As published in RVBusiness, Sept/Oct 2022
For the past several years, with the average mid sized RV dealer enjoying net profits close to 10% of sales, it’s been easy to lose focus on the traditional practices followed by successful dealers. We’ve been encouraging our clients to forget about the profitability standards of past years and look to the potential in the incredible markets of 2020 and 2021 by thinking not of survival net but of multiples of survival net! Even if a company was more profitable than it had ever been, we’d point to the top-performing dealers as a standard of the potential in this jet-fueled market.
Rarely have we had to discuss personnel management with a client – or even expense control of any kind, for that matter – as there always seemed to be enough gross margin to paper over any issues developing inside the company and still return a handsome profit. External factors have been the focus – how long will this last, how much will the customer pay, how much inventory can I get, how does my company stack up against other dealers in my territory?
In a sense, then, booming markets are an outside game: once basic profitability is a given, it’s often more a matter of finding inventory and getting units out the door than it is working on the actual skills, habits, attitudes, and processes inside the company. But flat or contracting markets are an inside game, calling for careful focus on many of the factors dealers have been ignoring for the past couple of years.
How tight are your sales processes right now? How accurate are your traffic counts and sales metrics? Who’s watching your web traffic and how effective are you at managing and converting online leads? Are your salespeople still able to feature-benefit the products on your lot, or have they become order-takers? Do your sales managers hold regular training sessions, take turns from salespeople, and personally follow up on unclosed leads?
What is the efficiency in your service department, and how long does it take for a customer to get through your service processes? How well is your warranty system working, and how much unclaimed work is getting through your shop? What are the expense ratios of your service department, and do you have the right ratios of techs -to-writers-to-managers?
Finally, for owners and general managers, how much attention have you been giving to the core financial management elements of your role at the company? How much time every week do you spend monitoring and understanding current cash flow? Do you have sufficient financing available to handle a slowdown in inventory turns? What do your aging reports tell you about your customer and warranty receivables? How many open work orders are there? What is your current major unit inventory turn, and do you have a handle on incoming orders? Are there any items on your balance sheet or income statement that you do not recognize or understand? What does your current profitability and gross margin per employee tell you about the headcount needed in your business over the next six months to a year?
The shift from a booming market to more regular business conditions requires many adjustments. But a core change is the directional focus of the business leader. Now is the time to make sure that your internal systems are in working order and to maintain clear focus on the basic building blocks of a successful dealership: expense management, employee productivity, and maintaining financial performance in changing sales volumes. Owners and general managers are often critical of their employees’ inability to adapt and be flexible; in this market, it is company leadership that needs to exemplify these traits.