Issue link: http://read.dmtmag.com/i/205815
Margins ("True Grit: Behaviors of the Highly Profitable Dealer" continued from page 27) offers a greater opportunity. Rental offers greater opportunity. You can drive up that consolidated margin rate with the mix. That's going to determine how much money you make in this business." (3.) Offering Designed to Capture the Full Share of Spend. According to Marks, high-profit dealers know their customers well and are focused on solutions. "Find out what customers want. Is it uptime, operator training, or parts?" asked Marks. One strategy used by highprofit dealers is mass customization – a technique that combines the flexibility and personalization of "custom" services with low prices. For dealers, this can mean service options that keep customers from ever going anywhere else for their needs. Marks found that most of the highly profitable dealers he spoke with managed their net promoter score to measure customer satisfaction. Others made good use of customer advisory boards to identify customer needs. Luke A. Phenicie, partner at Hammond, Kennedy, Whitney & Company, offered the perspective of an Join us on Facebook 30 | www.cedmag.com | Construction Equipment Distribution | November 2013 investment firm. "Most of the businesses we invest in, the bulk of their revenues come from rental," said Phenicie. "Having flexibility in their business model to be able to work through the business cycle becomes more valuable because it's a diversified source of revenue." (4.) A Sweet Spot of Specialized Expertise. Marks also cited a dealership's ability to find a unique niche as the last of the four behaviors of high-profit dealers. He defines a "sweet spot" in the market as one that costs little to grow yet has high growth potential. It's an area where a dealership can gain market share that is 1.4 times greater than the nearest competitor. "Your niche expertise should bring you to the forefront," said Marks. The expertise does not have to be a product, but can be a service to a group of customers. Wilmot expanded on how to cope with the reality of being in a seasonal business. "You have to look for the segments in the market that are your sweet spot that drive high-profit revenue during the off season." These could include services such as rebuilding pavers and cranes, or addressing markets such as aggregates and fixed plant sites. Marks asked the Forum panelists what actions they would take to fix a low-profit dealership. Their responses are based on decades of experience in the industry and what they have seen work in the past. "I would take my middle management and senior management and put together a zero-based budget," said Wilmot. "You do a deep dive into your general ledger and you find out where you are spending money. Start with the revenue and if the team can't produce the revenue, then I can't produce the spending. "You have to get revenues up but you have to manage what dollars you have." Wilmot stressed the importance of a good dealer management system. "Do you have a dealer management system with business intelligence that gets you information quickly instead of someone preparing a spreadsheet?" he asked. "That is an important part of driving profitability." Phenicie also stressed the importance of timely financials."We really encourage closing your books within five days," he said. "If you don't have accurate information to redirect your resources, then you are not responding to your customer or looking after your business." "You have to start with the financials," advised Wilder. "You have to have good data. Usually you can identify a few things early on where you can have some success, which gives the team a chance to feel like they are making progress." Low internal labor rates were seen as a common problem among low-performing dealers. "I am a firm believer that you should treat your internal sales the same way you treat your customer sales," explained Wilder. "Dealers that