How to Control and Reduce Inventory in Your Most Troublesome Categories

When it comes to inventory, you know only too well how important it is to keep it under control. Inventory is a huge part of any dealership and if it’s not managed well, you can tie up valuable resources and miss key opportunities.

In today’s economy, dealers have to get savvy when it comes to controlling and reducing their inventory. Here are a few ideas to help get you started:

Service Technicians’ Time

Most dealers don’t recognize that their technicians’ time is an inventoried item just like a set of tires or a racing jacket. Your service department should be one of the most, if not the most, profitable areas of your business. This is why it’s so important to use your power sport computer software to manage your techs’ time.

A quality powersport office software package can help you manage every minute of your tech’s day to ensure that they’re constantly working on billable projects and earning your dealership money.

Reducing Inventories in Parts and Whole Goods

One of the best ways you can reduce your inventory is through parts returns.

Your parts department can grow as if it has a life of its own. And if you don’t stay on top of your inventory here, you’ll eventually wind up with boxes full of obsolete parts. These parts are tying up your money, and your space.

Most manufacturers encourage dealers to return at least 10% of their stock every year. They plan on this kind of “take back”. On the average, however, manufacturers only see around a 2% return. This is because most dealers don’t take advantage of parts returns.

Make sure your parts manager stays on top of which parts aren’t selling, so they can be returned to the manufacturer to free up cash. This is another area where quality power sport office management software can really save you time and money.

You can also save significantly be reducing the number of lines you carry. You don’t need three after-market companies. If you’re going to handle after-market parts, you don’t have to buy from all three. Pick one and become a partner. This goes for whole goods as well.

You can help keep your inventory down by creating a stocking policy. For instance, when a customer comes in looking for a part some dealers will order one for that customer, and then another for themselves “for next time”. But this mindset is a quick way to inflate your inventory and waste cash you could be spending elsewhere.

Writing out a good stocking policy will help ensure that everyone on your team knows the rules about stocking, and how much should be ordered at a time. This will help save you cash and space in your parts department.

Last Word…

Dealers who know how to effectively manage their inventory will survive and thrive in any economy. By using quality powersport office management software and implementing these strategies you’ll be well on your way to reducing and controlling this vital area of your business.

2 Strategies For Improving Profits In Your Service Department

Every dealership wants to be profitable. But if there’s a weak area for most owners, it’s going to be the service department. Between managing techs, managing parts, and overseeing billing, there are plenty of places costs can spiral out of control and opportunities for increasing profit margins can get overlooked.

The good news is that there are plenty of ways you can ensure efficiency and stay on top of your billing and techs in your service department.

Strategy #1: Know Where You’re At

Profitable dealerships always know where they’re at financially. Not knowing where you stand is just like setting out on long journey with no map, and no idea where you’re starting from. It’s just not a smart way to move forward!

Quality OPE office management software allows you to see within seconds exactly where your dealership, and your shop specifically, stands financially. You can keep track of parts inventory, your techs billable hours, and how much work you have scheduled in the days and weeks to come.

Staying on top of these metrics gives you, as an owner, a feeling of control that you simply don’t have without a smart system in place. Plus, having a complete picture of your shop, and where you stand, allows you to spot opportunities for growth, or areas where you could trim costs.

Strategy #2: Stop Real Time Billing

Another smart strategy you can use to make your shop more profitable is to stop real time billing.

Real time billing is when you work on a piece of equipment for ½ hour, and then you charge your customer for ½ hour’s worth of work. The problem with real time billing is that it eats away at your profits.

For instance, you may know that a certain job is going to take your A-level techs half an hour to complete, so that’s what you quote your customer. But what happens when you only have a B-level tech available, and it takes them ¾ hour to do the job? Well, you just lost that ¼ hour.

Dealers that have profitable service departments operate more like car dealerships. They have an extensive list of menu and flat-rate pricing on the bulk of the work they do.

