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December 2017
Enjoy the December cover story as Dave Baiocchi helps you transition from supplier to strategic partner

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Who’s not buying?

In equipment sales we have the tendency to pay attention to and talk about our conquests. We talk about our successes; how we captured a major account. We nurture and take care of those who buy from us, those customers who provide us with market share to appease the suppliers. This is as it should be, but . . .

What about all those customers not buying from us? Have we ever asked the question of them, face to face, why aren’t you buying from us? How much attention are we paying to them? What are we doing to add them to our base of customers?

In this instance we are talking specifically about those customers who purchase our line of equipment, but for one reason or another forget about our dealership when it comes time to perform service or maintenance on this same equipment.

Pick up any industry’s Cost of Doing Business Study. Look at the dealers’ Contribution to Total Sales by their Service Profit Center. As a general rule no other major Profit Center contributes less to the dealerships’ total sales than does the service department. Now look at the gross margins produced by the dealerships’ four or five Profit Centers. Here you will discover there is no other department that produces the high margins of the service department.

What’s wrong with this picture? Aren’t equipment dealers in business to make a profit for themselves, their families, their investors and their employees? Dealers make their suppliers happy with market share. If they fail to do this then their agreements with these same suppliers are questioned. Over the years we have seen few suppliers who are really concerned with their dealer’s service business. They care about the dealer making sure the equipment is ready to go to the customer, and that all the mistakes the supplier made in producing the product are fixed (called warranty). They care about the dealer making sure that warranty is performed and that they don’t get too many complaints about the dealer’s service performance, but outside of that, the focus continues to be upon market share of equipment.

How about analyzing your service department’s market share? Contribution is a highly interesting number that we have used for years. The guideline for service contribution is generally set at 25 percent to 28 percent. Some dealers take it as high as 32 percent to 34 percent and they classified as “world class dealers.” There are many equipment dealers out there running at the level of 6 percent to 8 percent and we have told them, “This is not at all that impressive.”

Sometimes we wonder if dealers are confused by the word contribution and refuse to use it as a benchmark. It is simply a measurement by percentage of what a particular department’s contribution is to the total sales of the dealership. Therefore, in order to show who is not buying your service, we looked to a dealer whose operations manager decided to figure out his service market share. Surprisingly it all becomes extremely simple.

It works like this. Assume you have 1,000 customers who have purchased equipment from your dealership over the past five years. Of this 1,000, only 300 are using your service facilities and 700 are either out-sourcing their service or doing it themselves. Service market share is based solely upon the customer base identified as buying your equipment and/or operating your equipment.

Therefore, in the example shown, your service market share on the equipment you sold is 30 percent. This clearly tells someone it is time to begin the marketing of you service department.

Now the one solid result with figuring service market share is it becomes necessary to dig deep into your customer lists to determine which customers are or not buying service from your dealership, despite the fact that they originally purchased the equipment from your dealership. When this list is drawn up you have created your “first great marketing tool” for your service department. You have created a list of customers who for some reason or another have decided that they don’t need you to service their equipment. Remember how often we have told our readers that their customers all have a choice when it comes to both service and parts, in effect, they don’t need you to satisfy their product support needs and requirements. . . they can quite easily go someplace else!

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