Question: If you don't agree with volume bonuses determined by market-shares (as they are currently defined), what alternative programs would you suggest for major-line manufacturers to evaluate and reward top-performing dealerships?
Answers:
“I look at this differently I guess, but I feel when you start paying these volume bonuses all it leads to is prostitution in the market place. If suppliers would price their products competitively in the first place, there would be no need to pay volume, and if the dealers would make a good margin when they sell products, they would not need a bonus. These incentives to sell more and more and make less and less only help the suppliers. Dealers are cutting each others throats over pricing and soon end up closing because the cost of operations is staggering.”
— Mike Guthrie, M&C Equipment, Brenham, Texas
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“Volume bonus is great way to reward a dealer for selling more. The more you sell, the more you get. Brand purity is the garbage part of it. If we sell a competing product, we do not get as high of a percent of the volume as if we were brand pure. Even if we sell more than most “pure” dealers, we are penalized for selling a competing brand. If manufacturers are afraid of the competition, they should make a better product.”
— Greg Simpson, Simpson Farm Enterprises Inc., Ransom, Kan.
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“It has to be tied to market share. This is the only way to give a volume bonus.”
— Dexter Schaible, Soo Tractor Sweeprake Co., Sioux City, Iowa
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“I do not participate in New Holland’s volume bonus program. I am enrolled in their True Blue program. True Blue is not a bad alternative to volume bonus. New Holland and I set an objective and if I can reach or exceed that goal, I earn True Blue bonus dollars. The down side of volume bonus programs is that they focus equipment dealers’ efforts on sales volume instead of profit. Many times dealers will over allow for trade-ins just to make a sale and the used inventory stacks up on the lot because it is overpriced. Overpriced used equipment and past-due receivables are the bane of equipment dealers!”
— Mike McCrate, Tulsa New Holland, Tulsa, Okla.
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“I think we all understand the importance of market share and the long-term benefits of both high and growing market share, however not all situations are created equally. Thus, weighting volume bonus too heavily on market share is something that I feel most dealers do not like. I would like to see volume bonus rewarded primarily and less on market share.
— Mark Foster, Birkey's Farm Store Inc., Attica, Ind.
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“Everyone enjoys receiving a volume bonus. Some dealers use it as their profit margin while others use it as it was originally intended to be, “a bonus” for doing profitable deals throughout the year. With the multiple deals and huge discounts being offered by the manufacturers, I don’t know how there is still money left over for volume bonus. As long as there is going to be volume bonus, I would suggest it should include parts and service sales and customer satisfaction. Only rewarding sales market share doesn’t address the core of a business like parts and service does. If manufacturers are going to continue to see who can give the most money away to make a deal, then customer loyalty will continue to disappear.”
— Clark Tweed, Tweed Farm Equipment Ltd., Medora, Manitoba
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“The problem we have is there is no way we can compete with the large multi-store dealers. It hurts the smaller dealers trying to make a living. When it comes to “dedicated dealers” i.e., Unverferth Manufacturing has a 7% refund to dealers that "only" sell their brand. Of course when you own seven stores you can have one dedicated to Unverferth, one to Brent, one to Killbros and one to Parker.
At this point they can shuffle equipment back and forth and still get their kickback. In our business, I sell the Unverferth brand, but we have customers that may want an EZ Trail, Killbros or something and I cannot sell it to them. Even if I wanted to order a 250 bushel gravity box or up to a 1,300 bushel grain cart, I can not get them because they are sold out. Oh well, play the game.”
— Richard Burmeister, Burmeister Farm Equipment, Warren, Ill.
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“The bonus should be given for sales made in the dealer’s assigned area of responsibility only, not for sales made outside this area. Dealers with only one store should have different goals than the large multi-store dealers. These single store dealers should have obtainable goals as well.”
— Bob Jackman, Hall Implement, Windham, Maine
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“I really don’t feel the market share numbers are the way to reward dealers a volume discount earned on sales, as I don’t believe they are accurate and fairly assigned. We are on par with all other major multi-store corporate headquarters, and I don’t believe all sales are registered in the right proportion. There are huge multi-county farms, fleet rentals, multi-unit purchases with buyer groups put together to maximize discounts all of which effect our personal market share numbers. Our own supplier availability and products that compete are often an issue. I would propose a dealership certification program, an agreed-upon supplier sales plan put together for our own operations and area, or a combination of all the above. Give us a system that we can control and not one controlled by others.”
