A lot of dealers are just kind of “in business” and judge their success by whether or not they remain in business. Dealers can increase their chances at success by moving outside the mentality of taking it day-by-day, and instead regularly focus on their benchmarking data.
"Most dealers are so busy firefighting that they don't understand the importance of running their business," says Bob Clements of Bob Clements International. "I constantly preach to my dealers to measure, measure, measure."
Evaluate your business' data as it compares to benchmarking goals you have set for yourself based on industry standards. You can educate yourself on industry data to measure yourself against through discussions with distributors, other dealers and industry associations.
In taking the time to measure your important company data, there is more of a focus placed on the company's profitability. Benchmarks help you to better understand your business and identify areas for improvement or growth.
Set net profit goals
When studying a company's benchmarking data, the most important number to watch is the net profit at the end of the year. Clements suggests aiming for a net profit of 10%. Dealers should asses how each area of their business contributes to that main end goal.
"Once a dealer decides what he wants as an acceptable number, they can then work backwards in each profit center to make sure it is contributing the correct amount to make that net profit happen," explains Clements.
To track these numbers, dealers need to turn to their Business Management System (BMS) for support. This is a tool many dealers do not use to its full potential (see sidebar "Top 5 BMS Reports").
"One of the challenges that most dealers have is they fail to fully utilize their Business Management System and the reports that it can create to keep them focused on profitability on a weekly basis," says Clements.
Once a dealer figures out which reports to run and how frequently, monitoring them becomes a part of the daily, weekly and monthly routine. Spotting an issue in the reports early on through regular monitoring can help you to quickly recover lost profits and find ways to improve processes.
Each department in the dealership has its own statistics to be recorded and monitored. In the service department, dealers should measure the billable work coming out of their shop and how it compares to what technicians are paid.
"In service, dealers should be evaluating their recovery rate (the amount of hours they are paying their techs each week versus the amount of billable time the techs are producing), which should be close to 100% or higher. My strongest dealership right now has five locations and is averaging over 120% for recovery," says Clements. "Dealers should also evaluate their management costs, which should be no more than 15% of total labor sales."
In the parts department, dealers should take advantage of manufacturer buying opportunities to maintain higher margins on parts. Clements also suggests a combination of variable and velocity pricing strategies.
Variable pricing allows a dealer to be flexible with the equipment's sale price. With velocity pricing, sale prices reflect a product's rank. Frequently purchased products have a higher rank and a lower price. Slow-moving products cost more to stock, so they have a higher price that reflects their low-rank.
"Dealers should work to get their margins on captive parts to around 50% or better," suggests Clements. "I would expect one parts person to be able to handle $350,000 to $400,000 of parts sales, and would want to keep my management costs to no more than 7% of my parts sales."
The way a dealer tracks their wholegoods stat depends largely on their customer base. Equipment margins vary greatly on commercial-grade or consumer equipment.
"If the dealer is focused on the commercial cutter, the margins are going to be in the 12% to 15% range and volume has to be a part of their strategy," explains Clements. "If they are focused more on the consumer, the margins should be in the 18% to 20% range."
Dealers should also take into account that the amount of time spent working with the consumer customer on a sale is generally longer, and the average sale is lower in value.
Getting past roadblocks
There are many things that can get in the way of benchmarking. Dealers run short on time, and often an understanding of the benchmarking process. These two things alone can lead to a dealer attempting to make benchmarking judgments off inaccurate data. You will not be able to make the proper decisions to improve your business' profitability if those decisions are based off of false or inaccurate numbers.
Benchmarking could be considered an all-or-nothing endeavor. To succeed in benchmarking, it needs to be done regularly and continuously as well as cause further action aimed toward constant improvement.