Parts Profitability - A New Look at Pricing Updated for Both Wholesale & Retail

Transcription

1 Parts Profitability - A New Look at Pricing Updated for Both Wholesale & Retail with Chuck Hartlé of PartsEdge Moderated by Mike Bowers of DealersEdge

2 Chuck Hartlé is president of PartsEdge ( a dealership parts department consulting firm in Poway, CA. PartsEdge offers innovative inventory management services to help dealers maximize parts department profits. Chuck is also the editor of the nationally recognized newsletter DealersEdge Parts Manager. Previously, Chuck spent more than 30 years as a parts manager then parts and service director for a multi-franchise dealership group. He was also one of the founders of the Mopar Master Parts Guild. He has been a featured speaker at NADA's Annual Convention and Dealer Academy as well as at dealer Twenty Groups, regional parts manager meetings, and factory-sponsored training seminars. Since forming PartsEdge, Inc, Chuck has participated and spoke in front of many workshops, seminars, 20 Groups, and Dealer Associations. We are located in Poway, California, a town located in San Diego County. You can contact us by phone by calling our toll free number at (800) Our office address is Pomerado Road, Suite E, Poway, CA You can contact us by at operations@partsedge.com.

3 Pricing Strategies Drilling Down Into the heart of the Retail & Wholesale Pricing Process! Let s get the Gross Up!!!

4 Thinking of Grocery Stores, Wal Mart, Costco and so forth We are inundated with advertising bombardments daily! What is on Sale today isn t necessarily on Sale tomorrow

5 Failure of Parts Pricing Process When was the last time you changed your pricing scheme? Dealership Parts Pricing Strategies are as old at the Middle Ages. Rarely changed, rarely reviewed!

6 Four Steps To Building An Effective Pricing Strategy 1.) Evaluation 2.) Investigation 3.) Implementation 4.) Review In Depth Analysis of Past Sales

7 An Accurate Evaluation Getting an Apples to Apples Comparison?

8 Retail Escalators The Matrix Table If Cost is.. Sample of a typical Escalator Matrix Table Low High Escalate Sign % 0.01 TO 2.00 COST TO 4.00 COST TO 5.00 COST TO 6.00 COST TO 7.00 COST TO COST TO COST TO COST TO COST TO COST

9 An Escalator Category Certain Categories have different Escalation Percentages or Mark Up Low High Escalate Sign % 0.01 TO 2.00 COST TO 4.00 COST TO 5.00 COST TO 6.00 COST TO 7.00 COST Each Low to High Dollar Value is an Escalator Category or Group! 7.01 TO COST TO COST TO COST TO COST TO COST

10 The Escalator Matrix Yield In A Perfect World Scenario Low High Escalate Sign % Yield 0.01 TO 2.00 COST TO 4.00 COST TO 5.00 COST TO 6.00 COST TO 7.00 COST TO COST TO COST TO COST TO COST TO COST What you should expect percentage wise from each Escalator category.

11 Evaluating Each Escalator Category Parts Below Suggested Retail & Matrix Focusing On The 0.01 to 2.00 Category SACCT REFER#... PART NO... COST... QUANTITY T-COST.. T-SALE.. GROSS... GPCT% MATRIX MGROSS MPCT% CP CP PX CP PX Parts Sold At Matrix SACCT REFER#... PART NO... COST... QUANTITY T-COST.. T-SALE.. GROSS... GPCT% MATRIX MGROSS MPCT% CP SB CP CP S84-A Some Parts in Each Category, Under the Customer Pay Pricing, have different pricing? If Sold At Escalated Price

12 Summarizing Each Escalator Category What where the Overall results in this Category? Cost % would yield a 60% Gross Profit Margin GROUP DESCRIPTION QTY COST SALE GROSS GPCT PIECE PCT ESCALATOR GROUP AT OR ABOVE MATRIX TO 2.00 BELOW MATRIX AT OR ABOVE RETAIL BELOW RETAIL TOTAL **26% Of this Category, by Piece Count, actually sold at the escalated matrix price. **47% Of this Category, by Piece Count, sold Below Matrix, but at or Above Suggested Retail If you change the Escalator Value, which area above would it affect?