— Fran Romsdal, Central Sales Inc., Jamestown, N.D.
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“Volume bonus is a price adjustment that is allowed because the original invoice price is too high. Also, some dealers go back in history and cite that they keep it out of the market place. Maybe on a one or two unit deal, but the more multi-unit deals that we do as farmers get larger each year, makes it critical to get up front allowances to just get a second look at the deals. There is no integrity in posted manufacturer prices.
We as a dealer see volume taken away on multi-unit deals. The market share criteria are just a cover for the basic manufacturers to shrink dealer margins.
The worst practice, which is used to discriminate and attempt to intimidate a dealer, is the discretionary money given to close a transaction at the end of the month. Some dealers have reported getting outlandish amounts to close deals at the end of months. That money is not driven by overall market share but to meet some goal for units in a particular month. In fact, I would support a federal law banning any market share payments. What has been forgotten is that pricing should be uniform and available to all customers of a certain size and available to all the customers of the manufacturer, and I consider a customer to be the dealer.”
— Name withheld by request
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“I agree that volume bonuses are important to our business, and I do not have a problem with them being market share driven. I do have a problem with dealers selling all over a four state area and collecting these bonuses. If they are selling outside their AOR and are more than one county removed from their AOR, the bonus should be eliminated or greatly reduced. We seldom sell outside our AOR, as we cannot provide the service the customer deserves nor can we afford to. Too often we have dealers dump equipment in our area and expect us to service it. They don’t deserve the volume bonus on those units.”
— Mike Lynch, Vacin Inc., Humphrey, Neb.
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“Do away with it and just make your margin on the product sold; as is we have dealers selling for just the volume bonus.”
— Dan Palm, Farm Equipment Headquarters, Pendleton, Ore.
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“In regard to volume bonuses, I do agree with receiving volume bonuses. I prefer the way some of the shortline companies do it and pay strictly on items sold regardless of where it was sold or to whom. Unfortunately, our major supplier is increasingly paying volume based on market share, which we do not agree with because equipment that is misreported either by accident or on purpose skews the percentages and could affect on our total volume payout. With margins growing increasingly thin, volume payments are an important part of our profitability. We question the accuracy of the actual percentages and unit numbers and registrations reported by the major manufacturers and feel it is unfair to base bonuses on numbers that are, at best inaccurate, or worse, fictitious. Also, it is hard to have any substantial impact on market share with the limited availability of equipment.”
— Name withheld by request
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“Market share is not the issue. AOR definition is the issue. AOR boundaries should be explained, refined and up for review.”
— Drew Stevens, Stevens Implement Co., Petersburg, Ill.
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“In our experience volume bonus tends to make the dealer focus on pushing iron instead of customer needs, undercutting other dealers’ prices just to achieve volume, and forgetting customer satisfaction. Volume dealers tend to lose focus on the long-term goal of customer satisfaction and repeat business. How about giving every dealer a level playing field, letting dealers sell on merit and true profit, and reward dealers for customer satisfaction, which leads to repeat business … another reward.”
— Don Prenger, Prenger Implement Store, Minster, Ohio
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“They are an excellent reward for exposing the dealership to the additional risk that increased market share requires. The only change needed is to reward higher market share percentages more than they do. It should not be so linear so as to match the added risk and effort required.”
— Don Van Houweling, Van Wall Equipment, Perry, Iowa
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“There is no substitute for volume discount as an incentive to dealers to sell a brand of equipment — and keep doing it for generations. This is volume discount as determined by new sales in that dealer’s area of responsibility. Market share is mostly a MBA measuring stick that sometimes has nothing to do with profit. Profit is king and volume =profit and there is no substitute for profit.”
—Tim Brannon, B&G Equipment Inc., Paris, Tenn.
