Pictured Above: The wholegoods department can generate revenue for both the parts and service departments by focusing on converting inventory into cash.

The year 2020 has certainly been challenging for businesses of all types, and equipment dealerships are no exception. Dealing with and managing uncertainty has been an underlying theme for the year, with so many unknowns about the supply chain, implementing policies and procedures to keep both staff and customer safe while still allowing them to do business, and how to set your dealership up for success going into the slow season.

Sara Hey, vice president of business development with Bob Clements International, says that there are two ways to minimize uncertainty. First, make sure your dealership has free cash. Second, focus on clarifying processes for your business.

“In the midst of uncertainty, cash is king,” she says. “When we’ve got processes so refined that it allows us to continue to move forward, it allows us to minimize this uncertainty.”

Hey shares an example of a dealership she worked with that had a goal to become debt-free. Achieving that goal instantly changed their ability to handle uncertainty.

“They’re going to be OK because they have done the job to make sure that cashflow is king, and they’ve clarified the process,” she says. “It’s no different than playing Jenga. Things got shakier because we got away from the base of what we were trying to do.”

Service Departments Must Be a Source of Profitability

Hey calls the service department the backbone of any dealership. When something is out of line with this department, everything else is off throughout the dealership, she says.

“Regardless of where you are or what you sell, if the service department is not a place of profitability with strong processes, everything else in the dealership feels like it’s spinning out of control,” she says. “Uncertainty breeds chaos, and chaos costs you money.”

The service department must be a source of profitability in a dealership, Hey reiterates, or nothing else matters.

“When your service department is right, it is this ATM machine that will throw up $100 bills for your dealership all day long,” she says. “What is the one thing you can be doing right now to make sure that you’re generating revenue in the service department?”

One example Hey provides is creating off-season service specials as a tool to jumpstart business.

“This service special is for customers who have typically bought a piece of equipment,” she says. “You’re going to do their annual service at a discounted rate.”

By leveraging this strategy, Hey says dealership managers can ensure work is coming through the service department all year long.

“Number one, you’re looking at ways to generate additional service revenue,” she says. “The service manager should be selling the inventory in your service department, which is time.”

Hey says that in addition to bringing in revenue, leveraging the service department as an income generator also produces a better customer experience.

“Depending on your product mix, we can create a better customer experience because our customers are bringing their equipment in before they actually need it,” she says. “Getting the equipment back quickly dictates a solid service experience, not necessarily how much it costs.”

“In the midst of uncertainty, cash is king. When we’ve got processes so refined that it allows us to continue to move forward, it allows us to minimize this uncertainty…” – Sara Hey, Vice President of Business Development, Bob Clements International

When dealerships can get ahead of an incredible customer experience, Hey says it creates momentum that continues all year.

“It also allows you to increase parts sales,” she says. “For every dollar of service sold, you also sell about 50 cents of parts to go with that.”

Controlling the flow of work through the service department allows managers to regain control of the time in that department — a pattern that will continue through to the busy season.

“It allows you to be more proactive with your time management vs. reactive,” Hey says. “When you decide to start an off-season service special, it’s going to take 3 years to get it up and running.”

Hey reassures that if dealerships commit, then 3 years from now, when things slow down, they will be in a much better place financially.

“Can you imagine the weight that would lift off your shoulders?” she asks. “That is winning.”

Although it may take time and energy to set up, the investment is worth the work, according to Hey.

“When customers start coming to you asking for the off-season service special, you’ll know you’re hitting the jackpot,” she says. “You need to think about how to promote it 4-6 weeks before you want to see the work and revenue coming in.”

Hey recommends investing marketing dollars in promoting the off-season service special.

“Every dealership has a time that’s typically slower throughout the year,” she says. “Send about 100 direct mail pieces each week to customers who have bought from you before, outlining what they get in these off-season service specials if people take advantage of this special by a certain point.”

One dealer recommended that his parts counter employees call the customers who received the direct mailer, with 30% of customers taking advantage of the offer.

“The service manager would call to give updates on the equipment, and would start the conversation about upgrading that equipment,” she says. “In the process of selling service time, they were starting the process of filling the sales funnel as well. It allows us to think of revenue all year long in this full-circle concept.”

Hey recommends asking customers when a good time would be to pick up their equipment, which she says usually garners a 30% positive response.

“You’re creating a better customer experience as you’re interacting with customers, and you’re making sure you’re in control of the time in your service department,” she says. “If you don’t have instant magical success the first year, keep with it. It takes about 3 years to get to a place where your customers are calling asking for it vs. you calling more customers.”

When it comes to making changes to processes in the dealership, Hey recommends thinking about what can reduce uncertainty in the service department. One tactic is triaging equipment.

“Triaging equipment is the equivalent of paramedics at an accident site,” she says. “When a piece of equipment comes into your service department, make sure that within 24 hours, the technician has looked at it, the parts order is started and the customer has been contacted again.”

Hey also suggests that parts departments give the service department a 3 day notice on any parts.

“That would be a game changer because there’s always a tension,” she says. “Communication brings clarity and allows us as owners and managers to make sure we have the least amount of chaos in the dealership.”

Hey calls triage in the service department a magic button. She recommends that technicians take an hour for a quick diagnostic when equipment comes into the service department.

“We’re not going to actually spend money or time on something that we’re not being paid for,” she says. “We typically do it an hour before lunch, because your technicians have some place they’d like to be.”

Adjusting the timing of diagnostics allows technicians to be more effective and focused, according to Hey.