Think about this example: if you’re replacing the center spindle on a zero-turn mower, you know your A-level tech can get this done in about ¼ hour if he’s using a lift. But, you would bill this at ¾ hour. Why? Because there’s a good chance that one of your B-level techs

will be doing this job, and it’s going to take them almost ¾ hour to get it finished.

This not only improves your profits when an A-level tech does this job, but it ensures you’re not losing money when a B-level tech gets involved.

You can manage this by making sure every piece of equipment that’s brought into your shop is looked at by a qualified technician. This way a time and a price has been put on that equipment before it’s processed for service. The advantage to this “triage system” is that technicians know beforehand how much time has been allocated to complete that particular job.

Your technicians should also be keeping track of their time with outdoor power equipment technician software, or at least some kind of time log. Many dealers will use these time logs to spur efficiency and motivation in their techs.

Your service department can be an incredibly profitable part of your dealership. By using quality outdoor power equipment office management software to stay on top of key metrics and by setting up a flat rate pricing system, you’ll ensure that your service department carries their weight in the years to come.

How To Earn More Money In Your Parts Department

Photo © by swanksalot

Every owner knows that managing parts can be an incredible headache. You can have literally thousands of parts stocked, but if they’re the wrong ones then they’re not going to move. And then you’re left with a ton of cash tied up in something that’s just sitting on the shelf.

The good news here is that there are several strategies you can use to make sure that your parts department earns you money consistently.

Strategy #1: Identify Your Biggest Customer

Many dealers make the mistake of thinking that when it comes to parts, their biggest customers are the commercial accounts or individuals that walk through the door. But, this is almost always wrong.

Why?

Because the customer buying the most parts from you is your own service department.

Successful dealerships recognize this, and they earn more simply by structuring their parts department to fit the needs of their service department. Service departments, when run well, can really add to the profitability of a dealership. Your goal should be to make sure the service department has the parts they need on-hand so shop efficiency is improved.

Strategy #2: Don’t Try To Stock Everything

Many dealers try to keep everything they can in stock for when customers walk through the door. Some even strive to have parts on-hand for equipment that’s 30 or 40 years old!
What’s wrong with this?

Well, doing this means you’re trying up money and shelf space on parts that very few, if any, customers will ever come looking for. Even manufacturers don’t have a fill rate of 100%. So why should you?

Focus on the parts your shop needs first, and then on the parts that your customers come looking for most. You can track this information with quality OPE office management software, and this can really take the headache out of looking for this data.

Strategy #3: Create A Reliable Stocking Point

So how do you know which parts you should be stocking? Successful dealerships make it a rule not to keep a part on-hand unless three customers come looking for it within a 70-day period.

This information can be almost impossible to track without good OPE office management software. Your software can record this as a “lost sale” every time a customer comes asking for it, which will allow you to see what people are looking for and which opportunities you’re missing to add revenue to your dealership.

It’s important to stick to the formula of three customers within 70-days. When someone needs a part, many dealers will place an order and then add an extra part on to keep on-hand. But this is how a parts department gets bloated, tying up more revenue and shelf space than it needs to.

Sticking to the guideline of three customers within 70-days will ensure that your department doesn’t get out of control with parts people just aren’t looking for.

Although managing parts can be challenging, using smart strategies and having good OPE office management software can make all the difference.

How to Hire the Best Technicians for Your Shop

As an owner, you’ve probably gone through your fair share of technicians. Finding talented, hard workers can be incredibly difficult, and choosing the wrong person can be very costly.

But, there are some strategies you can use to put together an effective, hard working team in your dealership.

Everything starts with your interview process.  Many dealers spend a minimal amount of time talking to applicants during interviews. This is especially true if they’re short a technician and need one now. But it’s vital that you take time to really get to know each applicant.

Your first priority is to find out their current situation and work ethic. So, ask each candidate:

• How long they’ve been at their current job
• What they like best about what they’re doing
• Why they left/want to leave
• How long they’ve been unemployed

The answers to these questions will begin to tell you a story about this person. And, this story can give you a clear picture that shows if you’re interviewing the right candidate, or the wrong one.  You can think of these questions as “Round One” in the interview process.

