The Guaranteed Retro (GR) structure is one of the best ways to balance risk and reward in your dealership operations. That's because it can allow you to earn more profit than other non-participating structures but doesn't have the risk that comes with participating structures.
In a Guaranteed Retro, you earn based on contract sales volume, scaling up gradually, to incentivize selling as many contracts as possible.
The main goal of this structure is to maximize cash flow with a sliding-scale earnings structure.
Here's everything you need to know about the GR program.
Guaranteed Retro Structure Explained
In this non-participating program, a dealership earns funds on a sliding-scale model with increasing commission for higher volume contract sales in the earning period, offset by full cancellations.
What is Guaranteed Retro?
The Guaranteed Retro structure has similarities to other non-participating profit structures but stands out with one key feature: while it provides a set amount per contract, that amount isn't fixed. Instead, the amount your dealership receives will rise as you sell more contracts, which can be a big incentive for dealership earning potential.
Other non-participating profit structures, like 1+ Commission, typically have a fixed amount per contract, so there's no incentive to sell more. Your dealership would be paid the same amount per contract whether you sold one of them or thousands. That's where the Guaranteed Retro dealer program has an advantage, since selling more contracts means not just more money due to more sales, but a higher level of profit per sale, as well.
The Benefits of a Sliding Scale Commission
When you're trying to decide how to choose the right retro profit structure the best thing to do is consider the benefits you're getting and compare them to any downsides that might come with a particular profit participation program. The good news? There are two big advantages when you utilize a GR program.
1. Payout Potential
When your dealership receives commission on a sliding scale with a Guaranteed Retrospective (Retro) Profit Sharing Program, you have the opportunity to earn more per sale, and the benefits are immediate.
2. Alignment with Dealership Performance Metrics
To get the maximum benefit from a Guaranteed Retro, you first want to know if you're selling enough volume of F&I contracts to make this the right structure for you. Strategically calculating your metrics can help you feel more confident about your long-term earning potential.
Managing Challenges and Risk with Guaranteed Retro Structures
While profit sharing for auto dealerships doesn't have to be complicated, it does need to be thought through and handled appropriately. Current market trends can impact profitability (both positive and negative) in a Guaranteed Retro. The only “risk” is that contract sales are not sufficient to meet the desired level of payout. This, of course, is an important consideration before fully committing. Then, you can move forward with confidence in whatever structure you choose.
Potential for Fluctuating Returns
If you're trying to create stability in your dealership profits, it's important to know Guaranteed Retro structure returns will vary over time based on performance. That's not necessarily a bad thing, as dealers can have great success in a GR, but if you need immediate, stable cash flow this might not be the best option for your goals.
Importance of Accurate Forecasting
It's not always easy to tell how many contracts you might sell in a given week or month, so you could end up not having the cash flow you were expecting with a Guaranteed Retro.
Fortunately, you can look to your past performance to set a baseline and plan for the coming months.
If you manage a brand-new dealership, you may not have the kind of data you need to determine an accurate forecast, which may prove difficult with this commission structure.
A Best Use Case for Guaranteed Retro
The best use case for the Guaranteed Retro dealer program is a dealer group looking to grow in the near-term and looking for upfront cash.
Choosing the Right Retro Structure for Your Dealership
Before choosing a Guaranteed Retro dealer program, make sure you're clear on all the details you will have to consider. This kind of program can be great when you want to align your profits with the sales you're making and scale up the money you receive for the contracts you sell. It’s important to note that profits can fluctuate, and you want to be prepared for that. However, do not lose sight of the reward that comes from hitting that next tier in the Sliding Scale. It’s a big motivator.
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