“It’s all in the mix,” says Chris Wilmot, chairman, Groff Tractor. The mix of sales, service, parts, used equipment and rental revenue has a direct impact on overall profit. Industry experts agree with Wilmot. Successful dealers need to participate in all revenue streams.
Mike Marks, managing partner for Indian River Consulting Group, found that construction equipment dealers are consistently, over the economic cycle, in the bottom quartile of financial performance. While new equipment sales drive down the margin rate, other areas such as rental, service and parts can drive the margin rate up.
Manufacturers and dealers historically have placed emphasis on new machine sales, yet in today’s market, where more customers are renting, dealers need to reconsider that strategy. The following three revenue streams get relatively little marketing attention from dealers, yet they have the potential to be the biggest drivers of profit.
Dealers need to place greater emphasis on promoting service work, especially in off-peak months. Advancements in technology have left some equipment users looking for alternatives to in-house fleet maintenance. Maintenance contracts may provide a welcome solution for some customers. To keep promotion costs down, delve into your existing customer base to develop a fleet size, machine type and industry profile, using your best prospects as a model.
Parts sales also have a higher margin than new machine sales. Targeting machine owners by brand and age of machine can improve the success of your promotions. Build brand awareness for your dealership’s parts capabilities and keep top of mind recognition with customers. Consider expanding your offerings to include parts at varying price points.
By now most construction equipment dealers have realized that they need to be in the rental business. However, have you allocated a significant portion of your marketing budget to help you compete in this potentially higher profit business? Understand your strengths and weaknesses and target a market that is most likely to value what you have to offer. In a professionally managed rental fleet each machine is its own profit center.
By reevaluating the marketing support for each revenue stream, dealers can drive up overall margin. Reach beyond your customer base to boost sales of service, rental and even parts among non-customers. As always, dig into your data to identify and target prospects that will be most receptive to your offers.