be appropriately paid for selling accessories, this will occur. However, no dealership manager would dream of having their sales people sell cars for nothing and expecting that to be successful, so the same should occur for Accessories sales. Typical results however see Accessory sales increase significantly so that dealership profits on Accessory sales rise by 20-50%.

2) Sales people chase accessory gross rather than vehicle gross. This can occur, though in my experience a wise sales manager can usually sort this out pretty quickly if there is a deal to be had. This can usually be fixed by changing the compensation structure on low gross deals.

3) Accounting complexity. This is perhaps the most difficult problem to get around. If a streamlined process is not developed, the amount of work for an accountant can get out of control pretty quickly. The best way forward is to keep the process and revenue splits as simple as possible as adding complexity adds time and the potential for errors. A couple tips that have worked: 1) Parts can pay Sales 5% of the MSRP of the total Accessory sales, regardless of who sold it; 2) Keep any variances away from the 10% commission to a bare minimum.

4) No profit on low percentage gross Accessories. These items are generally small volume and apply to OEM Accessory electronics like Navigation systems, so they can be highlighted and a dollar amount representing about 30% of the gross then awarded to a sales person. Ensure that this system applies to as few items as possible to keep Accounting complexity to a minimum.

No dealership manager would dream of having their sales people sell cars for nothing and expecting that to be successful, so the same should occur for Accessories sales.

While these 4 challenges do require careful planning, they are not problems that are show stoppers. Like most newly implemented processes in dealerships, it is important to run Accessory Revenue Sharing for at least 3-6 months, analyze the results, and make improvements if necessary.

In summary, there is substantial profit to be made with Accessory sales, and using the Accessory Revenue Sharing model is a great way to maximise the dealership's returns.