Using technology, incentive programs and pricing strategies to transform your dealership
By Jeff Sheets
January is really a great time of the year. A time for a fresh start! We take stock of what we did the previous year in all areas of our life, including business, and then try to make changes. Sometimes we can make the changes permanent, and sometimes we can’t or don’t. The reason we usually make permanent changes is there is a great incentive. Three areas that you should have ample incentive to make changes because of their enormous potential impact on your dealership are, in order of priority, as follows: 1) technology, 2) incentive programs, and 3) pricing strategies. Your goal in each and every aspect of your dealership should be to have a “competitive advantage,” so you will always be the most desired place for your customers to bring their business. You want to be ahead of other local dealers or stores who provide the same products or services. Technology, incentive programs and pricing strategies are just good places to start!
If you ask me to come visit you in your dealership, the first question I will ask you is, “Do you have a business management system software program?” If you don’t, it usually doesn’t make sense for me to visit you because you don’t have access to the information that I need to analyze to determine where problems might be occurring. I favor the latest technology too! If you still have a DOS system, when Windows-based systems are available, you are basically 20 years behind what is going on in the business management system world. Anytime you are behind on technology, you do your customers a disservice because your ability to help them is restricted. Since the software provider continues to update the Windows system, you get the new ideas or advantages that are coming because the software provider is supporting that system. You also need updated computers, so that you can run the software efficiently in the system. Plus, you need the fastest Internet speeds, so you can find information online quickly to answer customer questions in a timely fashion.
Technology is not just limited to computers, software or Internet speeds. You need to have the best tools for your service technicians, as well as great sales and marketing through your website. You need bar codes for products and bar code scanners for your parts department to conduct easy inventories. You need to make sure that you can accomplish tasks as quickly as possible, so that you can focus your attention on your customers as much as possible. If you don’t know where to start, go out and look at your competition. If you want a competitive advantage, you need to know what they are doing and find a way to do it better.
#2 Employee incentives
For the long-term health of your business, you want to make sure that your employees know that they are valuable to you. Why not incentivize employees across all business functions for completing critical projects or reaching specific goals? Incentives aligned with individual achievements or team-based success can go a long way toward aligning and motivating your employees around your business objectives. There are multiple reasons for doing this beyond motivation. Employees who feel they are being rewarded for extra effort are more likely to stay for a long time.
Gift cards, spa retreats, dinner for two, and similar perks are all extremely valuable to certain employees, depending on their personal tastes and situations. Like managing people in general, this requires knowing each of your employees well, and adapting what you offer to them as much as is reasonable. Simple incentives also benefit from immediacy and spontaneity. If you want to recognize an employee for going the extra mile, whether with cash or some other benefit, you need to do it as quickly as possible following the result you want to reward. Furthermore, you need to articulate to all employees what it was about their performance that you most appreciated.
Anything you can do to encourage someone to enjoy their employment with you is a good thing. Replacing employees is extremely expensive and something you want to avoid. (Refer to my December 2014 OPE article to see those associated costs.) Obviously, there are many reasons for employees to leave that are out of your control, but your goal is to hold on to good employees, which is another way that you can gain a competitive advantage over your competitors who might have higher turnover.
#3 Pricing strategies
In all areas of business, you need to make sure you’re getting the most gross margin that you can, so that you can be as profitable as possible. If you do not have a pricing strategy in your sales, parts and service departments, then you are effectively “choking your business” because you don’t have the cash flow you need be able to keep the dealership running effectively.
* Parts department: I suggest a parts pricing matrix that effectively can move your gross margins in your parts department from 35 percent to 50 percent. This is done by trying to get larger margins on the lower-priced parts (i.e. parts priced less than $15). If you have a business management software system, then there should be a way to do this with very little effort. The key is making sure that you don’t let the matrix affect higher-volume parts that you sell all the time. You want to remain competitive on those. If you implement this strategy, you would be increasing your gross margin by $15,000 for every $100,000 you sell. That is worth the effort. If you sell $300,000 in parts every year, that means an extra $45,000 in your pocket.
* Service department: This is the one area of the business where I believe dealers charge too little for the labor produced. You need to make sure that the labor rate you are charging makes sense. You have to remember that you are a professional outdoor power equipment dealership with well-trained technicians. I like the idea of having a reason to charge what you do. Contact local car dealers and see what they are charging. You should be charging $10-$15 below their labor rate. I have visited many OPE dealerships where they are trying to compete with shade tree mechanics and their labor rates. Do not compare yourself to them! They don’t have the relationship with manufacturers you have or the opportunity to do warranty repairs. Don’t cheat yourself on earning the labor dollars you need to make in order to pay your service technicians well. It all starts with charging the proper amount for your labor.
* Sales department: Your equipment prices are set by the manufacturer, and you should attempt to maintain those margins and not negotiate away too much. I favor giving away parts or service as ways to hold onto margins. If you lose margin on the equipment, you lose 100 percent. If you give away something else, you only give away the margin dollars associated with the product or service, which is less. You also have to be careful with trade-ins. You do not want all of your profit to be in a piece of used equipment that you need to sell. If you have too many of those, you are effectively starving your business of the gross margin you need from the sales department to run the business. There are times with large landscape customers that you may give away margins because the business in parts and service is so great that you can afford to do it. I would set parameters as to which customers you do this for, and don’t make it a long list.
If you want to revolutionize your dealership, make sure you are attacking the areas that I noted. Your goal as a dealer is to make sure that you are doing everything you can to make the customer experience the best it possibly can be. Having the best technology and employees, as well as making sure you make a good profit on everything you sell, will get you to where you want to be. I know I’ve mentioned having a competitive advantage over the competition, but I think Jack Welch, the former CEO of GE, said it best: “If you don’t have a competitive advantage, don’t compete.” You need to make sure that everything you do is to make your business the type that causes others to wonder how you do it, and that is by having the mindset that average isn’t good enough. You want to do and be more than just average. Make this year the best ever, and do what it takes to be the best.
Jeff Sheets is the founder and owner of OPE Consulting Services. Whether a business is thriving or struggling to survive, Sheets’ rich experience in both the corporate and not-for-profit sectors allows him to partner with business owners to customize unique strategies for their needs. For the past nine years, he has worked extensively with hundreds of outdoor power equipment dealers to create best practices in business structure, personnel management and financial profitability. For more information, he may be contacted at firstname.lastname@example.org or (816) 260-5430. You can also follow him on Twitter @opeconsult and connect with him on LinkedIn.