February 12, 2007: An inventory mix test that should enlighten your Indy experience
February 12, 2007
Filed under Archives
Stock and sell expensive parts, and you will have higher average tickets.
So who doesn’t know that? The truth of that statement is so obvious we all just turn and say duhhhh!
But if it is so obvious, why don’t we do it? Here is what I found.
I took about 80 dealerships and looked at, first, their inventory mix (count of parts numbers less than $100 vs. count of part numbers more than $100). From that, I found a percentage of expensive parts that ranged from 6-26 percent of active part numbers.
Then, I looked at the average parts counter ticket for sales to customers during the full year 2006. I excluded internals and tickets more than $10,000 to clean the slate and focus only on the face-to-face counter customer. I found the average ticket ran from $43-$189.
The interesting part came next.
I put the average ticket up next to the inventory mix, arranged it so I could plot each dealer on a scatter chart and then studied the results.
A little pause here to learn something about statistics.
People have always wanted to know if one thing has a true effect on another. Did the power outage in New York City a few years ago create an increase in the city’s birth rate nine months later? Or, are those things just coincidence?
All valid questions, and statisticians, unhappy with guesses, found a way to measure this. It is called a correlation test, and it goes like this: If two variables (the independent and the dependent variable) are found to be mathematically perfectly matched, there is a value of
1 assigned to it. If the two variables are exactly opposed (as one goes up, the other goes down), they say that there is a correlation of minus-1. Now, if there is no correlation at all between the two variables, they earn a correlation value of 0. Every test will fall somewhere between minus-1 and plus-1.
And it works quite well. We won’t go into the math here, but this test is used now to measure all sorts of interesting things. (New York power outage? Yup.)
Now, back to our parts counter.
The correlation test came back with a sound .478 correlation between having parts more than $100 cost, and having a strong average counter ticket. So the “duhhhh” thing is right on track: If you don’t have high-end parts available, you will have a hard time getting strong parts sales.
Which brings us to Indy.
First, do you know what you already have? Have you run a report in your DMS (I can suggest a good one here…) to see what your inventory mix is? Are you down around the 6 percent figure for parts more than $100 cost, or are you up around the 26 percent range?
Knowing this, you need to go to Indy looking for more high-end parts to sell. Now, this is where you earn your pay. Someone in your organization must know what is going to appeal to your customers, and what is not.
So, in preparation for Indy, I want you to take this little chart and stare at it for a while. Not when you get there, but well before.
Look at this and identify where you fall right now. Two factors: Your average parts counter ticket on the vertical scale, and your percentage of high-end parts on the horizontal scale. Now, look at how few dealers are getting sales more than $100 when their inventory is running at less than 10 percent high-end. You just can’t do it. So if you want the high tickets, go to the show prepared to shop with a vengeance. Get the mix up in the 10 to 15 percent range, go home, train your people, get the pay plans in place and then stand back and watch the dollars roll in.
You might not have been in New York City when the lights went out (too bad…). But you can count on this correlation factor to work for you. The numbers really do predict your results. Do the math, be amazed, and then get back to work. You’ve got lots of cool, expensive parts to sell. psb
Hal Ethington has been associated with the powersports industry for more than 30 years. Ethington is a senior analyst at ADP?Lightspeed. He can be reached at Hal_ethington@adp.com