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December 2017
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Prove it to yourself!
John Walker
John Walker

There is no “basic” that is more important to equipment dealers than recognizing that customers have a CHOICE! Failure to recognize this basic has led to the decline of many equipment dealerships. We all recognize the customer and prospective customer has a choice in the line of equipment they buy. But more important, do equipment dealers recognize that the customer also has an even greater choice as to where they purchase their product support for the equipment they purchased from your dealership?

It is just as important to know who is not buying your product support as it is to know who is buying your product support! Once you know who is not buying from you, you can then ask the question – why?

Customers buy equipment to do a job, a job that supplies them with a source of income, a living. But do they suffer “buyer’s remorse” after they purchase their equipment from your dealership? Is it possible there is a doubt in their mind that your dealership and employees will not be available to take care of them after the sale has been consummated? The customer’s # 1 fear is unscheduled downtime or having to shut down a job they are performing, cutting off their source of income.

For the past 35 years during speaking assignments, in most of my 300+ articles and, during my one-on-one work with dealers I have attempted to drive this message home to all of my friends (dealers) in the equipment business. All have politely listened or read; some committed to going back and checking this out for themselves. Some scoffed, some challenged the idea, some put it on their “To Do” list, some, never had, or took the time to get around-to-it! 

It is that time of the year once again when many industries are publishing their cost of doing business studies. Unfortunately, we see little change happening in these studies. Equipment margins on new and used equipment is dropping slightly every year and we will predict that this will continue because of the supplier’s insatiable demand for increased market share.

Years ago we began asking dealers to check their computer print-outs for their top 25 parts accounts. The purpose was to make dealers aware of who was purchasing their parts and then ask the question, why are we selling so many parts to the other OEMs and all those independents in our territory? When it was explained to the dealers just how much service business this was costing them yearly some, but very few, made changes in their overall marketing strategy. One client took what the industry considered drastic and unthinkable steps. This dealer actually “laughed all the way to the bank” and is still doing so . . . he knew what he was doing as soon as he got around to it, and checked out his numbers.

We coined the phrase “unknown opportunity” because as a general rule most equipment dealers are unaware of this opportunity and what it could mean to them if they decided to shift the dealership’s market focus slightly towards their product support sales and recognize the profitability of those same sales.

There is a formula used in most equipment dealers’ cost of doing business studies. This formula is the equipment dealers’ contribution to total sales. It measures the percentage of total parts and service sales to the dealerships’ total sales. It should be noted that as new and used sales increase, the dealers’ parts and service contribution decreases. As new and used equipment sales goes down, contribution for parts and service goes up.

Too many equipment dealers have service contributions running below 10%, with parts sales running at a much higher percentage of contribution. Ask yourself this question -  What if you were a $10 million dealer with a 10% service contribution? Your sales of service would be $1 million and if your gross profit was 65% your gross profit dollars produced from those service sales would be $650,000. A 2% increase in service contribution on the same $10 million dollars in sales would provide you with service sales increases of $200,000 and gross profit dollar increases of: $130,000. But think positively and figure what it would be if you were to focus upon your unknown opportunities for the next five years. If you do not want to believe then take the time to prove it to yourself. It’s up to you!

Several months ago we wrote an article suggesting that equipment dealers, if they didn’t want all the “bother” of operating a service department then sell your service to an independent (we got a whole lot of flak from that article), because those of you who are selling parts to your competition are already slowly selling off your service department. This happened in the automotive industry many years ago and all you have to do to prove this point is to look around at all the competition the automotive dealer has.

Here is how you can prove it to yourself: 1) pull up your financial statement and take a look at your total parts sales for 12 months, 2) pull up your total service sales and compare the ratio between these two numbers, 3) have your service manager look at 25 to 50 work orders and determine the ratio between parts and service on your own work orders. If the ratio of parts to service is found to be higher on your financial statement than on your work orders you will discover that you have failed to recognize your unknown opportunities.

You will prove to yourself that: 1) there are a whole lot of customers out there who are servicing their own equipment (possibly because you have never asked for this business), 2) there are a whole lot of “other” competitors working on the equipment you have sold, i.e. independents, shade-tree technicians, other in-line dealers and/or other OEMs. This is your service competition and most equipment dealers have little knowledge of this competition. You may have four or five competitors for the equipment you sell and you know everything there is to know about their marketing “strengths and weaknesses.” But, what information do you have about your product support competition?

Next, if you are really interested in discovering which and how many of your equipment buying customers made the choice of going elsewhere for their product support, contact your systems provider and ask how to draw up a customer report on sales purchases from your dealership. We suggest you might want three to five years sales history showing dollar purchases for equipment (new & used), parts and service and rental. We also suggest that the report is arranged in descending dollars by sales of equipment.

You now have a listing of dollars spent by the customer for equipment purchased, accompanied by their total parts sales and their total service sales. 1) If the customer has sufficient parts purchases and sufficient service purchases you have a customer who is taking full advantage of the services your dealership has to offer. 2) If the customer has no service purchases (or a mediocre amount), with a high level of parts purchases then the customer is quite likely performing his own service or allowing a shade-tree technician to perform his service, with the customer supplying the parts. 3) If the customer shows equipment purchases with a low amount of parts and/or service based on the equipment he owns, he may well be a customer who runs his equipment until the time comes to trade, and his equipment is quite probably a piece of junk or something you would not like to trade in. 4) If the customer has no equipment purchases, no service purchases but a large amount of parts purchases then here is the guy who is stealing your customer’s service sales away from the dealership.

With one client we uncovered the fact that the dealer had a total list of well over 3,000 customers who were buying nothing more from the dealership but a “whole lot of parts”. The dealer now has something he did not have previously . . . a fairly complete listing of his product support competition.

If this report does not prove to you exactly what is going on within your area of responsibility, if this report does not clearly point out to you your dealership’s unknown opportunities, if this report does not provide your dealership with increased product support sales at an increased profit, then nothing more can be said.

After you have analyzed these steps we have just given you and want to move forward . . . contact us and we’ll tell you how just Seven Steps to Service Selling Success can get you started recovering your “unknown opportunity”. . .

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