Laser Focus on Parts Inventory Integrity

The parts department is the lifeblood that’s flowing through a dealership, Hey says, because there is no part of the business that the parts department doesn’t touch.

“For probably 50-60% of the dealerships we work with, the parts department is the first point of contact for customers walking in the door,” she says. “We could not run our dealerships without parts.”

Inventory integrity should be evaluated with a laser focus, Hey recommends, or turning parts inventory that’s sitting on shelves and turning it into cash.

“One of the biggest places cash is tied up is in your parts inventory,” she says. “If you want to free up cash in your parts department right now, we’ve got to start thinking through how to burn down our parts inventory.”

Ideally, that burn down should start 30-45 days before the slow season, according to Hey.

“At the peak of our season is when we start burning down parts,” she says. “Our ultimate goal is to have 30% of the parts in inventory that you had at peak season.”

By rethinking the parts process, Hey says that service departments can get to a place where there’s no as much urgency on repairs.

“You have to methodically move the minimums and maximums down on parts so you’re at 30% of what you were at peak season,” she says. “Your parts inventory integrity is huge. You’ve got to make sure your parts inventory integrity is a process you’re focusing on as you move into slow season.”

Hey says the biggest disruptor of parts inventory integrity is not the people who work in the parts department — it’s losing money on parts because the parts manager “is not guarding the bank vault.”

“Unless somebody works in the parts department, or they’re a manager in the dealership, they should not be allowed behind the counter for any reason,” she says. “That is the greatest destructor of your parts inventory integrity.”

“If the service department is not a place of profitability with strong processes, everything else in the dealership feels like it’s spinning out of control. Uncertainty breeds chaos, and chaos costs you money…” – Sara Hey

Ordering parts when needed or as the service department says they need a part is not a good strategy, according to Hey.

“This is how our parts inventory gets off base,” she says. “To reclaim the inventory integrity of your parts department, keep technicians out of your parts department.”

When technicians take parts out of a stocking order that hasn’t yet been put away, it may not get put on a work order, so the customer doesn’t end up paying for it — and your dealership loses that money.

“Was the technician trying to steal from you? Probably not,” she says. “You have to have processes in place to make sure that inventory integrity stays in place.”

Hey’s second suggestion is to hire a parts support specialist, a low-level person who works part-time and their focus is to put away the stock in order.

“When we need to move parts out, we know they were in the right place to begin with,” she says. “This person also takes the parts that the technicians said they needed during triage and moving them toward the service department.”

Although bringing on an additional employee, even part-time, can seem like too much, Hey says the investment is worth it.

“The only time you hire is when they’re going to generate additional revenue, we’re at max capacity and we need additional revenue by bringing in another person, or they’re cost neutral to the dealership,” she says. “You can make the parts support specialist cost neutral to the dealership by adding an extra 5% on all parts sold.”

Depending on the business management system used by a dealership, the 5% is typically counted when parts hit $100 in value.

“I’ve had zero instances where dealerships got pushback on that 5%,” she says.

The third strategy for the parts department is to move to a cyclical inventory count, reviewing a daily inventory count so employees know all parts have been touched at least once over the course of the year.

“If you don’t do anything else in your parts department over the slow season, this is where I want you to start,” she says.

Wholegoods Add Extra Revenue Through Parts & Service

The last department that can use additional focus is the wholegoods department, where additional revenue can be picked up for both parts and service.

“The reason we sell wholegoods is not because we get the best margins,” she says. “We’re not selling wholegoods because we’re excited about the profit margin. We’re selling wholegoods because we know that eventually we’re picking up additional revenue through parts and service.”

To maximize revenue through wholegoods, Hey recommends having a blow-out sale.

“Make the commitment to start moving anything that is sitting there that you’re paying interest on,” she says. “It’s not worth it for you to necessarily keep putting money into something that’s not going to generate you more revenue right now inside your dealership.”

Converting inventory on the lot into cash helps minimize uncertainty, even if it’s sold at a break-even point.

“If we have to start paying interest on the unit, we no longer want it on our floor,” Hey says.

Keeping leads coming into the dealership all winter long is a key to the wholegoods part of the strategy, according to Hey.

“We require inside salespeople to interact with a minimum of 20 customers per day,” she says. “If they’re an outside salesperson, the number is 6, because it takes a little longer to interact with sales for the outside salespeople.”

Hey recommends letting salespeople decide how much they want to make as a weekly base and prorating the number of sales contacts to the amount of the weekly base. For example, 20 contacts per day would be a weekly base of $400; 30 contacts would be a weekly base of $500; 40 contacts would be a weekly base of $600.

“Give them 2 weeks and check in and see how things are going,” she says. “An interaction can be anything from an email, a text, a phone call or an in-person conversation. The salesperson turns this information in to you.”

During the slow season, Hey suggests that dealerships utilize their customer relationship management program to find leads for salespeople.

“Look for any customer who has purchased from you in the last 5-7 years,” she says. “You’re going to be surprised by the number of customers.”

Hey says the 5-7 year mark is best for potential customers because their unit is probably already paid off and their warranty has expired, they’re ready for something new.

“We have a strategy in place. Think through the easiest thing you can do to increase revenue and processes in each department and start there,” she says. “It’s OK to start with something easy and go from there. Just go back to the basics. The off season is a great time to get that set up.”

Going to customers and offering extended warranties and/or extended service agreements is another quick way to make cash, Hey says.