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“I think that a volume bonuses plus a salesman bonus is the best way to go. This is what Meyer Manufacturing Co. does well. My parts man sells a piece of equipment and on the registration form I put his name as salesman and he gets a check mailed to his home address. The dealership that has a volume bonus by closing out another sale will work harder to close the sale and get the bonus. Both the dealer and the manufacturer have fixed costs and when you get to that point, any sales makes the bottom line go up.”
— Edwin Pedrick, Pedrick Enterprises Inc., Quitman, Ga.
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“All dealers need to participate in some type of volume reward. As majors keep moving the threshold bar up and reducing the percent bonus, they are taking the small single-location dealer out of the picture. All of their bonuses are geared toward the large volume dealers with several locations. I don't feel that bonuses should be tied to market share but instead to an increase over the previous years sale. Company programming can affect our market share and we have no control over programming or timing of these programs.”
— Earl Bourland, Mitchell and Bourland Inc., Terrell, Texas
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“I am in favor of retaining volume bonuses as most dealers do not include it in the pricing to the customer and it is easier to bring it to the bottom line of the company. The issue that concerns me with tying volume discounts to market share is there are niche markets that manufacturers make a conscious decision not to fully participate in due to the limited size of the market vs. the R&D cost of producing the proper product. I fully understand that they are entitled to make this business decision. For dealers who have a significant portion of their business in this niche market it creates a problem. The problem I see is that the manufacturer still wants to hold that individual dealer accountable for a high overall market share even though the manufacturer has decided not to invest in building the product that is suitable for that niche market. It seems like a double standard. The manufacturer is allowed to make a good business decision to skip that market, but the dealer is not allowed to make a good business decision to take care of that niche market with a competing product or at least not be penalized for the product’s market share. This would be eliminated if the manufacturer disallowed industry market share numbers on products where they are not willing to fully compete. This would then be fair to the dealers. Do not penalize the dealers for markets in which the manufacturer is not providing the proper equipment. This dealer would also incur a lower volume discount payout because of lost sales involving volume discount or as lower market share percentage calculation that is not the dealer’s fault.”
— Larry Kerkhoff, Fresno Equipment Co., Fresno, Calif.
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“What is wrong with actually earning the customer’s business? Earning it by providing better service, friendlier parts people and being a better salesman. Why are we giving the big dog dealer a price advantage? Incentive? How about incentive based on market share within your APR only? No volume. Only then will manufactures get better customer service.”
— Duane Scholten, Scholten Equipment Inc.,
 Lynden, Wash.
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“First, volume bonus is a very important part of the dealerships growth and profitability in this low margin business we are in. It also stimulates dealers to sell more. Second, although market share reward on top may have some benefit, if it is geared too heavily to market share and the dealer believes he has no chance of hitting those percentages, he gives up trying to sell the higher volumes for such small margin. In my opinion, the volume bonus needs to be a separated from market share bonus.”
— Wayne Feltz, Great Lakes New Holland Inc., Mitchell, Ontario
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“There is no better way to reward top performing dealers than volume bonuses as this benefits the dealership as a whole because it goes directly to the bottom line as opposed to rewarding the dealer principal. At our dealership we give our employees bonuses just before Christmas each year. These come from dealership profit and volume bonuses help make up some of this profit.”
— John Smith, Kuhns Equipment, Arthur, Ill.
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“This traditional way of counting volume bonuses is probably the one technique that pushes dealers to perform the most. Along this same line of thought, dealers are held hostages to major-line distributors, i.e., dealer discount, Canadian exchange discount, volume dollar discount thresholds, availability of products, etc. The platform is good at the base, but the closer you get to the top, the more the major lines have power over you even if they want you to perform. Another factor of this reward is bad competition from inside. Dealers that are sharing close marketing territories are dissolving their profit on day-to-day sales in trade for higher volume bonuses at the end of the year. Market shares are key to any business; this is the one goal you can brag about in the end. I cannot quickly think of a better way to reward dealers, but I sure can see modifications [that would improve it].”
— Maxime Riendeau, Equipment Lazure & Riendeau, Ste-Martine, Quebec
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“Volume bonuses make for an uneven playing field. I believe if you’re a top-performing dealership, you are getting your reward through profit and sustained growth. Being a top-performing dealer by definition means you are going to be healthy financially.”
— Steve Martin, Talladega International Tractor, Talladega, Ala.
