20 Group Insights
Are you selling yourself short? START PRICING FOR THE VALUE YOU DELIVER — NOW By
George Kingman
E
ver since the last recession, the national average net profit for tire dealers has hovered around 2.5% to 3%. Some overly optimistic survey results report that the national average is at 6%. However, we can roughly cut that number in half. After all, who takes the time to respond to surveys about net profit if you’re losing money, right? More often than not, many tire dealers don’t see their true net profit until
IS THE ONLY
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halfway through the next year, when their accountants finally get through filing after two extensions. Sound familiar? That said, I am noticing some amazing things. For one, we have more and more top operators breaking 20% net profit. Less than three years ago, so many people would tell me that having a payroll benchmark of 45% of gross profit dollars was unrealistic. I was told that to achieve that number you’d have to cut payroll to the bone, and you’d lose all your good employees
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in a market where it is hard to find any employees. Then why am I seeing some people in the high 30’s? Please hear this loud and clear: The best way to manage payroll is by not cutting it, but by adding gross profit dollars! This isn’t some shady math trick. How do you add gross profit dollars? There are essentially three ways. The most difficult way is to sell more. I’m not saying it is horribly difficult, but it takes the most effort. A slightly easier way is to decrease your costs of goods sold (COGS). Speak with your suppliers and your parts vendors, eliminate shrinkage through controls, and maybe join a buying group. I say this is
DON’T LET THE 2% OF CUSTOMERS WHO COMPLAIN ABOUT PRICE SET YOUR PRICE FOR THE 98% OF CUSTOMERS WHO DON’T. easier because it requires several phone calls and process changes in a short period of time. And then you just maintain versus selling more, which is a daily effort that never stops. So, what is the third, and easiest, way? Raise your prices. Recognize that often, we are the ones standing in the way of success because we can’t believe someone would pay more for our services than what they would pay somebody down the street. Would you like something fun to do? Tell me that your labor rate cannot go above $100. My head will spin like a top as funny sparks shoot out of my ears like an old Tom and Jerry cartoon. MTD November 2019
