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September 24, 2007: Lost sales: The key to understanding true demand

September 24, 2007
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The guy had pulled out his wallet. He had cash in his hand, but I couldn’t find the part. The keys were now tapping on the counter, and I knew I was losing him, so I went to plan B: “Looks like I don’t have that part right now, but I can order that for you and have it here tomorrow.” He looks at the clock, said, “Nah, I’ve got to have it today,” puts his wallet back in his pocket and walks out the door.

And this happened time and time again.

What was wrong? I seemed to do OK on the plugs and the oils. I had the tie-downs and the bungee cords. Tune-ups weren’t a problem, the techs knew what they needed. But beyond that, it was a guess about what was starting to break, and what the next hot item was going to be.

We called daily meetings of all the parts people — day-end wrapups where we tried to summarize requests that we couldn’t fill and find trends that were starting to show. We wrote things down, ordered stuff in, focused on feature benefits and assigned one minute presentations. But it wasn’t until I started working with young Ernie Blodgett to design and build a computer system to track parts that I found the answer. Ernie said, “Hal, you have to record lost sales.” And with that one insightful comment, and Ernie’s programming, I began to record, and know, the true demand for a part, even before I ever stocked them.

Here we are, 25 years down the road from that day. That computer program became Lightspeed, and the amazing thing is most of you still have that same original problem. You now have the ability to quickly and easily record lost sales, but you simply don’t do it. Look at the chart on this page. I combed data from 150 dealers to see if they were tracking lost sales. Eighty six percent of you are at zero or less than one lost sale recorded per 100 counter invoices. Eleven percent of are running at 1-5 per 100 tickets, and the remaining

3 percent of you are logging 5-15 lost sales per 100 tickets. The car guys expect about six lost sales recorded at the counter per man per day. In these two top bike shops, we are seeing only about three per day per man at best.

Why wouldn’t you do this? Why do you turn your back on the best market research you could possibly get — your customers’ actual requests? You think your people will log bogus lost sales to create artificial demand for parts they want in stock for their personal needs? I don’t buy that one. Here is just one example of what you are missing:

A dealer was located on a highly traveled route to area sand dunes. Every Friday, he would run a special on gas cans, and by Sunday night he would sell a complete pallet of them. Old parts manager was quite proud he could sell a complete pallet of gas cans every week, and obviously thought he was doing a great job.

Old parts manager quits. New parts manager comes on, sees the pallet emptied by mid morning, wonders if he might be losing some sales and doubles his weekly order. Sunday night, both pallets are gone. He ups it to three. All are gone by Sunday night. He goes to four, and a few cans are left. He now sells four pallets a week. Old parts manager never knew, because he never thought about lost sales. New parts manager thought about true demand, broke out of the box and quadrupled his sales.

Twenty five years ago that customer had his wallet out and was ready to pay me, but I didn’t have the part. He walked out and I lost the sale. For years we’ve all said, “You can’t sell from an empty wagon.” Well, it is just as hard to sell from a wagon filled with the wrong stuff. Proper stocking is key to better turns and happier customers.

Use the tools you have, record lost sales, understand the true demand for your parts and stock what sells. Who knows? You might want to set out just a few more of those gas cans.

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.

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