Ready to Face Your Sacred Cows? By Ron Slee
Article Date: 01-01-2009
Copyright(C) 2009 Associated Equipment Distributors. All Rights Reserved.
The truth may hurt but confronting our myths is the only way to succeed these days.
Well, here we go – Change is coming to America. We have a new administration coming to Washington, a new legislature, and statehouses across the country are getting back to work. How about we face our own truths? Let’s take a fresh look at some of our sacred cows.
For most of my career the dealer focus has been to concentrate on selling new equipment. Replace used equipment. It is cheaper to replace the used machine than it is to keep the old machine. This is the first sacred cow.
Over time, the percentage of the sales in the business of every equipment product line slides lower and lower and parts and service rises higher and higher. It is true with all types of equipment. Yet, we continue to drive hard after machine sales, even with a declining capture rate of the machine market.
The number of equipment assemblers (OEMs) will continue to increase in the coming years. Our market will be hit with a proliferation of products, including those from China and India whose makers are following fast on the heels of the Koreans and Japanese. The barrier to entry of many of these equipment lines is a good distribution channel. You, the dealer, are the differentiating factor for equipment as well as the barrier of entry for new competitors. But don’t sit on your laurels too smugly. Look at Detroit.
I want to explore with you the concept of market coverage from the perspective of driving profitability.
I want you to have an equal number of parts and service sales personnel to the number of equipment sales personnel.
I want to do it on the basis of profit and market share.
If 70 percent of your sales is done at a gross profit of 10 percent, which is the equipment business for many of you, and 30 percent of the sales is done at a gross profit of 40 percent, which is the parts and service business, which part of the business do you want to be in if you have the choice of only being in one of them?
What do you think of your prospects of selling new equipment in 2009? If they are being challenged due to the economy, or the “bankability” of the transactions, you are in the same boat as everyone else. But here is the good news: The parts and service opportunity in 2009 will be larger than the opportunity was in 2008. The number of hours to be put on machines in 2009 will be the same or more than in 2008, and the equipment in general will be one year older. I repeat, the opportunity will be greater.
This is only of any value to us if we go out and get the business. That is another sacred cow: “If we sell the machine, the parts and service business will come.” What a load of bunk. We will only get what we deserve, we will deserve only what we earn, and we will only earn a customer’s business by going after it and proving that we can do our business better than the competition. It is as simple as that.
So how do we get the business? We need sales personnel both in the field and in the stores to get the business, and we need professional well trained support personnel to keep the business. Remember that we are losing service customers at the rate of 15 percent. (Product Support Opportunities Handbook 2008). But many of you fall back to the next sacred cow: “We get as many new customers each year so it doesn’t matter.” One day we will run out of new customers, and then we will be forced to deal with customer retention.
Alright, so let’s go back to the same number in the sales force for equipment and parts and service. I think an increase in parts and service sales volume of 10 percent is more probable in 2009 than an increase in equipment sales. And that 10 percent increase in parts and service volume will deliver gross profit at 40 percent, not the 10 percent gross profit for the equipment group. But let’s not stop there; how about a 20 percent increase in parts and service sales?
Remember the market capture rates of the parts department and the service department? There is plenty of room to get more of the market, not just get the same amount of an increasing market. That is the next sacred cow. The parts and service business has increased over the last five to six years. You have congratulated yourselves on your success in growing the business, when in fact all you have realized is the same or declining share of a growing market.
We need to get serious about our businesses. We need to aggressively cover the marketplace with a trained and skilled product support sales force. We need to face our sacred cows. Don’t forget: You get what you earn, or you get what you deserve.
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