If you’ve gotten a good feeling about a few candidates, then you can move them up to “Round Two”. This stage of the interview process serves to give you an in-depth look at this person and their skills as a technician.

You can ask the following:

• How many years’ experience do you have as a technician?
• How long have you been earning full-time wages as a technician?
• Are you certified by a recognized technical training institution?

Next, give the potential candidate a pen and paper. Ask them to write out their experience and qualifications working with four-cycle gasoline engines (type of equipment, brand, engine size, years of experience, etc.)  Ask them to describe their experience working with two-cycle gasoline engines and diesel engines. Get them to write out and describe the training classes they’ve attended in the past three or four years. Ask them if they have computer experience and if so, what programs are they most familiar with?

Why do they need to write all this out?

Well, you want to make sure the candidate can actually read and write, and that they can construct legible, coherent sentences. The better a technician can communicate on multiple levels, the more of an asset they’re going to be in the shop.

The computer experience especially is becoming a vital skill because so many dealerships are now using sophisticated OPE service management software. Your technicians will need the ability to navigate this software, track parts and work orders, and log their time.

So, what else do you need to do to find a great technician?

You should be screening each applicant with a drug test. Yes this is going to cost money, but it could potentially save you thousands in the long run. It’s probably going to eliminate about half of your applicants, but it’s a quick way to weed out potentially problematic employees.

You could also ask them if they have a commercial driver’s license. This would enable you to use them for other duties in the future. You should also ask about their driving record.

Remember, the more time you spend with each candidate the more likely you are to pick someone with values and a work ethic similar to your own.  Go through the interview process slowly, and you’ll dramatically increase your odds of finding a great new team member.

Keeping Your Technicians Motivated

When it comes to your shop, your profitability rests on several factors. And, one of the biggest factors is your technicians. The faster, more efficient they work, the more profitable your shop is going to be.

But, how can you keep your team motivated and working hard without feeling like an owner who’s just looking at the bottom line all the time?

First, it helps to understand what motivates your team in the first place. In the book Drive, The Surprising Truth About What Motivates Us, written by Daniel Pink, he explains that one of the biggest drivers for true motivation is autonomy. That is, having the freedom to work when and how we choose.

Now, many owners might not think giving freedom to their employees is a good idea. After all, isn’t the whole idea of management to control the employees and make sure they’re working?

Well, that management model has been in use for the past two hundred years. But leading scientists are discovering that this outdated model isn’t working near as well as it used to. Why? Because we, as a people, crave autonomy. When we’re given the freedom and power to make our own decisions, we work harder, not less. We’re more productive and efficient, not less. And, our job satisfaction and personal happiness goes through the roof.

Electronics giant Best Buy has been using this new model over the past few years. Employees decide when to come to work, and what they’re going to do when they get there. They still have goals, and they still must provide excellent customer service. But the rest? It’s all up to them.

Seems like a management model that’s doomed to fail, right? Well, it hasn’t. It’s been an astounding success. The quality of customer service has gone up dramatically. Turnover is at its lowest point in company history. Profits are up. And the employees are much, much happier with their jobs.

So, can giving your team more autonomy produce results in your shop? Well, there’s no guarantee, but there’s a good chance it can make a big difference.

If you decide to give it a try, it’s important to start slow. Everyone, including your team, needs goals to work for. But, leave it up to them how they accomplish those goals.

It’s also helpful to explain to your team just how much they contribute to the dealership’s success. Show them, with hard numbers, just how much profits the shop needs to bring in to keep the dealership afloat.  The more your team has ownership over their work, and their contribution to the success of the company, the harder they’re going to work. Why? Because they’ll start to feel like an owner.

You can also keep your technicians motivated by tying their bonuses to their efficiency. For instance, imagine that your goal is to have 75% efficiency in the shop next month. This means that every day, your technicians are billing 75% of their time to customer work. So, let them know that if they’re able to hit this goal for the month, then you’ll increase their hourly rate by $2 for that time period. You can track this information with good OPE technician software.

