Winning the Margin War

Dealers are met with many challenges in business today. One that seems to be getting more difficult to overcome is stabilizing fair margins. As the cost of doing business goes up, dealers are faced with the tough choice of eating that cost on their own, or passing it onto the customer.

With tough competition saturating the market, whether you are selling equipment or not won't matter much if you aren’t maintaining your margins. You need to make enough money on sales to cover increased expenses and still profit.

Recovering costs where you can

There are many necessary and unnecessary costs that can shrink your margins today as a small business owner in the outdoor power equipment industry. Figuring out where the costs are coming from that hinder your profit margins can help you to recover them.

Brent Hollopeter, president at Medina Tractor Sales in Medina, OH, says his company's operating costs are the biggest issue they have to deal with. He makes it a point to do monthly evaluations of expenses to see where they can cut some costs. Some of those costs, where possible, are handed down to the customer.

"Most all our services are itemized," says Hollopeter. "We have added fees to our invoices to cover some costs, but you can only do that so much."

Hollopeter says his customers seem to be more understandable about things such as delivery costs and labor rates. However, customers will only welcome so many fees after the published price of a product or service before they feel cheated.

While assessing your overhead costs, it is important to realize there are some areas you may not want to skimp on expense to grow profits. Investing in a good staff is investing in your bottom line.

"Right now the business overhead is hard to lower without sacrificing top-notch employees and the benefits we offer," says Hollopeter. "There are a lot of dealers who do not have a good parts and service team."

While dealers do all that they can to increase sales and maintain margins, not all of it is under your control. Political issues and policies along with economic uncertainty also play a role.

"Overall, the economy is getting better slowly but surely," says Hollopeter. "I’ll be glad when the presidential election is past, so we can get on with business. People tend to listen to the media a lot more and make buying decisions based on what they hear."

Sell services to maintain margins

One of the main things that drives down prices and shrinks margins is the pressure from the competition. Increasing the ticket price on equipment to cover expenses is a big challenge, especially with a large base of price-cutting competition in the form of Internet retailers and big box stores.

"There are a lot of variables that affect the margins on wholegoods," says Hollopeter. "I would say the biggest problem with wholegoods prices is the Internet. People will shop the Internet first, then use it to get dealers to lower their prices."

Retailers who sell solely on the Internet generally have less overhead in comparison to independent dealers. To remain competitive and hold your price, it is important to partner with manufacturers who only offer products through their independent dealers.

"To maintain a good profit, we have to work with our suppliers and use selling skills to get the customer to buy from our business," says Hollopeter.

When you have taken control of all that is in your power, the last thing you can do is sell your value. Figure out what it is that you offer customers that sets you apart from the competition and educate them on the benefits you provide. With a higher product price, a higher value must follow. Sell customers on your knowledgeable service and the close dealer-customer relationship you can provide.

"The customers who are not going to let businesses make money probably do not understand how a small business works and how many families they support," explains Hollopeter. "We have to really sell our after-the-sale backup on parts and service."