by Patrick Kennedy
For many dealers, this is the peak of the busy season. There are sales to be had, deliveries to be made, customer service issues to be resolved, and employee performance issues to be dealt with. The days begin early and end late as we try to keep up with the workload and make all the sales we can while the market is hot. Maybe you know the feeling … drive to work in the morning with the day all planned out, but next thing you know there are emergencies to deal with and all your plans go out the window. Then it’s off to the races for ten or twelve hours before locking up for the night and repeating it all again tomorrow.
The last thing most dealers want to do when they’re in the middle of the season is spend downtime in the office, working on their business plans. But our experience has shown that the most successful dealers carve out time in the high season to check in on their most important business metrics. We call this point in the year the “Key Adjustment Zone.” A few small tweaks now can mean a huge difference to our year-end. And the converse is also true – making massive changes after the selling season ends does little to change outcomes. Which sounds better to you?
We recommend a mid-season check on the key operations and profit centers of your business. Hopefully, you’re on or close to plan and, like the coach winning the game at half time, you can just keep doing what you’re doing. However, when we slow down and take a look, most dealers find some areas to improve, and doing so now can dramatically impact the bottom line. Here are some ideas for areas to check in on:
Yes, pull it off the shelf and dust it off. Many of us haven’t looked at it since we made it six months ago, but now is the most important time to assess how we are doing. Hopefully our budget has seasonal sales variations built into it, (if not, contact us!) and you can quickly pinpoint where you planned to be in units, service, and parts & accessories sales at this mid-point of the season. Don’t over-complicate this first look, and make the format of your budget comparison as simple as possible:
The first look is at sales volume and gross margins, and this part is pretty straightforward; you’re either ahead, on, or behind your plan.
That’s where the simplicity ends, however, and we need to look deep enough to make sure we understand what’s driving the data. Our sales may be way up because we sold one or two high-dollar units we hadn’t planned on, and our margins could be down because we finally dumped a couple of the old-age anchors that we’ve had in stock forever. Get close enough to the numbers to know if there is an operational problem – or opportunity – that needs to be addressed.
Key Questions on Your Budget:
- Are we significantly ahead or behind in any sales or margin category, and is this going to change by itself in the coming months?
- Is it time to adjust by backing down or adding to existing orders and staff?
- If we do nothing and this trend continues, what impact will it have on profit and inventory at the end of the year?
Think through these questions deliberately, then make a decision and execute your plan without delay. Sometimes we can get away with a wait-and-see attitude, but more often than not, it is the dealers who act with an attitude of purposeful determination who consistently see the best results.
If our sales and margins analysis tells us where we are right now, the condition of our inventory tells us where we will be in the future. Even if we’re having a pretty good year so far, it is time to check in on our inventory aging report. Many manufacturers are rolling out next year’s models already, so think carefully about what’s in stock now, how long you’ve had it, and how good a fit that merchandise is to your current market.
While there is no excuse not to give great feature-benefit presentations and use professional sales techniques in an attempt to maximize every deal (particularly on old-age units), it is also true that sometimes we just have the wrong inventory – wrong color, wrong size, wrong floorplan, wrong whatever. The key is to actively monitor our inventory aging report along with customer feedback so we are aware when the market is sending us the signal that a product is not an obvious winner.
There is an art and a science to buying, monitoring, and maintaining proper inventory, which is a detailed discussion in itself, but the key point mid-season is to take a hard look at our inventory and decide now where the dogs are, and ask ourselves if we want to be stuck with these units come the off-season.
This is not an automatic call to lower margins or start blowing out inventory, though some of that may be called for. It is a call to make sure that our salespeople are really on-point when it comes to presenting these units, and that the inventory itself is in top condition, detailed and decorated, and importantly in a prominent location at your sales facility. The customers will find their way to the hot inventory no matter where it is, but the 180-day-plus merchandise needs as many showings and presentations as we can manage.
Remember the old days, when it was common to think that there was a buyer for every unit, we just had to work hard and wait for the right local person to find us? We held on to just about everything until we found the person who would pay us the margin we needed. But that was when customers had to go to the library for yellow pages to locate dealers out of their area, and an 800 number was considered exotic technology. Clearly things are different now; the customers all know what we have and are only a few keystrokes away from finding it somewhere else – at a price we’d rather not sell it for. When we have an interested customer, after we’ve verified that they’ve had a great presentation and understand all the value of buying from us, make the deal it takes to get the unit sold and move on. Today’s market will not reward us for hanging on to the wrong inventory too long.
On the other hand, based on our sales trends we may find ourselves low on certain inventory. Oftentimes dealers are on annual purchase plans and can’t access any additional inventory, or the plants just can’t get any of the good stuff in a reasonable amount of time. If you can get good merchandise, and can get it in time, by all means do so; but be sure to factor in the risk of buying late in the season. Sometimes we are better served to wait until the new model year, or arrange some trades from dealer friends in different markets, rather than take late-season deliveries of current year merchandise.
Be acutely aware of inventory purchased last year on manufacturer’s programs, if any. Most programs are designed to keep factories running in the off-season, and involve strategic risk-taking on the part of the dealer. Re-examine the thought processes and planning when you purchased this inventory, and assess if you were correct. If not, start treating these as aged inventory and proceed accordingly.
Key Questions on Inventory:
- Based on sales trends, do we have enough or not enough of each product type? If we need more, does the potential of more sales outweigh the risk of buying late in the season?
- How much inventory is aged now, and are we doing everything possible to expose this merchandise to the maximum number of customers? Is it detailed and well-decorated, or is it hidden in the back, picked apart for parts for other deliveries?
