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It's time to sharpen both the scissors and your pencils!
The forgotten and ignored contributor to dealership profit is…. wait for it…expense control!
It is easy for forget as sales and transaction gross soars… but every department can improve its bottom line in 2024 when its expenses are “right sized” to set the stage for a health bounce back.
So, what does it mean to be “right sized”?
“High Margins cover a lot of ‘sin’ and make it impossible to be efficient, because you don’t need to be.” - Jeff Bezos, Amazon.com
Bezos’ observation has played out in spades as Covid driven scarcity blessed dealers with record profits. Many dealers and managers had little incentive to pay attention to expenses and dismissed almost everything as a harmless “cost of doing business.”
But now that the market appears to be returning to some semblance of normalcy, expenses are again becoming a huge factor in the profitability equation. Borrowing from Mr. Bezos the large margins enjoyed in 2021 and 2022 helped to hide the sin of losing site of expense control.
With good people, consistent training, the right plans, and a little good-natured “nudging”, dealership managers can become very successful expense hawks. But they do need some guidance.
So, how can dealers and managers get the most “bang” for the cost of doing business? Brooke Samples, president of Profit Blueprints, says that you need to go beyond cutting expenses and employ efficient best practices that yield higher net profits and she shares actionable ideas for every department.
Learn where the hidden expenses are that impact your profits.
EXPENSE MANAGEMENT
Is not simply selecting the “cheapest” option. If all expenses were bad… expense control would be very easy. But take too big an axe to expenses and pretty soon there would be no business left.
True expense management is about selecting the right options at the RIGHT PRICE.
And it starts with understanding that there are four types of expenses.
4 TYPES OF EXPENSES
Avoidable Expenses
These tend to be the “oops and errors” that find their way into your Policy accounts. While accidents do happen, they are often preceded by a lack of process or organization.
Brooke offered the example of an organized parking schematic vs. an ‘every man for himself” plan for saving space, reducing lot damage, and improving the ease finding vehicles for customers and employees alike.
Inefficient Expenses
Obsolete or missing equipment and inefficient processes cost you:
Profits
Customers
Reputation
There is one thing that inefficiency causes…expenses to pay for the extra people needed to make up for the inefficiency. While it may carry an initial cost, if the equipment can be demonstrated to pay for itself, it is probably a wise investment.
Wasteful Expenses
Can the same end result be obtained by less expensive alternatives?
Consider your most costly expense categories… like inflated and unproductive advertising expense… excessive inventories beyond what is prudent for your level of business… inefficient energy systems (more efficient lighting alternatives, more advanced HVAC thermostats)… unused DMS features and their never-ending monthly fees… and the grandaddy of them all… overstaffing.
If gross profits are falling, it’s every manager’s job to trim as much as they can to help fatten the bottom line.
Necessary Expenses
When focused on expense control, make sure you just cut the fat and not the muscle.
It is always true that you have to spend money to make money. Don’t get overzealous and slash away at the “necessaries.” And especially if one of those necessaries effects the customer’s perception of how well your business functions.
Theoretically you should be able to sell cars even if your restroom is less than pristine. But failure to keep it super clean is probably causing some of your customers to spend their money elsewhere. Careful where you cut!
So be an “Expense Hawk”… but not an “Expense Maniac.”
The above is just a small excerpt for a more detailed DealersEdge Guide – "Guide for Dealership Controllers and General Managers" and specifically the Chapter on Expense Management. See below for info on how to get a copy for your desk.
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