July 21, 2008: Tackling a rural store with low profit margins
July 21, 2008
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These articles recap some of the opportunities uncovered by Gart Sutton & Associates’ powersports specialists during consulting visits.
These are followed by recommended actions that address the issues. Our goal is to provide ideas to help improve your dealership.
This multi-line dealership has been a family owned business for more than 30 years. The owner is not involved in the business on a regular basis. His son and general manager took over the daily operations of the dealership several years ago. The dealership has a history of involvement in motorcycle racing, and still avidly supports the sport. The owner and his son were both successful motorcycle racers.
The dealership is located in a rural market with a population of 4,000. They have used discount pricing to attract customers from a metro market of more than 400,000 less than an hour away. Their annual unit sales are 700-800 units. They have operated on very small margins. They are hoping to find ways to increase floor traffic and sales while holding better margins.
The dealership does not have an organization chart or a marketing plan. They do have written job descriptions. However, they need to be revised, updated and enforced. Due to a recent product line acquisition and optimistic projections from the DM, they have excessive unit inventory. They also want to eliminate one of their snowmobile lines that has not been profitable.
The first part of this dealership series will examine the store’s sales department.
They currently show an overall sales department gross profit of around 7 percent. However, the real margins are probably negative numbers. Unit sales profitability is inflated because of their practice of discounting accessories and service labor to the sales department. Once the departments begin measuring performance on a level playing field (retail-to-retail), the true picture will emerge. Service and parts will become more profitable and the true margin in sales can be measured. This will enable comparisons with industry benchmarks. They have done well with one of the European brands, and it appears to be their most profitable major unit line.
The sales manager, Bill, has five years of experience. He seems to be excited about making the necessary changes. There are two salespeople under him. He is not able to focus on his manager duties because he is selling bikes, doing the F&I sales and handling the showroom accessory ordering and displays.
There are no sales processes in place. The staff has not had any structured selling process training. There is little coaching or counseling taking place. They are performing as order-takers, not salespeople. There is very little value-building. Generally, they just go to the lowest price and make the deal. Bill does not desk all deals to ensure profitability.
Utilizing a structured sales process that includes building value in the salesperson, the dealership and the product would enable them to ask for higher prices.
Having Bill desk every deal, and providing incentives for him to maintain more profitability, would help increase margins.
There is no prospecting activity taking place. The salespeople do keep logs, but Bill has not been reviewing them on a regular basis. There are no daily huddles or one-on-ones, and sales meetings are held on an irregular basis.
Conducting daily one-on-ones and weekly sales meetings that include recognition, motivation and training will help increase sales, communications and accountability.
There is very little preowned business. Growing this department will be important to increasing profitability. It will bring in new customers, expand the product and price offerings, allow for better margin control and increase sales of P&A, F&I and service. Bill was provided with some rough guidelines, such as promoting the fact that the store takes trades and buys units. He was also shown how to determine trade value by taking market value less reconditioning and a fixed margin (typically 18-24 percent). An appraisal process was discussed, and examples of appraisal forms were provided.
The P&A department needs to assume the duties of ordering and displaying of the accessories for the showroom. The sales manager needs to be on the floor working with his sales staff 80 percent of the time, not putting together clothing and accessory orders.
The sales manager was provided with a customer satisfaction selling process, incoming and outgoing phone sales guides, a showroom log, prospect forms and an overview of the management and prospecting process. These tools can be used to bring this department up a notch, improve profitability and customer satisfaction.
Gart Sutton has been a leading provider of on-site dealer consulting, dealer 20-groups, online financial composites, accounting rescue services, and OEM and dealership training solutions for nearly 30 years. For additional information on these services, visit www.gartsutton.com