Now is the time to take a hard look at reality in your equipment dealership. Take a look at your most recent financial statement and focus on these two questions:

1. Which department produces the greatest percentage of gross profit?

2. Which department gives the dealership the lowest percentage of sales contribution?

Does your answer to these two questions make any sense? Through the years I have listened to equipment dealers bemoan the fact that they “just can’t make any money” with the line of equipment they selected to market. They blame this on the manufacturer, their competition and even on the customer. This (equipment sales) is not our company’s area of expertise. But at one time we wrote an article suggesting that if equipment dealers did want to increase equipment margins, the best way to do it would be to: Stop telling sales personnel what the dealer’s cost was on the equipment!

Surprisingly, quite a few dealers initiated this practice and began to report margins, not only in the double digits, but even higher.

While equipment marketing is not our expertise, we can pretty well tell dealers the following:

1. Most manufacturers are not likely to increase your margins any time in the near future.

2. Most manufacturers will continue pressuring dealers for market share, a practice that invariably holds prices in check and often lowers margins.

3. The “low priced in-line competitor” in the next county is not necessarily going away, even if, through consolidations and mergers, you buy him/her out. Somebody always comes along to replace these low-priced dealers.

4. The customer will always look for a better price. Those dealers who seek out and hire true professionals are experiencing slightly higher margins, and customers are willing to pay a true professional a slightly higher profit on the sale of equipment.

But what we are asking equipment dealers to consider is where, within a dealership, can they dramatically increase not only their sales, but their profitability? Realize that increased sales without increased profitability, or with decreased profitability, can be a serious mistake. The answer lies in one of our recent articles titled: Focused Opportunity! The answer is the equipment dealers’ service department.

Now that another year is over, you will have (if you are on a calendar year) your brand new financial statement. This is going to seem so basic and unreal that in the past you might not have paid attention to the exercise we are going to ask you to perform. At the start of this article, we suggested you look at two items on your financial statement: a) your service sales and, b) your service gross margins.

Your service contribution is determined by dividing your service sales by your dealership’s total sales (new, used, rental, parts and service). If you have a profit center that does not require or produce service and parts sales (rack & shelving in the lift truck industry, freight or financing, etc.) subtract that figure from total sales before dividing into service to determine your “true” service contribution.

Let’s do some simple math: Suppose your total sales are $30 million and your service sales are $2.4 million, or 8 percent of your total sales, and the margins on the $2.4 is 52 percent, or $1.248 million. Now the dealer sits down with the service manager and/or operations manager and asks them, based on this information, where and to what point the service contribution can be increased in the coming year, and with what kind of increase in service margins. The reply might well be a 10 percent contribution with a 55 percent gross margin. The dealer also should ask for a plan about how this will be accomplished and what additional expenses and personnel will be required. A “due date” should be placed on this “written document.”