- Do we have a handle on our program purchases? What is coming off program now? Where are our big interest and curtailment exposures in the inventory?
- What is it going to cost to floor and then unload poor merchandise next year if we don’t sell it this summer and have to carry it all winter?
When the season is really rocking and rolling, it can be easy to lose track of our actual cash position. After the winter months of just squeaking by, our bank balance is back to respectable and we are feeling good. But how much of that money is really ours? During the summer months, our actual cash position is not as obvious as looking at our bank balance. There are trade payoffs, accounts payable, taxes and DMV payable, and accrued payroll and payroll taxes to consider. The math itself is not complicated, but it does require more than just glancing at the bank balance online. Before we wake up in November with a cash flow shock, better to have our accounting team prepare a “true cash” report for us once a week in the summer season – or all year for that matter. The report can be pulled right from our balance sheet:
- Bank Balance
- Accounts Payable
- Trades Payable
- Accrued Payroll & Payroll Taxes
- Sales Tax and DMV Payable
- Warranty Receivables
- Customer Receivables (current only!)
- = True Cash
Think about the different places cash is hiding at the dealership, and work on ways to convert these assets into cash. This is the easiest time of the year to move owned inventory and sell those parts and accessories stacking up in the store, but we have to focus on them. Just like aging new inventory, aging parts and accessories need attention and presentation if they are ever to be sold. Do we have a section of our store set aside to promote these items? Do we have them priced correctly? Is our used inventory in great condition and ready to be delivered?
Summertime is also the easiest time to get behind on paperwork in the service department, particularly on warranty claims. The result is a giant cash drain, one that often gets lost in the hustle of the busy season.
Too often we see everyone getting paid except for the dealer. Think about it: we buy the part from the manufacturer, we pay the tech to install it, and the customer gets their unit repaired. Everybody’s happy, right? But what if our claim is not filed in a timely fashion? What if we do this over and over again during the busy season? By September, we have a back room full of return parts that may or may not be tagged properly, may or may not have return authorizations, and may or may not even be identifiable. We’ve just lost the cost and margin on the part, the cost of the technician’s time, and probably a lot of time chasing down the details in order to file the claims we can sort out. Even if we need to hire temporary help during the season, better to do so and keep up with our warranty claims. Paperwork done now equals cash in the bank later!
Key Questions on Your Cash Position
- Do we know our true cash position?
- Do we have lots of cash tied up in old parts, accessories, and major unit inventory? Do we have a plan to sell these this summer?
- Are our warranty claims up to date?
- Do we have extensive customer receivables? Why?
The Delivery Process
The great news is that at this time of the year we are selling more, to more new clients, than at any other time of the selling season. But what is this experience like for our customers? Repeat customers are our best, most forgiving, and most profitable clients. There truly is no advertising as powerful as word of mouth. But this doesn’t happen by accident; it happens by deliberate effort on our part.
Make sure the delivery process makes the customer feel like they are having the red carpet rolled out for them. Have their unit ready for them when promised, have a product expert complete their walkthrough, and make sure the paperwork process is smooth and easy – these are the minimum standards.
But what about some extras? A welcome sign at the door with the names of all the new owners picking up that day? Refreshments of their choice waiting for them? An introduction to the dealership owner/GM before they leave? Framed picture of them with their new purchase? The possibilities are endless if you think about it! Do something now, at the beginning of the relationship with your new customer, to move out of the realm of the merely transactional and into the much more rewarding realm of relational business. Being good at what we do helps spread the good word about us better than almost any other marketing. Failing to handle our customers well spreads the word even faster and further, just not the word we want.
At the same time, does our delivery process leverage the sale to the best extent? Are our customers introduced to the service team and do they know what capabilities we have? Are they given a tour of the accessories department and offered a menu of useful accessories for their new unit? More than one client of ours gives their new customers a one-time-only coupon to use in their accessory department at time of delivery – usually $50 or $100 dollars. More often than not this leads to sales exponentially larger than this as the client gets excited about outfitting their new rig in your store. Another idea dealers have used to great success is menu selling accessory packages to their new owners on delivery day – the customers love it and it makes it easy for your team to present multiple items at one time. Your customer is going to accessorize their new purchase – the only question is where they will shop. Give them the opportunity to start at your store!
Key Questions on the Delivery Process:
- Are we good at meeting delivery schedules?
- Are we delighting our customers with a little something extra?
- Does our delivery process conclude with a service walk and an invitation to spend more in the accessories department?
Finally, keep the big picture in mind. It is one of the ironies of our business that while we are working hard to help our customers make the most of their family time, we are often sacrificing outrageous amounts of our own family time to keep the dealership functioning. Yes, sometimes our business does call for extra hours, but be sure to keep that spouse and those little people at home on your calendar. When all is said and done, they care a lot more about us than they do about the success of our company, so always look for the right balance when you are planning your summer work schedule.
A well-managed business runs properly whether or not the owner is there. People know their roles, know what’s expected of them, and perform to their abilities. On the other hand, if the place falls apart when we walk out the door, it’s time to take a look at ourselves, our management style, and the people we’ve surrounded ourselves with. Some dealers are afraid to delegate, some don’t know how, some just don’t want to. If you feel pressure to be at your business every waking hour, you likely fall into one of those categories, the important issue is to determine which one.
Key Questions on Work/Life Balance:
- Who are we doing this for?
- Are we micro-managing?
- Do the people in our business know what’s expected of them, and are they empowered appropriately to get things done in my absence? Do we let them?