13 Just for Fun, What if we bumped this Escalator? Bumping the.01 to 2.00 Escalator by 10% Cost % Cost % Current Cost Sale Gross Pct% Future Cost Sale Gross Pct% % An increase in Gross of $23.31 dollar wise. An increase of 1% overall to 61% on these parts.

14 Examination of Each Escalator Category It is in the details. GROUP DESCRIPTION QTY COST SALE GROSS GPCT PIECE PCT ESCALATOR GROUP AT OR ABOVE MATRIX TO 2.00 BELOW MATRIX AT OR ABOVE RETAIL BELOW RETAIL TOTAL You would want to know why these specific sales are being sold below the escalated price! Remember. These Sales are all Customer Pay Repair Orders

15 Examination of The Highest Escalator Category It only takes a small percentage of sales to spoil the Gross % GROUP DESCRIPTION QTY COST SALE GROSS GPCT PIECE PCT ESCALATOR GROUP AT OR ABOVE MATRIX TO BELOW MATRIX AT OR ABOVE RETAIL BELOW RETAIL TOTAL The Good News 75% of Parts Sold Over $50.00 Sold at or above Retail The Bad News 25% of Parts Sold Over $50.00 Sold at 23.55% Gross Profit

16 Summary of All Escalator Sales Supporting the Theory that only 25% of Retail Sales are Escalated GROUP DESCRIPTION QTY COST SALE GROSS GPCT PIECE PCT TOTAL SALES CP AT OR ABOVE MATRIX BELOW MATRIX AT OR ABOVE RETAIL BELOW RETAIL TOTAL This is very typical of most Dealership Customer Pay Sales using Escalated Matrix Tables.

17 The What if Scenario Reality Versus Perfect World MATRIX TABLE QTY PCT% COST PCT% SALE PCT% GROSS PCT% ALL MATRIX GROSS$ PCT%.01 TO TO TO TO TO TO TO TO TO TO TOTALS IF ALL MATRIX What if We Could have an Increased Gross by over 7%!

18 What is the Point to this Exercise? Investigate Understanding the Details of your Retail Pricing Matrix! *** Identify those parts in each Escalator Category that are dragging down the gross. Is it due to a different price code? Is it because of a different labor type? It could be a source accounting issue? Are these parts menu or grid priced parts? Is someone overriding the sale price? Review these areas of your Operation for pricing issues.

19 Checking Your Price Codes Look at ADP s OSPC Report or Reynolds 2565 Program These two reports will show you how your price codes are being used. With ADP, don t forget to review both Parts and Repair Order pricing.

20 Checking Your Labor Types (ADP) The ADP RLT Report Labor Types can review Pricing Issues Labor Type Associated Price Code With ADP, Price Codes in Service are driven by the Labor Type.

21 Source Accounting Issues OSSA and USA for ADP, Programs 2571 and 3636 for Reynolds Users Check out the STD Settings with ADP and Source Overrides Review 2571 & 3636 Program and review Source Overrides.

22 The Override Reports The Override Reports can easily point out discounts and pricing issues S= Means they overrode the Sale Price! Check with your DMS Provider to make sure you have this report available and review it daily. ADP s ROV Report ADP Drive has Overrides in the Fast Lane Drill Down Menu

23 What is the Point to this Exercise? Conclusion and Action Ideas to review after Investigation *** Consider Some Alternative Ways to Increase the Profit Margin. Increase the sale price on menu priced items. Isolate low gross parts in a given source to track profit. Create a sub sale account if you are locked into these low priced parts. Increase Gross Profits in areas where the gross is weak!

