Planning in an Unplannable World

By John Spader and David Spader

As published in RVBusiness November/December 2021

A common theme at 20 Group meetings over the past months has been the need for constant reaction and adjustment to the business whipsaw caused by COVID, supply chain disruptions, weather events, and all of the other surprises of 2021.  Dealers have been scrambling for inventory, for qualified employees, for parts, and for many other necessities of business that until just a couple years ago we all took for granted.

Still, the end of the selling season is here and it is time to start budgeting and planning for 2021.  When we press clients about this, we often hear something like, “Why bother? If I can’t predict what will happen next month, how can I possibly plan for next year?”

And there is some truth in that – the exact supply of merchandise for inventory in 2021 is unknown, wage pressure for employees (service technicians especially) is likely to continue, and who knows what political tumult we’ll face in the coming year.  In other words, the only thing certain in 2021 is uncertainty.

However, the most successful dealers start every year with a detailed business plan,  even in an unpredictable environment.  Their mindset isn’t only about selling everything they can and hoping it all works out.  Instead, the most consistently profitable dealers focus on developing a true profit plan; one that begins with baseline profitability based on the known conditions in the market.  The best business planners then build in the flexibility to increase that profit if opportunities present themselves.

The first step is to carefully model the known factors: your fixed overheads, the majority of your semi-fixed costs, and all of your salary/hourly expense.  You also know the pre-sold inventory on order and roughly when it arrives, so plug these sales in along with the variable costs associated.  Finally, almost everyone has some solid orders coming for stock, and some new and used units in inventory now, so it’s safe to assume these will be sold as well.

With not too much work, you could determine your historical ratio of trades per new unit sales, so it is straightforward to back into a base used volume for next year as well.  This same basic method could be used to determine parts & accessories sales with units as well as warranty labor and warranty parts sales.

For most dealers, there is pent-up demand for service labor, so projecting service sales is really an exercise in calculating your historical service efficiency and multiplying this times your labor rate and available tech hours.  The hours also inform your variable service payroll costs.

Finally, you know your F&I penetration levels, so based on all of the known sales above you can start to project your F&I sales and personnel costs.

When you think about it, that is actually quite a bit of information.  Turns out there actually IS a lot that can be known about 2022!

You now have all the elements needed for a baseline budget.  Are you generating a minimum 5% net at this volume of sales?  If so, move on and start strategizing about what you would do “if.” 

  • If you were able to get 25% more new unit inventory.
  • If you raised your selling or service margins.
  • If you launched an effective program to buy or consign used inventory.
  • If your F&I penetration jumped 2 percentage points.

These are all maximizing elements to the base budget.  Take the time to think through how you would manage these happy events … Who would do the extra work? Where would the inventory be displayed? How would the units be delivered? Etc, etc.

On the other hand, many dealers might find that at this baseline of known available sales they are NOT keeping a 5% net – or any net at all for that matter.  This is critical knowledge to have right now!  If your ability to get inventory is so constrained that you can’t push this budget into shape, there is almost no chance you will pull it off in the real world.  As hard as it is to imagine after two years of runaway sales growth, 2022 might be the year that some dealers actually contract – not because the market isn’t there, but because the inventory just might not be available to maintain the volume gains since 2020.

If you find yourself in this predicament, the time to act is now.  Determine what changes need to be made to generate survival net profit in 2022, and plan to make them now.  Stabilizing or even declining sales growth is perfectly acceptable; giving back profit earned over the past two years is not.

Naturally, this is by necessity an oversimplification.  There are lots of different ways dealers can improve margins and efficiencies that will increase profitability without having to cut staff or locations, and every business has its own variables to consider.  Still, you can’t start that discussion without starting with your 2022 budget.   So even now, in this time of tremendous change and seemingly endless variants, it comes right back to the basics of good business: Build your 2022 budget now!