“If you have to incentivize your salespeople to sell your used equipment, then you haven’t properly designed your sales personnel pay system and it is less likely to work when the market is tougher. Not being able to move used equipment is a result of either having it overvalued or having too much of it. Both of these situations are a result of inadequate sales management.

“The key to moving used equipment is:

1. Have it priced properly for the marketplace.

2. Have salespeople that share the upside if it sells and share the pain if it doesn’t.

“Slowly but surely all the dealers in our 20 group are adopting models that require regular write-downs on used equipment that doesn’t move, and having the salespeople participate in the write-down. To be clear, this does not just mean the salesperson may forego a portion of their commission that was held back subject to the trade moving. It means the salesperson shares in their part of the write-down in exactly the same proportion as they share in the upside, which is normally a percent of gross margin on the deal. In order to ensure used equipment is properly priced, it needs to be constantly reevaluated, either monthly or quarterly. The write-down process will not work if it is an annual event.

“Interestingly, once you have a proper used write-down process you will find that, although the salespeople may have initially feared it, the top performers begin to like it. They realize that occasionally mistakes will be made on used and the best solution is to recognize a problem promptly and to correct it. Often this means that a minor write-down, if made early enough, makes the trade saleable and in the end there is still some profit on the deal. However, if no correction is made until the unit has sat a season, you now have a major problem and everyone loses.

“The other problem with incentivizing used sales is it encourages dysfunctional behavior — you are rewarding salespeople for having a trade in your inventory for too long. That is never a good thing.”

— Gordon Thompson,
Thompson Implements Ltd.,
Prince Albert, Saskatchewan

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“There are many things that impact the profits of used equipment. Keeping the salespeople motivated to sell it is certainly part of it, but also pushing on turn over speed has some serious impact. I learned before I joined this dealership from another dealer that the faster you sell the unit the better. Some numbers I have seen on this are:

Time Frame

Gross Profit Margin %

Less Than 3 Months

15%

3-6 Months

5%

6-12 Months

0%

12-24 Months

-5%

Average

7-10%

— George Keen,
New Virginia Tractor,
Charlottesville, Va.

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“We hold the commission payment on the item they sold until the trade is sold. Sometimes I will put an extra spiff on a unit if I encouraged the trade so it will encourage other salesmen to move it.”

— Dwayne Williams,
Sunsouth Dothan,
Dothan, Ala.

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“Used machines move when sales personnel have ready access to what machines are available and pricing on them. Make it easy for them to access the info. We update and email to all salespeople a complete listing of all our used machines as they come in and offer a bonus to sales and shop to get it sold and prepped to go back out. This comes when funds are collected. If this information is not readily available to all, and they have to dig to look it up, the wheels turn slower. Keeping the website updated makes it easy for sales to guide customers to machines that may fit their needs as they talk on the phone.”

— Greg Simpson,
Simpson Farm Enterprises,
Ransom, Kan.

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“I do not find that incentives really do anything to help sell trade-in equipment. The only thing that really works is to properly evaluate the equipment in the first place, and then put the proper amount of money into it so that it can be reconditioned and sold at the proper market price.”

— Darryl Buttar,
Bob Mark New Holland Sales Ltd.,
Lindsay, Ontario

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“The key is to require the sales-team to be accountable for their trades. It isn’t enough to simply pay them more for selling them, which we clearly do. The accountability that we currently execute is that they need to sell by a quarter of a certain number of pre-owned tractors, combines and planters to qualify for their quarterly bonus incentives, which can increase their commission dollars by as much as 30%.”

— Don Van Houweling,
Van Wall Equipment,
Perry, Iowa

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“The best incentive that I’ve used is a flat-rate bonus on used units that have been in inventory too long. The higher the bonus, the quicker the sale. Another incentive I’ve used as used inventory levels increase beyond normal is to increase the commission rate on the gross margin from 20% to 30%. Occasional sales competitions with a bonus on number of units sold have worked as well.”

— Donald Rempel,
Northstar Spraying Systems,
Oak Bluff, Manitoba

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“We have found a couple different incentives are working for efficiently selling used. Our sales consultants get paid 50% commission on the first sale at the time of that sale. The second 50% is paid if and when the trade sells within 6 months. This ensures the sales consultants have a certain amount of skin in the game with the business. The second method is we pay sales managers bonuses on turns, quarterly. This is a huge driver and keeps everyone with their eye on the prize.”

— Jed Bengtson,
Torgerson’s LLC,
Havre, Mont.

