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Strive for Balance in Your Dealership

Original source: GIE+EXPO


Strive for Balance in Your Dealership

You're the Problem and the SolutionOne way to safeguard your dealership is to focus on creating balance; this means that every department is responsible for generating enough income so that, regardless of what may happen, at least two of your three departments can keep you afloat. Now, achieving this balance isn’t easy. But normally the things that bring you the most peace of mind in your business aren’t easy. When we start working with a dealership, we begin by looking at their balance, or lack thereof, because this tells us where the dealership is strong, but also where the vulnerabilities or weaknesses lie. 

In some industries, there is a lot of talk around the concept of absorption in the dealership, meaning that the parts and service, or the aftermarket departments, can sustain all the dealership's expenses. While in an ideal world we would love to see that, we also understand that not all the dealerships have consistent revenue all year long and thus our focus is balance instead of absorption. So, if one of the departments is slower, the other two still are able to sustain the dealership.

Let’s break down what we typically look for when we talk about balance in a dealership. You can find out where your dealership stacks up by pulling your year-end numbers by department and figuring what percentage of total revenue each department represents. I know, “Sara, you are back into the numbers again!” Just trust me on this. Go ahead and roll your eyes, but I still need you to pull out your end-of-the-year profit-and-loss (income) statement, so we can do some math. 

Sales/Whole Goods – Target: 60 Percent of Revenue 

Let’s start with the sales department. Whenever we start walking through this process with a dealership, we typically see that they have 80 percent of their revenue being generated from whole goods. Now, depending on what lines you carry, margins will vary, but most of our dealers are making margins of anywhere from 8 percent to 18 percent on the units they are selling. I know that is a big swing, but we work in a lot of different industries. Our focus is to get our sales department to represent 60 percent of all revenue being generated by the dealership as a whole.

Does this mean we should sell less all for the sake of balance? Absolutely not. We move this percentage down by increasing the amount and margins of the parts we are selling, and the profitability of the service work we do. 

Parts – Target: 25 Percent of Revenue

In the parts department, our goal is to have 25 percent of our total revenue generated from parts sales both online and in-store. Depending on your industry, we see anywhere from a 35 percent to 55+ percent margin on parts. When we start working with dealers on creating balance, it’s not uncommon to see only 15 percent of revenue coming out of the parts department, due to margins not being tight and a lack of focus on upselling and cross selling. However, we know that one of the indicators of a healthy dealership is that the parts department not only generates 25 percent of the total revenue for the dealership but has strong margins. 

Service – Target: 15 Percent of Revenue 

The service department should generate 15 percent of the gross revenue for the dealership. Our goal is that all service work has a minimum of a 50 percent margin. That’s huge. That can only be accomplished by focusing on the numbers we talked about in the previous chapter and implementing processes to help your technicians be efficient. Some strategies to increase your efficiencies may be pricing your work by the job instead of by the hour, flat rating, and making sure you don’t have your best technician on time and material work, without multiplying it by his or her average efficiency when doing flat-rate work. When we start working with a dealer, it’s not uncommon for us to see only 5 percent of the revenue, for the dealership as a whole, coming from the service department. 

So, how balanced is your dealership? Pull out your numbers from last year and see what percentage of the total money produced came from each department. 

What area needs to be your focus to help push you toward balance? Again, balance in your dealership won’t be created overnight, but what will happen is that over time your dealership will be able to withstand a weather event, an economic downturn, or just about anything that might come at you once you achieve departmental balance. 

... GO TO Strive for Balance in Your Dealership TO READ MORE

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