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“We need a better way of determining market share. Market share is supposed to be determined by the county a tractor is sold and delivered to. With a large multi-dealership, market share can be questionable. A lot of tractors are registered where the larger dealers need to improve market share. A small independent dealer selling in his assigned territory is limited. But a multi-store dealership has a lot more flexibility in determining his market share. Market share for different horsepower tractors is often determined by the availability of the equipment. With this said, we need to have a better way of determining the true place and territory of sales. With larger dealers bundling multi-unit roll outs it can obscure the market share in the territory that they need to improve. Market share can work against you. The more you sell the higher the percent of market share becomes therefore the more you have to sell. To my thinking, bonus based strictly on volume — on the number of units a dealership sells — would be more in line with what a dealer could do, and encourage more sales. In the case of multi-unit dealerships the individual units would stand on their own based on numbers sold.”
— Larry Wheeler, AG Power & Equipment Inc., Ocilla, Ga.
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“Market share is important, but the different parts of the industry need to be measured differently. If there are five players in a sector (large ag) that is one thing, but when there 25 players in small ag this is much different. Small ag takes much more time due to the amount of transactions and the smaller amounts. We can never get the big sales in large ag; they are not in our AOR. But we touch a lot more customers and move many more units to put out the company’s name. We must be measured differently if our main line, John Deere, wants to stay in this market.”
— Vic Grissom, Grissom Implement LLC, Shawnee, Okla.
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“My opinion on this topic is volume is volume. It shouldn’t matter where or to whom you sell it. It is a sale and should get the same volume whether you sell it in a deemed “area of responsibility” or not. I understand the thinking, but AOR’s are not perfect as some counties are closer than others where a dealer may have responsibility in one and not another.”
— Chris Eis, Eis Implement Inc., Two Rivers, Wis.
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“I have never liked a game in which the guy who is keeping the score is also making the rules, such as Case IH’s volume bonus plan. I have never trusted THEIR market share numbers even when ours are climbing. We feel that a progressive payout volume bonus is fair. Higher performing dealers receive a larger check than lower performing dealers. What is wrong with that? My opinion is that the only reason market share is important is that we sell enough to create a great aftermarket for ourselves. That is where we make our living not on a volume check.”
Todd Channell, Farmers Equipment, Urbana, Ohio
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“Stop all volume bonus. [Competing with] Titan with 90-plus stores and others with 10 or more — how is a smaller dealer to survive? Have the major manufacturers thought about what would happen if one of these large multi-store complexes goes broke and files bankruptcy? How much market share will they have then in that large area without representation? I am a two-store dealership, and I will compete on a level playing field. Let’s forget volume bonus like other manufacturers and let profit come from dealer salesmanship!”
— M. Meyer, Meyer Implement, Bowling Green, Mo.
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“I understand that manufacturers need to reward dealers that perform. I have some reservations on the emphasis being placed on market share. For instance, I have 55% of one of the counties in my AOR. However, in that 55% is a population center (couple of cities/towns) with over 100,000 residents, so on a billable basis, I probably only have 30-35%. That would not take into account how hard it is to get to the other side of the population center or how difficult it is for farmers to get to my store. Another area that affects the market is the mega farmer who operates in multiple counties, but when purchases are made, those units fall into one county. If a dealer has one main county with a number of border counties with low percent in the AOR, he can look like a genius when it comes to the present program and emphasis on market share.”
— Tom Cross, Cross Brothers, Mt. Pulaski, Ill.
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“Volume bonuses based on market share are an effective tool but I somewhat agree with the structure. However, I really haven't given much thought to an alternative option. Manufacturers really cannot pay bonuses based on prior sales years, as there always will be a downturn or market correction every so often and sales generated in an off year would not be reflected, hence payments based on market share. It would be nice to be recognized for a job well done even if it didn't produce a ‘market leader.’ Perhaps a tiered market share reward where there will be some consolation for a tie or a close finish.”
— Dale Voigt, Service Motor Company, Mosinee, Wis.
