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

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Seek out your opportunity!

According to Webster an opportunity is:  a favorable or advantageous circumstance or combination of circumstances, a chance for progress, profitability or advancement . . .

While many equipment dealers consider their aftermarket an afterthought, while many dealers consider it as no more than a necessity, we continually describe it as the greatest opportunity available to any and all equipment dealers. The equipment dealers’ opportunity certainly meets Webster’s definition and we define it as a dealer’s unrecognized opportunity! When Willie Sutton, the famous bank robber of the depression area was asked why he robbed banks, he replied: “Because that’s where the money is!” Sutton today could most certainly make the case that in equipment dealerships throughout the world the aftermarket is where the money is, and it is certainly where successful equipment dealers are focusing their efforts for survival. We thought after the last economic slow down that equipment dealers had really begun to recognize their aftermarket opportunities.  Many promised themselves that they would change, that they would not make the same mistakes in the future. They promised themselves they would work towards the goal of 100% absorption rate. Many promised a total effort to market their service departments. Many did later reverse their thinking.  Many forgot their resolutions and fell back into their old habit of just marketing only their new and used equipment, chasing that elusive dream of achieving the manufacturer’s market share goal! Too many hung on to that old philosophy that the “back-end” of the business is there only for the benefit of “make-ready” and for handling warranty.  That it was a necessary evil of being in the equipment business!  Few manufacturers saw the total aftermarket as an opportunity to make their dealers profitable. Some still don’t look upon it as a truly profitable opportunity. Some do not necessarily believe that being profitable helps to increase market share. Therefore, when the next business down-turn developed they once again found themselves wishing they had done what they knew they should have done years ago . . . . . look to their unrecognized opportunity!

Let’s review your aftermarket opportunities in a typical equipment dealership:  Partsyour parts sales contribution to total dealership sales should be 25% to 28%.  Your parts margins should run 30% to 34% with a parts turnover of 4 – 5 times a year.  Serviceyour service sales contribution to total dealership sales (customer, internal & warranty) should be 22% to 25%.  Your service gross profit should be running 60% to 65%.  Your service sales mix should ideally run: customer 50% to 60%, internal 30% to 40%, warranty and other 10% to 20% and anything past 10% merely means that your supplier is doing a poor job of manufacturing product.  A variation of this mix is acceptable, but for the success of the service department customer sales must run above the 50% level.  This of course requires a “full court press” of marketing your service; which far too many equipment dealers fail to do!

For those of you who read our articles, you will know we constantly stress the fact that service is a key element in increasing the dealership’s parts sales.  Manufacturers should pay attention to this concept, as it not only improves their dealer’s profitability, but it increases the manufacturer’s parts sales. Sell your service and you will greatly increase your parts business.  You will also find that you will have far less questioning of your parts pricing. Marketing of parts through additional service sales makes good sense.  It develops teamwork and it develops profits for both departments. Most importantly it improves the dealership’s absorption rate and cash flow! Look upon your service department not as a necessary evil but as a profitable opportunity, not only in good economic situations, but as an opportunity when whole good sales begin to slump.

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