Many of the dealerships I work with learned one lesson during the pandemic: how to do more with less.
I have spent the last five years as a 20 Group consultant for Spader Business Management. Over that time, I have learned there is only one metric I need to see in order to gauge the health and profitability of a dealership, and that is Gross Profit Per Employee (GPPE). This metric is a measurement of the efficiency and productivity of the machine (you call it a business, my engineering mind sees it as a machine).
Any dealership I come across that has a strong R12 GPPE ratio will be profitable. In most cases they will also have low employee turnover, and a staff who find their jobs fulfilling and rewarding. To me, this metric is more important than seeing someone’s net profit. Nobody accidentally improves this metric, it only comes when the leadership is laser focused on building a viable and sustainable business. Anyone who treats their business like a hobby will rank low on this item.
During the pandemic, many dealers (in the industries I work in) saw big increases in sales volumes and product margins. In many cases this was also done without adding additional employees. The result was an improvement in GPPE, along with the corresponding improvement in dealership profitability.
When a dealership focuses on GPPE the following things happen
- Since employees are generating more gross profit, they can earn more
- Improved pay scales often lead to higher caliber employees who do a better job of taking care of the customers
- Employees who don’t have to worry about paying the rent and grocery bills can focus on the customers
- Better and more focused employees lead to improved customer service, resulting in happier customers
- Customers who see that a dealership is more than just a place to buy a product are willing to pay more, thus in the long run margins improve
- Employee turnover is reduced
- Recruiting new employees is easier when a business can offer more than just a job, but a career.
- People who want to work in the industry will seek you out
- Dealership profitability increases
- The list goes on and on, but I’ll stop here
As many dealers stumbled into improvements in their GPPE ratio, the question now is how to incorporate the lessons learned and those gains into the future business model?
The starting point is to generate a baseline. Go back and measure your ratio prior to the pandemic, and then look to see how it changed as the rest of 2020 played out (always look at this metric over a R12 period in order to account for seasonality). While most dealers saw a small dip in March, that quickly turned around as the year progressed.
Then it’s time to dig in to find out what changed in the business, why those changes happened, and who was responsible for the improvements. Managers should meet with their employees, and then the management team should collaborate to identify what worked, and what didn’t. Now it’s a matter of implementing institutional change.
While many Owners and GMs complain about their employees being resistant to change, in most cases they are no different. Change, just for changes sake, is not a good way to run a business. But change, when tied to research and planning, is what separates the good dealers from the great ones.
The lessons learned during the pandemic are many, and I won’t attempt to outline them all, but I will highlight a few that I feel are important.
- Dealers found that when they weren’t selling scared (just trying to shed inventory that had been rammed down their throats using the old “free flooring” trick), they could ask customers to pay retail, and they’d often get it.
- Many employees learned how to use new technology. Email, text, live chat, and even new functionality that is contained within the Dealer Management System (tools they have been paying for but never utilized).
- As inventory shortages have increased, we are seeing an increased reliance on the Service and Parts departments. These opportunities have always existed, but historically, many have been treated as second-class departments. Many owners are now seeking out training to turbo charge the growth in these often overlooked areas of the business.
- Many managers have learned how important processes and procedures are. When you are small, and can touch everything, it’s OK if everyone isn’t up to speed. When you are going 100MPH, the last thing you need is to stop and fix problems, or constantly have employees asking you questions. If the team knows what they need to do, and how to do it, everything works better.
Change is hard, I get it. However, for many Powersports, Marine, and RV dealers, the pandemic has turned into “The Great Reset“. Inventory is cleaner than at any other time this century. Weak employees have been weeded out. The OEM business partners who had our backs stood out among a sea of self-serving OEMs/vendors. Loans have been paid off and balance sheets look like the ones that belong to businesses, not just hobbyists.
Take this opportunity to lock in the lessons you learned. You might not get another one.
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