by John Spader and David Spader
Originally published in RVBusiness, January/February 2020
When dealers join 20 Group for the first time, they are often surprised by what they learn. Before joining a group and without access to more information, it is easy for them to assume that other dealers are more profitable, or have higher margins, or sell more product, because of external factors – their market, the product lines they represent, or the economy in their region. And make no mistake; sometimes these are important factors.
However, our experience in 20 Group facilitation and the other benchmarking data we collect proves time and again is that there are high-net-profit dealers in almost every market in North America. In all the industries we serve, we have the same experience: in every market condition, certain dealers seem to find a way to generate solid nets. It is not uncommon for a 20 Group facilitator to have multiple dealers in the same market in different 20 Groups. We might hear from Dealer A that the market is terrible and that it is impossible to make money. But a few weeks later, Dealer B, in the same market, will report that business and nets are strong!
How can this be possible? How can it be that dealers with similar products, in the same market, have completely different outcomes? Or that dealers selling the same product in different regions generate totally different gross margins? Or that some dealers’ fixed ops departments generate tons of cash, while others struggle just to break even? It can’t all be about geography or product or sweetheart deals or luck, can it?
What we have learned is the dealers who consistently generate the highest net profits are those who focus first internally, paying attention to expense ratios, making sure they have the right people who know what they are doing in the right positions at the dealership, and, critically, ensuring that they have right-sized their business for their sales volume. They have learned the critical discipline of saying “no” – “no” to unprofitable expansion, “no” to deals that don’t make sense, “no” to lower-performing employees.
When you look behind the curtain at consistent high performers you will always find someone (or maybe a small leadership team) willing to make the difficult decisions needed to ensure that the business is generating at least survival net of 3% of sales.
Let’s consider some of the data from our Industry Trends reporting
The accompanying chart shows AI (Available Income or Gross Margin) per employee – a critical driver of profitability – for the most profitable dealers versus that of the least profitable dealers. Our data has shown time and again that it is almost impossible to keep a decent net when personnel expense ratios rise above 50% of AI. Yet, persistently, some dealers cannot or will not make the changes needed to restore their business to solid profitability.
In other words, if you find yourself in the right-hand column, with personnel expense ratios approaching 60%, you have some decisions to make. Will you continue this way, probably chewing through the business’s equity or funding it from your personal net worth? Or will you commit to making the changes needed to either increase productivity among your current employees or reduce staff and overhead until your ratios come into line?
As business people, the choice is always ours. Benchmarking data can be a powerful inspiration for change inside a dealership, but acknowledging the information is just the first step: knowledge without the discipline to take action is of little value.
Even the highest-performing dealers can get caught in a suddenly-bad market and be forced to accept low profits or even losses temporarily. That’s business. However, what they show us again and again is the willingness to take charge and make the adjustments needed internally to return to strong profitability. They have the person or people willing to draw the line and say, “We will get to this ratio and this is how we’ll do it.”
Question: who is that person in your dealership?