I live in Kansas City (yes, we are technically called Kansas Citians).
If you ask any local what makes our city iconic, you will get some passionate responses.
We have world-class barbecue (sorry, Memphis), some will repeat the firm stance that we are not from Kansas (thank you very much) and, of course, our Kansas City Chiefs.
If you follow football at all, you know even the best teams have to play within limits. Have you heard of salary caps? The Chiefs’ leadership has to juggle talent, money and long-term strategy.
Sound familiar? Running an RV dealership is not all that different.
Why Salary Caps Matter
When I talk to dealers about how they decide what to pay their team, I often get one of two answers.
The first is a shrug and, “I just pay whatever it takes to get good people.” The second is the dreaded, “Everyone wants more than they are worth, and I cannot find anyone good.” Neither one is exactly a winning payroll strategy.
The truth? Good employees are out there, but you have to pay them what they are worth without lighting your dealership’s bank account on fire.
The situation is like football: you don’t see the Chiefs giving the quarterback and the backup kicker $100 million contracts. The teams have a salary cap for a reason.
This is where your salary caps come in. They are your guide to paying fairly and sustainably.
Here’s the trick: you should be aiming to spend the cap. If you are capping too low, or pinching pennies out of fear, great employees will walk right past your dealership and straight into someone else’s service bay, parts counter or sales desk.
Red Flags You Are Overpaying
Let’s talk about a few signs your salary structure might be quietly draining your dealership.
First, the money’s coming in, but not staying. You are generating solid revenue, watching a whole lot of cash move through your business, but your bank account still looks like it is on a diet. You are constantly wondering, “Where is all the money we are touching actually going?”
Second, you are hiring out of panic instead of planning. Someone quits, or a department gets slammed, and before you can blink, you are onboarding someone new without ever stopping to ask whether the real issue is a broken process.
Spoiler alert: nine times out of 10, the problem is process, not people. Throwing bodies at the chaos will not fix the situation, but will raise your payroll.
Third, your payroll’s doing its own thing, and not in a good way. Techs are accidentally outearning their managers, and your top salesperson closes one big deal and disappears like they are on a celebratory cruise.
If your pay structure feels like it is running the show and running you broke, now is the time to rein it in.
If comp plans are not tethered
to reality, you end up rewarding chaos instead of consistency. That is a salary cap problem in disguise.
How Do You Figure Out What You Can Pay?
So maybe you are thinking, “Cool, Sara. I knew something felt off
but help me fix it already.”
Don’t worry, I got you.
Let’s start with the service department. Around here, we base everything on labor dollars produced because that is what drives the department.
Here is the breakdown of every labor dollar:
- 30% to technician pay.
- 15% to management cost.
- 35% to departmental expenses (like keeping the lights on).
- 20% goes to the owner as profit (yes, that is you).
Let’s say your labor rate is $100 per hour and your department is recovering 100% of its time.
Nope, that is not a dream. Dealers really are doing this every day.
Here is how that $100 splits:
- $30 per hour to an A-level tech.
- $15 per hour to the service manager.
- $35 per hour to keep the department running.
- $20 per hour to you, the owner.
That is how we set salary caps.
Now, maybe you are thinking, “Whoa, I can’t find a service manager who will work for $15 per hour.”
You are right. You can’t find a service manager for that price, or at least not a good one.
To cost-justify a service manager, you need at least three technicians who are each recovering 85% or more of their time. Anything less than that, and you cannot afford one. Hard stop.
What do you do when you need to pay more? You raise your labor rate.
It really is that simple. You need to charge more so you can pay more.
If the idea of raising prices makes you want to run home to your mama crying, I get it. We are going to do it the smart way:
- Wait until your busiest time of the year.
- Raise your labor rate by $10 per hour (or $15 if you’re feeling bold).
- Offer that same amount as a discount to any customer who bought their RV from you.
Boom. You have raised your rate, rewarded your customers and put your business in a position to thrive.
What About Parts and Sales?
Good news. Service was the hardest part.
If you actually did the math back there, go ahead and give yourself a gold star. If you didn’t…we’re silently judging you. Go do the math. We will wait.
Now let’s talk parts and sales. These departments run on gross profit, which is a fancy way of saying: All the money you brought
in (gross revenue) minus what it cost to buy the stuff you sold (cost of goods sold).
Just like in service, we use percentages to figure out salary caps.
In parts, here is how each gross profit dollar gets divided:
- 30% to salaries.
- 50% to department costs.
- 20% to you, the owner.
Example time. Say your parts department does $1 million in gross revenue with a 40% margin. The result gives you $400,000 in gross profit to work with.
- $120,000 (30%) to payroll.
- $200,000 (50%) to department costs.
- $80,000 (20%) to owner profit.
In sales, the only thing that changes is the cost of running the department. Selling whole goods costs more than selling parts, so:
- 25% to payroll.
- 55% to department expenses.
- 20% to profit.
Now, what if you want to pay more? You have three options:
- Sell more.
- Increase your margins.
- Do the same work with fewer people.
Pick one or go for all three, but remember, the cap is there to protect your profits. Ignore the cap and you will be high-fiving your parts team while your bank account quietly waves the white flag.
Bonuses: The Cherry on Top
Let’s be clear. Bonuses are not the problem. Random, reactionary or unstructured bonuses are a problem.
Bonuses should be intentional, self-funding and tied directly to the behavior you want to encourage. They are the extra scoop of ice cream because someone went above and beyond, not the paycheck in disguise.
In service, tie bonuses to efficiency. A great starting structure looks like this:
- 85-100% efficiency = $2 per billed hour bonus.
- 101-125% = $4 per billed hour.
- 126% or more = $6 per billed hour (we call that magician-level).
In parts, bonuses are tied
to monthly gross profit growth, year-over-year, but only if margins are held. Here is how it works:
Last October
- Revenue = $40,000.
- Margin = 40%.
- Gross profit = $16,000.
This October
- Revenue = $45,000.
- Margin = 50%.
- Gross profit = $22,500.
That’s $6,500 in additional gross profit. Share 50%, and you have $3,250 available for bonuses.
- 40-50% goes to the manager.
- The rest is divided among the team.
In sales, commission is typically based on gross profit. Most dealerships use 7-10% of the gross profit per RV.
Example: $2,000 gross profit × 8% commission = $160 per RV.
The bonus plan is simple, scalable and tied to actual performance.
Running a dealership is a lot like coaching a championship football team. You need talent, you need a plan and you need to be smart with your money. That is where salary caps come in.
Whether you are leading a Super Bowl contender or a dealership chasing its best year yet, a great game plan (and a smart cap structure) changes everything.
Sara Hey is the vice president of business development at Bob Clements International. She has worked in her family’s business and with family-owned dealerships over the last 10-plus years.