Keeping your technicians motivated can pay off huge dividends for your shop. Trying new techniques like giving your team more autonomy and bonuses tied to efficiency will engage your team and keep them working towards a goal that matters to them.

How to Determine Effective Hourly Labor Rates In Your Dealership

If you want to build efficiency into your dealership then you need to have effective labor rates. But, many dealers don’t spend enough, or any, time figuring out a good rate.

The good news is there is an effective way to come up with an accurate labor rate that’s specific to your business. And, it will help ensure that your shop is consistently making money year after year.

Let’s start with this question: when was the last time you increased the labor rate in your shop?

Many dealers lag behind the market here.  They’ll increase costs for everything else before they’ll raise the labor rate in their shop. Although it’s important not to overcharge your customers, it’s also important to bill a fair rate for your technicians’ expertise and skills.

The Wrong Way to Fix Your Labor Rates

When it comes to figuring out labor rates, many dealers will call up the shop across town, see what they’re charging, and then charge the same. But, this is a mistake.

The reason is because your dealership has different needs, and different expenses, you’re your competition. For instance:

• Your land, and your building, might have cost more.
• You might have better technicians (and thus can charge more).
• The benefits to your staff might cost more.
• Your property taxes might cost more.

You have to find a rate that fits your shop: not someone else’s.

The Right Formula for Determining Effective Labor Rates

Figuring out your shop’s perfect labor rate is fairly easy. First, look at the income statement/balance sheet for your dealership. Look at the gross profit revenues generated, and then look at your operating expenses.

Imagine that your dealership earned $600,000. Now, take away all the wages and benefits you paid out on the labor that earned that $600,000.

Let’s say wages and benefits cost $300,000.

You’re left with $300,000 in “hard costs”.

These hard costs are: rent, taxes, electricity, gas, etc.

Now, look at how big your shop is compared to the rest of your dealership. Measure the square footage, and come up with a percentage. For instance, if your shop was 300 square feet, and your building as a whole is 1,000 square feet total, then your shop would occupy 30% of your dealership’s space.

This means that if your shop is using 30% of the space, it’s responsible for 30% of the expenses.

So, 30% of our fictional $300,000 in hard costs is $90,000.

At a $70 per hour labor rate, then your shop must have 1,285 hours billed to customers over the year just to break even. With those fictional costs, if you’re not billing that many hours per year you’re losing money.

And remember, this does not include the costs for tools, air compressors, or bench presses that every shop needs and uses on a regular basis.

Your OPE business management software can give you easy access to the data you need for this formula.

Tiny Tasks Ambush Shop Profitability

We also need to take a look at what can ambush your labor rate.

Let’s assume your dealership bills its technicians out at $70 per hour. And, they have more than enough work to keep them busy most days.

But imagine your delivery truck shows up full of freight to be unloaded. You want it done quickly, so you pull some of your technicians out of the shop to help.

What’s happened now? Well, instead of your technicians working on highly billable work, they’re now doing manual labor. Which means it’s costing you $70 per hour to unload that truck.  This is a very inefficient, expensive mistake that many dealers make.

Your technicians need to do what they do best: work on billable jobs!

Doing these two things: finding your best labor rate, and making sure your technicians stay on billable work, will help ensure your shop makes money year after year.

Are You Making These Common Mistakes In Your Service Department?

When it comes to the service department, most dealers know they need one. But, many don’t think they can have a service department that actually makes money.

For instance, imagine you have 3 technicians in your service department. You’re paying each of them $40,000 in labor and benefits, which adds up to $120,000 per year. But your service department is only bringing in $115,000 per year. And that doesn’t include all the other expenses that go along with the department. This means you’re losing money just to offer your customers the convenience of fixing their equipment.

This can be incredibly frustrating for owners, and unfortunately this scenario is all too common.

The good news is that you can reinvent your service department into one that’s actually making money. To start, however, you’ve got to avoid some of the common pitfalls that plague dealerships.

