Here's a calculating way to keep an eye on those parts profits
Are you selling parts for your dealership's benefit or your franchiser?
If your margins in the wholesale or internal area of your parts operation are below your break-even point, you are probably being benevolent to your manufacturer but short-changing the return on investment to your company.
Many dealers have thought for years that if they sell a great deal of parts regardless of margins, they'll make money. Most retailers neglect to look at their true or total costs.
To improve profitability, you must understand and know how to calculate break-even and what it truly means.
The calculation is simple, “Expenses divided by expense plus cost of sales.” The industry norm seems to be around 21% although many dealers operate with a much higher break-even percentage.
A fallacy is in this calculation. It assumes that it costs the same to pull a part off the shelf as it does to deliver a part to a customer or pick one up for the shop or for a wholesale.
What can you do? Well obviously, we can either increase the gross profit margins or reduce your expense or a combination of both. Do not force your retail operation to subsidize your wholesale or internal functions.
Here's how to benchmark your service technicians' performance
Are your technicians developing the right amount of gross?
NCM's benchmark for the amount of labor gross that each technician should produce each month is $8,375.
To establish your own benchmark:
Take the number of hours the average technician works per month.
Multiply by your desired labor utilization index (Hours flagged divided by hours available).
Next, multiply by your desired shop effective labor rate.
Finally, multiply by your desired labor gross percentage.
This gives the benchmark for your technicians in your shop. If your technicians are not generating your benchmark, check the four items to determine the problem. There are other factors but these will cover the majority of short falls.
Safe way to make factory invoices readily available to sales managers
Scan your factory invoices into your computer system so any of your sales managers can view them. They can see the options and prices, and if they want, they can click and print.
With this in place, no one is going through your filed, original factory invoices, and no one loses the original while making copies. It's instant and correct information.
Quick overview of procedures:
- Scan invoices through Corel Photo.
- Edit and paste into your local server.
- Salespeople locate image by VIN or stock number.
- Any body damage or dealer adds are scanned.
Money-making minutes is provided by NCM Associates in conjunction with the Automotive Satellite Television Network (ASTN).
