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December 2017
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Analyzing profit centers

Over the past 18 months we have possibly spoken to approximately 2,000 equipment dealers or distributors and personnel at conventions, seminars and dealer evaluations across North America.

It is amazing to realize just how little attention these dealers and distributors paid their aftermarket profit centers. It is disturbing, despite the amount of information available to them, how little effort dealers and distributors put forth in analyzing data to determine the profitability available to them in their aftermarket. An analysis of industry cost of doing business studies indicate how the average dealer or distributor is missing out in developing those areas of their business; which provide the opportunity for greatly increasing sales, profitability, customer satisfaction and eventually great increases in product market share.

Fortunately, all this understanding does not take a degree in “rocket science” or “brain surgery.” The solutions to improving the dealer’s numbers are simply a return to the basics, an elimination of negative thinking throughout the entire dealership and a desire to achieve greater sales with profitability.

There are times that we believe that for every good reason dealers can improve sales and profitability in their aftermarket, that there are a several reasons why a suggestion is not worth trying. My personal favorite is, “We tried that before and it just doesn’t work!” With probing, we generally discover the reason it didn’t work was that too many involved did not believe it would work, or that time could not be devoted to making it work.

Here is a classic example of what I refer to as “basic.” During a seminar we show a slide that reads: PARTS SALES – $3,200,052 SERVICE SALES – $800,350

We then ask the group what problem or opportunity they see with these particular numbers. The answers we receive range from, “I wish I had that much parts business,” to the correct answer, “This dealer is only receiving a small portion of the available service opportunity available, the customer is buying parts to perform his own service or the independent or ‘shade-tree’ technician is providing all the service.”

Look at your industry’s cost of doing business study, or better yet, your financial statement. Find which profit center provides your dealership the highest gross margin within the entire dealership. If you are in the equipment business, 99 times out of 100 it is going to be your service department.

Review your cost of doing business study or your financial statement and find which profit center provides the lowest sales contribution. Unfortunately, it is again 99 times out of 100 your service department. That should make no one particularly satisfied.

Here is how one world class dealership with “boots on the ground” replied to last month’s article entitled “The magic of increased margins.” This reply shows how sticking with the basics worked for this dealership. “I preach the same thing everyday and tell our customers we could also provide a lower labor rate if we would choose a much lower level of customer service,” the reader stated. He went on to say he just closed a large preventative maintenance service agreement and overcame the price objective by inviting the prospect to visit his facility, meet his people and see first hand a dealership that supports the customers they sell. The reader challenged the prospective customer to visit the other dealers they were considering doing business with and to then come visit his operation. After a tour of the reader’s facilities and meeting his people, he and his dealership were awarded the contract at a much higher per hour labor rate than the competition was offering.

Our reader went on to say, “I believe it has a lot to do with the confidence a sales person has in their dealership, technicians, management’s commitment, and the focus of the dealer principal! In the end we are not the cheapest and I agree with your article, we don’t want to be the cheapest!”

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