24 Pause & Ponder The Service Station Mentality When the wholesale cost of a gallon of gas jumps up by 10 cents to the Gas Station Owner, what does the Owner do? a) Worry that their Customers won t pay the extra amount. b) Split the cost with the customer and only raise their retail price by a nickel. c) Raise the price to insure they maintain their profit margin. d) Watch what other Competitors are doing in their close proximity.

25 Pause & Ponder The Answer is both C and D With that Answer in mind, and thinking as the Dealership Owner If your supplier cut your discounts and return allowance, would you absorb the cost and continue to offer the same discounts and pricing? If Your Answer is NO How come Dealerships are generally doing the opposite of practicing this?

26 The Wholesale Sale Syndrome We are quick to change retail pricing, and willing to fight over wholesale pricing! Fact Checks * It takes twice as much energy and resources to generate profit in wholesale as it does retail. * The wholesale sale process should always be a compliment to the retail sales process. * All Wholesale Customers are Not created equally!

27 Wholesale Exercise Two Collision Repair Facilities With a 25% Discount from Retail Customer 12 MO Sales 12 MO Gross Gross Pct% 12 MO Returns Return Pct% Accurate Collision (Charge Account) Cascade Auto Body (Pays Cash on Delivery) 95,000 23,750 25% 11,400 12% 60,000 15,000 25% 2,400 4% Questions to be asked???? Which Customer above would you rather have? Do they both deserve the same discount? How do they pay their bills? Customer #1 has $2850 in Gross Profit Returns, Customer #2 has $600 in Gross Profit Returns.

28 Reporting Mechanisms to Review Customer Loyalty The Ease in Which to Pull this Information from ADP ADP s PDA (Parts Data Archiving) Monthly Reports

29 Reporting Mechanisms to Review Customer Loyalty Pulling this Information from Reynolds The ERA CUST.HIST File for 6910 or Query Builder. ERA Ignite might even have some more robust reporting for this?

30 Developing a Wholesale Customer Loyalty Program Wholesale Customers are not created equally! Thinking of Your Customers in 3 Levels, Such as a Traffic Light. Green Light Customers Pay their bills on time or pay cash on transactions. Buy consistently from you, daily or weekly with decent volume purchasing. Send very little back for credit. The Highest discount you can give profitably is deserved

31 Developing a Wholesale Customer Loyalty Program Wholesale Customers are not created equally! Thinking of Your Customers in 3 Levels, Such as a Traffic Light. Yellow Light Customers Are inconsistent in purchases, your are a secondary source for them. Buy erratically from you, do volume every 3 months. Have a high percentage return rate. Don t buy in a large volume, but buy often. Slow to pay their bills. Lower the discount given by several percent compared to your Green Light Customers.

32 Developing a Wholesale Customer Loyalty Program Wholesale Customers are not created equally! Thinking of Your Customers in 3 Levels, Such as a Traffic Light. Red Light Customers Are inconsistent in purchases, your are a secondary source for them. Buy erratically from you. Have a very high percentage return rate. Complain a lot or try to convince you they are a top notch customer. Slow to pay their bills. Lower the discount given, again, by several percent compared to your Yellow Light Customers.

33 The and 30-5 Discount Rule Of Thumb Thinking of Operating Expenses and Holding Costs in the Parts Department If you give a 25% discount to a Wholesale Customer and their return percentage is higher than 10%... OR If you give a 30% discount to a Wholesale Customer and their return percentage is higher than 5%... = A Customer Who is costing you Money! The question begs Are you ready to make the time to take control of your Pricing Strategies?

34 In Conclusion, It Really Boils down to One Thing! You should never have to make an excuse for making a fair Profit! Focus on Your Profit Centers and Customer Loyalty and the result will almost always be happier customers and happier employees!

35 Thank You!!!! It is always a pleasure to present to You! Contact Information Partsedge, Inc Willow Creek Road, Suite 480 San Diego, CA (800) operations@partsedge.com