Truck Parts and Service | Heavy Duty Trucking, Aftermarket, Service Info
Issue link: https://read.dmtmag.com/i/652971
Business growth and expansion opportunities all stem from increased revenue generation. And while there are endless business strategies that can be implemented to increase top line poten- tial, no action has a more direct impact than price modifi cation. Pricing in the independent aftermarket is an endless task. With new products entering the industry each day and purchasing costs changing regularly, after- market distributors looking to perfect pricing require an innate knowledge of their business, customers and overall marketplace. Set prices too high and you risk turning away good customers. Set them too low and your gross profi t mar- gin might not increase enough to allow your business to grow. The key is fi nding a middle ground that works for your business and your customers alike, which begins the instant you take on a new product line. You can't determine what retail price is best for a product until you know how much you're paying for it. This is done by determining the funds required to purchase and ship products to your facility. In the aftermarket, purchasing components in bulk can lower per unit procurement costs for most products, but large, heavy components will still incur substantial acquisition costs. Failing to properly factor these expenses into your true cost of a product can be devastating. "You can price yourself right out of a market," says Paul Reynolds, product owner at Karmak. Once investment expenses are fi nalized, you can begin calculations on your retail price. This should be done using a formula that multiplies your investment in the component against an optimal gross profi t margin percentage to determine an ideal retail price. (Distributors using a pricing matrix should perform these calculations separately for each cus- tomer group.) Gross profi t margin expectations should not be identical for all products — some product lines demand lower margins while others offer substan- tial margins gains — but should function within the context of your inventory to help achieve your overall profi t margin goal. "Margins are going to vary by part numbers, product lines and brands," says Don Purcell, partner at Stone Truck Parts. "They are not ever all going to be the same." And don't forget about hidden costs. There are unintended and unforeseen expenses re- lated to every product you sell. These costs can develop through operational ineffi ciencies, such as poor inven- tory management or unproductive delivery routes, as well as employee miscues, customer misunderstandings and disorganization. Typically unquantifi able until they are removed, these productivity inhibitors can slice revenue from your net sales and net income. All retail prices should be set at points that allow gross profi t margin to cover inventory expenses, known operational expenses and estimated hidden costs while still providing opportunity for healthy net profi t. "We have target numbers for different product groups and try to hit those targets as much as we can," says Frank Szabo, president at Ohio Diesel Fleet Supply. "We know what it costs to run our operation, and we try to keep our costs in control so our prices can be responsive within our market." The best route to competitive prices is operational effi ciency, says Dan Straszewski, president at CLF Warehouse, Inc. "You have to become more effi cient within your 15 Cover Story M a r c h 2 0 1 6 | T R U C K P A R T S & S E R V I C E W W W . T R U C K P A R T S A N D S E R V I C E . C O M A profi table business is defi ned by its bottom line. But business owners who strive for more than just keeping the doors open, must also direct equal attention toward the top line.