Mistake #1: Having the Wrong Perspective

First, you need to look at your service department as a stand-alone profit center in your business. One of the key ways to do this is to measure your service department’s operating efficiencies. You can measure this information if you have good outdoor power equipment software.

You need to know how much it costs to operate your service department with and without technical wages. And, many owners don’t measure this information. But, this metric is vitally important to running a profitable service department.

Mistake #2: Not Making Goals

Another common pitfall is that many owners don’t set any objectives for their service department. They assume the department is probably going to lose money, and so it does.

It’s important to define what you want, however. What do you really want to do with your department? Do you want to break even? Make a 30% profit? You need to define quarterly objectives for your service department so you know where you want to go.

Mistake #3: Selling the Wrong Product

Many dealers make the mistake of thinking that their service department doesn’t sell anything. And, it’s easy to think this at first glance. There are no soft goods, and no gleaming rows of equipment for sale. But, this is a common mistake. Your service department is selling a product. Just not the type of product your sales floor sells.

When you think about it, your service department is completely unique from the rest of your business. It’s the only time you’re buying time from your employees, and then selling it back to your customers.

Photo © by Brooks Elliott

As a dealer, you must understand that your service department is selling something: time. Time is your product. If you want to make your service department profitable, then you must make it as tight and efficient as possible. When your technicians waste time, or your department isn’t operating as efficiently as possible, then you’re going to lose money.

Your service department can become an incredibly profitable part of your business. But the path begins by avoiding these three common mistakes. It’s also going to be incredibly helpful to have quality OPE business management software. OPE software helps you easily look at key metrics so you can make sound decisions about improving efficiency.

Remember, your service department doesn’t have to keep losing your dealership money every quarter. It is possible to turn things around and dramatically improve your bottom line. But you’ve got to start by avoiding these three common mistakes.

How to Boost the Profitability of Your Parts Department

Is your parts department as profitable as it can be?

Or is profitability only a secondary consideration?

For many Powersports dealers, their primary objective is to have in stock, for immediate delivery, just about every part a customer is ever likely to ask for—even if it’s only suitable for equipment that’s decades old and obsolete. So their dealer parts list software is loaded with parts that very few or no customers ever buy—taking up valuable space and wasting purchasing dollars that could be put to far better use.

And their parts department personnel waste valuable time manually checking the inventory of these parts, re-ordering new parts (if still available), updating the price of every part…and dusting off all the old boxes.

If your parts department is anything like this, it may be time to reconsider your priorities.

Photo © by bobbyh_80

The primary customer of your parts department, many experts say, should be your service department—not the end-user. Therefore, your parts department’s inventory should consist primarily of whatever parts your service department uses most often, and for brands and models you currently sell, or sold in recent years.

It should not be a warehouse packed with aging parts that might, just might, be requested by somebody with an obsolete piece of equipment he’s trying to keep running instead of buying a brand new one…or even a used one.

And the longer you keep old parts in stock—unless they’re gold-plated—the less they’re usually worth. (Keep this in mind when conducting inventories and putting a dollar value on each item.)

Unless a profitable part of your business is operating a parts warehouse for other dealers (as some car and truck dealers do), your parts department should not strive for a 100% fill rate; 80% to 85% is good enough.

Depending on your location, you can probably get almost any new part you want from the manufacturer or distributor within 24 to 48 hours, and most customers are willing to wait at least that long.

If they can’t or won’t, call other dealers nearby to see if they have the part in stock and (if so) either buy it from them or send the customer there.

As is the case with everything else you sell, dealer shop management software— when properly and effectively used—makes it incredibly fast and easy to keep track of every SKU in your parts department. If you regularly enter the appropriate data for each and every part, you can instantly find out how many units are in stock, how many need to be re-ordered, who bought each unit sold, when each was bought, the price paid, what kind of equipment each purchaser uses, its age, whether it was bought from you, what related items might be promoted, etc.

And when you see, thanks to your dealer management software, that a particular customer is constantly buying replacement parts for a particular machine, you can say to him: “You may be able to save a lot of money by purchasing a new machine. It comes complete with all the parts you need!”