Let’s make it as simple as possible. It is not brain-surgery, it is not rocket science! It is something that is available to you on almost every information system used by equipment dealers. It is an invaluable program everyone can use to market their services to their vast body of potential prospects or to quickly discover the dealership’s competition for aftermarket services.
We are again talking about the equipment dealer’s unrecognized opportunities. For years the typical equipment dealer in almost all industries has been focusing their efforts on moving the iron. While there is nothing wrong with this focus, it is difficult to understand why, at the same time, they are moving the iron; they fail to promote the dealership’s ability and willingness to service the equipment following the sale.
We are amazed at the number of dealers who have been introduced to computer sales ranking reports that immediately show a group of customers who are purchasing equipment from the dealership, but ignoring the dealership when the time comes to have that
I have asked myself on numerous occasions: Doesn’t the dealer want this profitable business? When I titled this article: It’s Right in Front of You; that is exactly what I mean. I have sat down with numerous dealers and distributors in all industries, brought the parts managers in, as well as the service managers, opened the file and asked the questions: 1) Is this or is this not a list of prospects for your two aftermarket departments to increase their sales and profitability? 2) Is this not a list of competitors who are taking large amounts of product support sales and profits away from your dealership?
One successful dealer reviewing the reports eventually decided, after seeing how much business, in service, an independent was taking away from him, to take action. The independent was one of the dealer’s top parts customers. Eventually the dealer “bought-out” the independent, and happily one of the side benefits was that the dealer acquired ten qualified technicians all with a combined 125 years of experience servicing the equipment the dealership had sold but seldom serviced. Caterpillar (Dirt Div) announced to their dealers that their records show that globally the company believes their dealers are leaving $18 billion in aftermarket sales on the table; thanks CAT!
For years we have focused on the need for equipment dealers to market their service department with the same enthusiasm and intensity that they put forth in marketing the equipment they have chosen to market. We have developed fourteen marketing steps for dealers to market their product support, while at the same time increasing their service profitability. Following these fourteen points has set the path for many dealers to enjoy increased sales and profitability.
We can continue to think negatively about our service department’s opportunities, or we can take a completely positive attitude toward service. It is the equipment dealer’s last opportunity for high profitability.
How many times have you heard yourself or your fellow dealer make a comment such as: Margins are declining dramatically on our equipment and now the manufacturers are cutting our parts margins and there is absolutely nothing we can do about it!
Couple the unrecognized sales opportunities from service with the unrecognized opportunities for service profits and you will be in a position to control your own destiny as far as margins are concerned. You will have created a winning combination for success, if it is your decision to do so.
We have provided dealers fourteen specific steps to consider if they are interested in turning their service culture completely around. Seven of those steps are listed here. Information regarding the other seven can be found at the end of this article. 1) Turn your shop into an individual profit center, a department that covers all of its expenses and has a “big chunk” left over for the dealership’s Absorption Rate. 2) Eliminate all of your shop internals. Most internals are nothing more than sales person’s discounts anyway. 3) Look at your shop’s percentage of contribution to total dealership sales. Whatever it is, determine what is needed to increase this contribution by 5% to 7%. 4) If your shop is not “flat rate”, consider doing so. 5) Analyze your shop and individual technician’s Service Billing Efficiency. Determine your own percentage number and compare it with industry standards. Whether it is: 60%, 65% or even 70%, figure out a specific increase for the coming year. See what a minimum of 5% improvement would do for your overall profitability. 6) Figure your Service Gross Profit. If it is running at 50% to 55%, figure out your increased profitability with an additional 5% to 10%. 7) Last, but not least, take a long hard look at your hourly labor rate and make sure you are keeping pace with your service expenses. Don’t look at your labor rate through the eyes of your sales department; don’t look at it from the standpoint of what is being charged down the street. Look at your own labor rate on the basis of what you must charge to make an acceptable profit on your overall shop investment.
Any shop is labor intensive and generally most shops employ more personnel than any other department within the dealership. Curries’ model for equipment dealerships now calls for 50%+ of all the dealership’s employees being technicians. Personnel costs and expenses have a tendency to increase 75% faster than other dealership expenses. You can be assured the government will see to it that this will continue into the future.
Equipment dealers will be paying a premium for qualified technicians both now and in the future. For a long time it has been a situation of supply and demand. If your labor rates do not increase accordingly, how will you cover the cost of increased technicians’ wages? Most equipment dealers today are out of line with other segments of the business world as far as labor rates are concerned. Consider the plumber or the computer service technician. Look at the equipment your technicians are servicing. With every passing year this equipment gets more and more technical and complicated.
Plan your labor rate increases. Why not consider something simple like a $4.99 an hour increase every six months? Sound reasonable? It is far better to do it on a quarterly or semi-annual basis than it is to make a $25 to $30 dollar increase after five years of no increases.
Whether your dealership is a million dollar operation or a multi-million dollar operation, the ideal situation involving the seven changes mentioned is that in all of the seven changes, additional expenses can be kept to a minimum. By doing this, additional profitability drops to the “bottom-line” of the dealer’s financial statement. Look at the amount of “over-time” your shop is experiencing. Check whether or not this over-time is being billed to the customer and if not then “why not”? Is there any reason why a customer should not be charged time and travel? Have we just continued to allow this to be ignored, without thinking about what it is costing the dealership?
Very few changes in a typical equipment dealership can have this overall dramatic effect upon any dealership’s profitability like the changes you make in properly managing by the numbers!
Can these changes be made painlessly and without a whole lot of additional effort? Certainly not! The changes will require dedication and commitment right from the top. The changes will also require a truly professional service manager, a manager capable of planning the details and achieving results. Many dealers dislike our thinking concerning internal labor rates. Some dealers we have discovered don’t even have internal rates, sales is billed nothing, nada, zilch for service work. We have found it works to start off by charging sales the same labor rate you set for your best customers . . .
There are simple financial exercises to illustrate the typical equipment dealer’s potential service opportunity. What we refer to as unrecognized service profit opportunities. Set your sights on performing the seven steps mentioned above and then do the additional seven in the manual we are offering you. Start off by truly marketing your dealership’s service. Dealerships doing this show parts sales increases of as much as 26% and this is all increased sales and profits with little increased investment.
Become a pioneer in the coming years; focus upon your true opportunities. Head out for the new frontier and increase your profitability accordingly. It certainly can be accomplished if the commitment is made. Things that do not change will continue to remain the same!
Our special offer to dealers again this month is our document entitled: Fourteen Steps to Increase Product Support Sales and Profits! Email us your request with the name and address of your dealership and your position within the dealership and we will email you this document and you will be invoiced $14.99 payable only if you are satisfied. Email us at email@example.com
John R. Walker is president of Aftermarket Services Consulting Co. Inc. E-mail firstname.lastname@example.org to contact John.