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“I think volume bonuses encourage big dealers to grow bigger by taking market share from smaller dealers. By keeping the price the same for everyone, all dealers would have the same opportunity to sell based on their own level of service and customer satisfaction. That is my opinion based on 40 years in the same dealership and seeing other dealers selling at cost to earn volume bonuses and eventually falling by the wayside after selling themselves out of business.”
— Ronnie Lott, Talladega International Tractor, Talladega, Ala.
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“I do not agree with volume bonuses of any kind. Customers of all kinds want to purchase as low as possible. So let each deal stand on its own — not by how many units were sold in your assigned area (not necessarily your chosen area). Market share figures are heavily weighted against you, especially when some dealers get extra discounts not given to all dealers. This is not a level playing field. Also, discretionary dollars add in to make a big difference in cost effective pricing, which is controlled by the territory manager.”
— Brad Schecklman, Chili Implement Co. Inc., Chili, Wis.
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“I think a volume check based on unit volume purchases and market performance is the best way for a dealer to earn extra funds. It also creates an incentive from the manufacturer because it advances their agenda.”
— Keith Olson, Colorado Equipment, Colorado Springs, Colo.
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“Volume bonus has been deteriorating very rapidly these last three or four years. The have reduced the rates and a big share is tied to market share. Market share is very suspect on how they obtain the information. The end result is that volume bonus, for the most part, has been reduced by 50% or more. Volume bonus is a very important part of a dealers profit center. It definitely needs to be improved. We are a Case IH dealer.”
— Gerald Heim, Hoxie Implement Co. Inc., Hoxie Kan.
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“I personally think too much emphasis is put on market share from the majors. Their methods are definitely flawed and should not be the measure for volume bonus. They need to go back 10-20 years and have volume bonus tiered as they used to with the dealer selling $500,000 receiving a certain percentage and each $250,000 thereafter raising the bar on the percentage of volume bonus money we receive. They should quit threatening us with market share and be glad to get every dollar we can send them regardless of the product line or amount. Some only reward tractors, but not implements. They should reward every product that we sell. Some dealers in different geographic areas have more potential than others with some products but not all products. If we want to make more money then we will have to try harder, but we should not be forced to sell at low or no margins just so we can meet market share numbers.”
— Philip Brooks, Brooks Sales Inc., Monroe, N.C.
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“I understand why the major manufacturers are changing volume to a small pure percentage and higher SOM factor. That is in their interests, it’s the same cost to them as they divide up the same number of dollars, and a growing share of those dollars go to the dealers getting 30 and 40% market share.
I’d like to do better in pure SOM, know that it would produce good product support dollars down the road, and units and share are the best way to measure.
The pitfall of the scenario though, is that this produces an environment where dealers will “buy” SOM. Zero or marginal GM on the sale, capitalizing on volume payout favors the mega dealer. We’re only five locations, have some tough competitors that are also trying to please their vendor, and the net result is:
- The manufacturer net margins are not affected
- The dealers net margins are negatively affected
- A lower SOM dealer will be at a big disadvantage, making affordable growth tougher
- Mega dealer growth is assured with this model
Long term, marginal markets that do not produce; $20M minimum will be tough for a dealer to justify even participating in. This volume strategy will result in the big getting bigger, the small selling out, and some markets not being served. This is, I think, going to be the unintended consequence of the new volume programs. The cyclical nature of the business will leave open spots with some dissolution, that won’t be filled, perhaps just leaving one dealer to service and enjoy the market. Now the manufacturer is locked out of a market with no representation. The marginal markets are the ones that the manufacturers will have to watch, to prevent that from happening. But, with Deere leading the pack, this is our reality.”
— Steve Danner, Ag West Supply, Rickreall, Ore.
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“We are seeing many companies lowering or discontinuing volume bonuses. This is a very bad idea for the profitability of the dealerships. Volume allows a dealership to have a hold back that is not given away in the sales process. I do realize in today’s highly competitive market place manufacturers want all the business they can get, and want the price as low as possible hoping the dealer will give most of the margin away. This is a shortsighted approach and will destroy the dealerships in the long term. Dealers should have and use the volume bonus to reinvest in the dealerships, and not take out of the business. This way the volume is good for the supplier and the dealer by keeping a strong dealership.”
— Curt Hanson, Mid-State Equipment, Columbus, Wis.
