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December 2017
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The untapped revenue stream

How are your new and used equipment margins? In almost all segments of the equipment business, sales appear to be holding steady. Certain market segments (oil/gas related) are literally booming. Farm sales have been excellent, but right now dealers all have their fingers crossed anticipating a sales downturn. Consumer products are hoping there will not be another dry summer. The lift truck industry is showing a weak recovery, but in all these mentioned industries sales lack margins for survival. Margins on new and used equipment, on the other hand are hard pressed and holding in the low single digits. Customers are not rushing to part with their dollars for equipment necessary to stay in business and dealers continue to drop margins to make a sale and protect their market share.

Equipment dealers, ask yourself this question: Is your dealership doing everything it can to maximize sales and profitability in the back-end of your business? Dealers should continue, and some should begin to rely on their parts and service departments to absorb more and more of the overhead from the new and used departments. As we have stressed in so many of our articles, focus upon the dealership’s unrecognized opportunities! Stop doubting that these opportunities are out there, do some basic research and discover that there is far more opportunity then you are willing to believe. Now is not the time to be Doubting Thomas’, now is the time to search for opportunities for profitable survival.

Marketing your product support services is as essential today as never before. Equipment dealers should be ashamed to sell a new piece of equipment and not at least ask for the service and parts business. We use to assume that this business was a lock, guaranteed because we were the authorized dealer who sold the equipment. Nothing could be further from the truth today . . .

Your service sales contribution to total sales will clearly show you whether or not your service marketing effort is paying off. Your service gross profit margin will indicate just how lucrative those sales could have been.

It is a recognized fact that failing to market your service opportunity is quite likely costing your dealership an additional 20% to 25% in parts sales. If you want to shake off being a Doubting Thomas ask for our document entitled: Fourteen Steps to Successful Service Sales. This is a document that will assist you in capturing that service business you are currently walking away from: 1) service sales that are being performed by the customer in his own shop, by his own technicians, 2) service sales being performed by some very sophisticated and successful independents, 3) service sales being performed by the “shade-tree” technicians scattered throughout your territory and 4) service sales being performed by your industry competing OEMs. All this lost service business is being done on equipment your dealership sold! This document is invoiced to you for a below invoice price of $14.99.

Our goal in the equipment industry has always been to assist equipment dealers’ to increase their product support sales, their product support profitability and to develop customer satisfaction before the equipment sale, during the equipment sale and particularly after the equipment sale.

Fortunately we have been successful over the years in helping many, many equipment dealers do just what we mentioned above and will continue to do so. Our focus is on product support. We most certainly recognize that product support cannot exist without the sale of equipment. Each area of the dealership working together for the benefit of the customer can assist the dealer to become more profitable, while at the same time, providing more market share to keep their manufacturers and suppliers happy. How can the typical equipment dealer increase the sale of product support throughout the dealership? Again, the dealer needs to identify, focus and market the dealership’s product support services to a specific group of prospective service customers. These are the customers who over a period of time purchased equipment from the dealership, but went elsewhere for service repairs and parts; the dealership’s unrecognized opportunity! This is not a difficult task; although there are some out there who would like to believe it is an impossible task.

Dealers today need these increased product support sales, but even more than that they need to look at stimulating increased profits while increasing their product support sales. Unfortunately, we have noticed over the past years that too many dealers have gotten “sloppy” in the management of profitability within the dealership’s area of product support. Throughout the balance of this article we will make suggestions as to how product support profitability needs to be managed.

Sales of product support is one thing, maintaining profitability in the area of product support is something too many take for granted. Too many times the basics are forgotten altogether.

Parts managers as a classic example spend more of the dealer’s money “uncontrolled” than any other dealership manager. Too many times they are given a blank check for ordering and this is done with very little checking of reports as to how that money is being spent, what parts are being ordered and why? Today’s computers have all kinds of measuring reports. These reports are of little value however, if they are only occasionally used.

Obsolescence in inventories is building up. When is the last time you checked the percentage of your parts inventory that has set on your shelf for more than thirteen months? Everyone takes an annual inventory, how many of you show concern over a shortage of $50, $60 or even $70,000? How many of you go “crazy” over your petty cash when you are short a couple of dollars, but think nothing about thousands of dollars of shortage at inventory time? Think of your parts inventory as money, not as iron, glass or rubber . . . that’s the dealership’s cash sitting on the shelves. How secure is this inventory? How many of you have inventories sitting in service vans, being transported around your territory all day long? Too many equipment dealerships are hemorrhaging over their loss of the dealership’s assets and this can become extremely expensive. 

Service managers generally have the largest amount of personnel of any of the dealership’s profit centers. Think of this, you have more people working in service than any other department within the dealership. Personnel can be a tremendous drain on any dealership’s financial health. Yet, no other department has the opportunity of being held hostage like the service department. How many times have we heard a dealer or his service manager comment that the work produced by such and such is unsatisfactory. This comment is always followed up by the statement: “but you don’t know how hard it is to find technicians in today’s market place.” To which I comment, but you don’t know how this “one sour apple” effects the work ethics of the other technicians and what affect his work has upon your customers.

This leads us to our next question: Do you measure both the efficiency and the productivity of every single technician. Do you set standard for these individuals to strive for and are these standards profitable to the company? Do you check out your industry Cost of Doing Business Study to compare the billable dollars of your technicians to the billable hours of technicians in your industry? One thing we have noticed recently is how billable dollars is creeping closer to wages paid plus workmen’s compensation. Have you considered a pay-for-performance pay plan for your technicians?

Any service department is faced with expenses not necessarily found in any of your other departments. These expenses continue to increase and it is unfortunate that we have no control over these expenses, but we must contend with these expenses and pass them along to our customers. All which begs the question: How often do you review your labor rates? If you are not doing it annually you are falling behind the curve. In point of fact we recommend a review at least twice a year.

How many times do we hear this reply from a dealer when we ask about time & travel? “That just can’t be done in our industry and if we did the customer would go to our competition.” If it can’t be done then maybe we can’t afford to do the work for the customer, and maybe even suggest the customer give the competition a call. If you are forced to live with no time and travel, perhaps you should look at a map and determine which customers you need to consider firing!

Dealers are in a business to make a profit and if they continue to give away this profit, it won’t be long until they have to cut back on the service they want to provide to the customer. We recommend to all dealers to review, look at, study those areas of parts and service over which you have lost control. It won’t be easy to change, but you might be surprised how many of your customers might understand your need for charging for services performed.

“In business, the earning of profit is something more than an incident of success. It is an essential condition of success because the continued absence of profit itself spells failure!” Justice Louis D. Brandeis

John R. Walker is president of After Market Services Consulting Co. Inc. E-mail to contact John.