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“The majority of trades Rickreall Farm Supply takes in are compact tractors. We don’t sell or take trade-ins of larger ag products such as combines, swathers or balers. My sales force understands that trade-ins are their job to move through, and I post these units in my office. All of my people understand the importance of moving trade-ins and for me it hasn’t been a problem. One problem that can arise is if one of my people over allows on a particular unit making it financially harder to move. We, as a salesforce, try and evaluate each trade-in for its value as a group and make sure the unit was not over valued when traded in. All trade-ins are run through our shop and put back in as best running shape as possible, making the unit more desirable to the buyers. Margins on used equipment can vary depending on what it is, the shape it is in and how much work we’ve put into it. I also pay commission on these units, so the salesforce knows there will be rewards for moving these units. We also do a lot of consigning of tractors and make a good effort to move them. One of the bigger problems that has arisen is the aggressive interest rates offered by the OEMs. It has definitely helped the new unit market but has put a damper on the value and sales of used units.”

— Jay Hayes,
Rickreall Farm Supply Inc.,
Rickreall, Ore.

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“Most of our salespeople work on commission. They get half of their commission, unless the trade-in is sold in side of 30 days. Then balance of commission is on a depreciating scale.”

— Gene Saville,
Lamb and Webster,
Springville, N.Y.

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“Moving used equipment is always difficult. We use various forms of advertising to make the phones ring at all 3 stores. At times, certain types of equipment are above the desired level of inventory or certain items have turned into white elephants.  Discounting is one method; it’s not necessarily the best, but does work. Another method that has been used at this dealership that stimulates a salesperson is a bounty paid by the dealer on certain pieces of equipment that have become stale or overstocked. Those pieces of equipment are moved really quickly when a dollar value is added to the salesperson’s commission.”

— Walter Green,
Deer Country Equipment LLC,
Corydon, Ind.

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“I pay all my salespeople a large base salary. Then they receive a 5% commission bonus for the gross margin they make on each sale. The sales manager sets the book value of the trade-in. We set the trade-in so there is a profit in selling the new and the used. Some times the margin on the new has to be close to get the trade. When salespeople make a good trade, they often has the trade-in sold before it leaves the farm. Our used inventory turned 4.5 times last year.”  

— Phil O’Malley,
O’Malley Implement,
Pittsburg, Kan.

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“I pay sales commissions on new tractor sales after the trade has been sold. It’s the only way to figure exact bottom line profit margins. I never let a trade get sold without going through the shop — it always brings the cost up, thus the profit down. This process eliminates over allowing for trades and puts pressure to sell the trade. If another salesperson than the one who took the trade sells it, then the profit of the new sale and the used trade stand alone. You must check used equipment for problems before attempting to sell or you will get a bad reputation in the community. Texas has some used ‘dealer only’ auctions. That will free up some cash, but don’t expect a profit above used trade blue book and usually quite a bit less.”

— Allen Berry,
ACM Tractor Sales,
San Marcos, Texas

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“We, along with other dealers, struggle with this issue so will be very glad to see what you come up with. All our sales staff is happy to sell anything (new or used) that produces good gross margins (they are all paid on GM), and are always pushing management to allow more for trades. But, those very same trades often are tough to resell and often at pretty slim margins. We are contemplating holding back part of the gross margin on the original deal to add incentive to the salesperson (who took it in) to get it sold as well as offering a higher percentage (than we do on new sales) of the GM on used to any of our sales staff to hopefully further motivate them.”

— Tom Morawetz,
Evergreen Farm & Garden Ltd.,

Orono, Ontario

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“We don’t have a good ‘penalty’ system in place when used does not move. I would like to know what others have done without losing good salesmen. In the past, we considered taking back part of the original commission after a year and then more as time advanced. We never did it as it touched nerves. Also, I am not sure how to take away if dealership management helped set the trade value and the selling price.”

— Steve Wells,
Wells Equipment Sales Inc.,
Litchfield, Mich.

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“One thing we do to motivate our salespeople on trades is to hold back half of the commission on the new until the trade is sold. We will also give extra bonuses on the sale of trades that have been on the lot too long. We also demand the salespeople trade smart on trades, for example, using the trade-in calculation sheet in the back of the Iron Solutions Official Guide Book. Our company also uses regional popularity and/or the lack there of in our region. Not setting clear guidelines and not following them are sure ways to fail. You are right as far as making money, the key is trading right and moving the trade in a timely manner. Staying on top of salespeople’s trades before the settlement can be a great way to stay out of used equipment problems. We all want to increase our market share, but over allowing and not trading smart will cause more cash and other problems more quickly than about any other means. So stay on top of trade-ins and trade smart.”

— Dave Ott,
Ott’s Farm Equipment,
Fallon, Nev.