Padded Lease Rates

0.019584 Means 4% And its not a "pad" its the same reason that Banks get a lower interest rate than you and I can on a mortgage. Imagine this a bank is borrowing at .025 percent from fed and lending at .0375 to you and me. Thats a 50% percent "Pad" our industry marks up only 4-10% and most of that is eaten up by administrative costs.

Sales is break even at best, the real money is in the ongoing annuity and revenue stream from service.

Yoda, thanx

so, considering that the sale is 20,000, the sales persom uses .0204 and the payment is $408 to the customer. The money funded from the leasing company to the dealership is $20,833 right?

Yes and .3333333333 lol!

So, if you were to have a sales team that generated 160,000 per month, all were 60 months, then the "pad" or extra revenue to the company would be $6,680 per month and if that average was kep up for the year that would represent $80,160 in "pad" or extra revenue.

Yes and thats not much. Pays for maybe a Production SE, Lease admin or sales coordinator and part of a Sales Manager.

Art it depends on how many reps whats the comp plan etc.. Do any reps voluntarily give back salaries when they sell little or nothing one or two months out of the year? I think not, the pad also covers these inevitable down months.

If you want to be pure about it. Compare a straight commission position with actual dealer cost. I did it once and made the most money I ever made. Im on a hybrid plan now thats 90% profit real P&L now, the good months are really good the bad ones are really bad but how many reps would accept a true profit only based position?

quote:

Do any reps voluntarily give back salaries when they sell little or nothing one or two months out of the year?

Yoda you bring up a good point here, after being with the same dealership for 13 years much of my time is spent with helping customers with questions, emails, and onsite follow ups for product questions, advanced training, billing questions, lease billing questions, moves, and many more.

So, I don't agree that if I had a bad month I would volunteer to give back part of my meager salary.

New reps on the other hand have all the time in the world to prospect and traditionaly I would say that 1 in 5 hang in there for more than one year and 1-10 make it past three years, that what I've seen at my place.

Instead of padded rates, why not just mark the systems up higher to the salesperson, at least in this case the dealership would gain additional margins with purchases also.

Many Dealerships don't even admit to their own sales force that the lease rates are padded.

quote:

Originally posted by VinceMcHugh:
Many Dealerships don't even admit to their own sales force that the lease rates are padded.

I agree and would tend to think that it could be as high as 90%.

If and only if you process the entire billing packet you may have a point. If you do the job of a
Sales coordinator (Check the deal and paperwork for completeness and correctness)
Billing administrator (Complete the funding detail sheet, send the deal to the lease company, confirm funding has hit, send off docs)
Cut any buyout /payoff checks and deliver them to the customer.
Store equipment for stream of payment deals, then package, load and deliver equipment to old lease company.

Then you should have no points.
If you raise your cost then the cash customers would be paying for many of things that only lease customers use.

Art think of it as a lease processing fee. $833 on a 20,000 deal is not unreasonable. Or an origination fee (on a mortgage)

Last 4% of selling price could be as much as a 10-12% cost of goods increase.

Sometimes the gap between the dealer rate and the reps rate is due to a lower rate negotiated by the dealer in return for using ABC Leasing vs XYZ Leasing or it may be tied to a promised annual volume that if unmet, results in a chargeback. Regardless, it's not wrong or immoral. It is what it is, just like cost markup or delivery charge or whatever.
Now I admit I'm a bit of a terrorist when it comes to conventional logic, but I have always felt that my Aficio League points were dollars that Ricoh withholds from my dealer instead of lower cost of goods, and funnels direct to me at the dealer's expense. I still take it because my dealership is OK with it. There are reps out ther that get kick-backs from leasing companies in return for business. Again money that technically belongs to the dealership unless it is something they approve of.
Ultimately, most dealerships look to break even on hardware sales and profit from the service and supply residuals that result from the sales. The compensation might be high salary/low commission, low salary/high commission, include an expense allowance, have quarterly or annual bonus opportunities, etc. but ultimately, break even is break even regardless of how you slice the pie.

I Agree

quote:

Sales is break even at best, the real money is in the ongoing annuity and revenue stream from service.

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The compensation might be high salary/low commission, low salary/high commission, include an expense allowance, have quarterly or annual bonus opportunities, etc. but ultimately, break even is break even regardless of how you slice the pie.

You left out low salary and low commission

Our program is:
1) 24K base.
2) 30/40/50% of GP depending on sales volume for the month. 0-35k 35-45 45+.
3)3% bonus on all leases including buyout.
4)10% on first year service.
5) New customer bonus 100-600/machine by segment.
6)Qrtrly bonus for 100% plus
7)Annual bonus for 100% plus

A rep selling 40k per month average usually makes $100k ++

thats a nice plan

I was thinking the same thing...nice plan.
Yoda, do you know what your cost of goods is based on? For instance, Dealer Cost + 13% or whatever?

15%

That explains things some. Our "pad" is 12%. That means your company keeps an extra 3% of the GP on every sale before commissions then gives that back in the form of higher commissions or bonuses. If the average commission is 30% than approximately 1% of the profit is "held back" in your case to reward superior performance. Nothing wrong with that...just another way to slice the pie.

my pad is 15% and that's an awesome plan for yoda, I get more of a salary, however since I'm always over the 45K I could make some serious money!

quote:

Originally posted by Old Glory:
That explains things some. Our "pad" is 12%. That means your company keeps an extra 3% of the GP on every sale before commissions then gives that back in the form of higher commissions or bonuses. If the average commission is 30% than approximately 1% of the profit is "held back" in your case to reward superior performance. Nothing wrong with that...just another way to slice the pie.

No it means that we redistribute an extra 3% above the cost of goods to the people that are consistent high producers. Not the same as 3% of the sale price or GP. We dont keep any of it.