It’s no secret that the better you are at managing key metrics in your dealership, the more efficient and profitable you will be. When preparing for your busy season, one area you’ll want to analyze and develop key metrics for is your parts department. Having the right parts and quantities in stock, the right people in place to sell parts effectively, and boosting the value of your part sales will prepare you to have a highly profitable year.
With the help of dealership expert Bob Clements, President of Bob Clements International, we’ve highlighted three areas of focus that will help you evaluate the growth, profitability, effectiveness and overall customer satisfaction in your parts department.
1) Offer the right parts and stock the right quantities
With the increasing trend of parts sales via the internet, it’s essential to carry the parts your customers want, and have them readily available. The two best ways to achieve this are by maintaining seasonal minimum and maximum stocking levels and recording lost sales. This means you have to track your sales history and lost sales.
The easiest way track these measurements is through your Ideal dealer management system. Ideal has inventory fields that let you create minimum and maximum stocking levels, and will generate order recommendations based off of those levels.
Lost sales are something that many dealerships fail to track effectively due in large part to limitations in their software systems, and it can be a huge mistake. Ideal helps you easily track this information by providing you with the option to record a Lost Sale as you complete a transaction, or in the Product Information. Make it a point to use this feature to track all lost sales because it will help you determine which parts you should add to your inventory.
We understand that you aren’t going to stock every single part by a certain manufacturer to avoid a lost sale, but you do need to be smart with the parts that are on your shelves.
Bob Clements recommends that a part should become a new item in your inventory only if there have been three demands in 90 days. If you track your Lost Sales properly in Ideal, you will have the option to run a Lost Sales Report which will provide you with the necessary information you need to make smarter buying decisions.
You can then take these numbers and determine your fill rate out of stocking inventory. Clements says you can determine your fill rate by taking your Total Parts Sold – (Lost Sales + Special Orders + Emergency Orders) divided by Total Parts Sold. For example:
200 parts sold – (10 lost sale + 8 special orders + 2 emergency orders) / 200 parts sold = 90%
That’s an excellent fill rate out of stocking inventory!
Clements says dealers typically have a rate in the low 80s. By tracking these lost sales and measuring the numbers, you will have the ability to hit that 90% mark.
2) Boost Your Transaction Time
When it’s your busy season, there can be times where you are swamped and feel like you can’t serve customers fast enough. Bob Clements has visited many dealerships where one of their biggest complaints is that they don’t have enough people working the counter to handle transactions. He’s done some studies in this area to evaluate just how much time the average counterperson handles transactions each day and the results are eye-opening.
Clements says when evaluating the average transaction time per person, you need to evaluate both the people at the parts counter and the need to increase or reduce personnel. For example, if you are doing 800 transactions per month with two people, for each employee that breaks down to:
- 400 transactions per month
- 20 transactions per day
- 2.5 transactions per hour
- 1 transaction every 24 minutes
Seems pretty manageable, right?
There are always going to be ebbs and flows throughout the day when you are busier than others. During Clements’s studies, he’s determined that on average, the normal transaction time in a dealership is seven minutes. He suggests that the transaction time you should shoot for is four minutes, and there’s a highly effective way to do this without employing more people.
The first thing you need to do is determine your fastest moving parts. Ideal has a report that will show you Parts Sales by Volume. Once you’ve determined your fastest moving parts, Clements believes it’s well worth the investment to purchase a Stanley-Vidmar/Lista cabinet and keep it at your sales counter. This cabinet should hold all of your fastest moving parts based on seasonality. With your biggest sellers right at your fingertips, you should easily be able to cut the transaction time for those items in half to help you achieve that 4-minute goal.
In addition, when compared to hiring an extra employee to help speed up transaction time, it’s more cost effective to spend the money on a Stanley-Vidmar/Lista cabinet than it is to pay the salary of a new employee. Clements believes your ultimate goal should be to have well-paid, highly effective employees rather than the more employees who only produce average results.
3) Increase Your Average Transaction Value
With the right parts and the right people working behind your counter, the next area you need to focus on is the value of your average transaction.
Ideal has teamed with Bob Clements to provide you with several key areas to analyze when looking at your transactions. These metrics are located in your Dashboard (Applications>System Manager>Dashboard) and include :
- Total Number of Invoices per Day
- Average Revenue per Invoices per Day
- Average Profit per Invoice per Day
- Parts Revenue per Day
- Parts Gross Profit per Day
- Number of Parts Invoices per Day
- Parts Revenue per Manufacturer
- Total Invoice Revenue per Day
- Total Invoice Gross Profit per Day
- Total Invoice Gross Profit Percentage per Day
Bob Clements warns that just because you increase the profit on parts, this has no bearing on improving your actual transaction value. To get a true measure, you need to take your price bumps out of the equation and focus on upselling more merchandise per transaction. You can do this by using Ideal’s Parts Feature to relate parts that are often sold together. For example to you can group filter and pre-filter, battery and core charge, etc.
By knowing what you should be measuring in your parts department and how to pull that information from your Ideal system, you’ll have a better handle on the performance of your parts department and how to measure and increase your profitability.
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