| Fueling Fixed Ops Profits |
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| Written by Les Silver |
| Wednesday, 06 August 2008 10:56 |
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Presented by Mobile Productivity, Inc. Each month, Les Silver, chairman and CEO of Mobile Productivity, Inc. (MPi) will impartially answer dealer questions relating to helping increase service department sales and profits. This is an opportunity to have your questions answered by an expert who is genuinely interested in helping dealers maximize the profits from their fixed operations. Rest assured, this Q&A will not be a veiled advertisement for their company. If you have a question, we want to hear it and Les wants to help answer it! Q. With the current business conditions we are looking carefully at our expense structure. Any suggestions? Paul Rubin of White Bear Lake Pontiac/GMC in White Bear Lake, Minnesota. A. The natural tendency is to make across-the-board cuts. A dealership, however, is multiple businesses, each with unique opportunities and challenges. A useful analogy is that of a stock portfolio where you often re-balance your investments to reduce exposure to poor performers and increase investment in areas with better return. In the current dealership environment, the best results will come from a two-step analysis to determine where to cut and where to invest. Start by listing each department and each source of revenue within the department. Determine the current level of gross profit from each revenue source and “roll this up” to the departmental level. Then work backwards to determine the appropriate department expense level for the current gross profit. NADA has departmental ‘sales to gross’ and ‘expense as a percentage of gross’ guides that may assist in this process. This approach will “right-size” each department’s costs to match your current revenue and gross profit. The second step is to go back to the departmental revenue source list and rate each one on its future outlook. Assign a positive or negative number that represents the possible percentage increase or decrease in gross based on the market potential in the next 12 months. For areas with positive growth potential, be realistic about any need to invest more now in order to make this happen. For areas that are expected to decline, you may choose to make deeper cuts now to avoid ongoing disruption. This analysis will result in making deeper cuts in some areas while increasing spending in others. It takes courage and commitment to your beliefs to go against the share-the-pain philosophy associated with the across-the-board approach, but it will channel your scarce dollars to areas that can help you weather the difficult economic environment and build a stronger business. To have your question considered for next month’s “Fueling Fixed Ops Profits,” please email This e-mail address is being protected from spambots. You need JavaScript enabled to view it and include your name, title, and dealership. |
