It’s always a pleasure to visit dealers. At a recent store visit here in Wisconsin, I had an interesting conversation with a few repair techs. We discussed a variety of ways in which brick-and-mortar stores use the Internet to sell their services. It was surprising to me that they never really thought about selling their repair and maintenance services online. They were eager to learn more about ways to generate revenue on their Web site by selling yearly tune-ups, guitar-restringing services, cleanings, equipment modifications, upgrades and more online.
We discussed options and they were excited about the possibilities to help them get ahead of the curve. They felt this would enable them to approach customers proactively and turn their service department into more of a consistent and controllable source of income. Previously, all they were able to do was react to the needs of their customers and be at the mercy of the seasons and the cycles. With this new approach, they’ll be more in charge of their destiny and revenue.
This led to another interesting question. One of the techs asked if I thought the repair shop was the most important part of the dealership. With a smile, I replied that it is considered the most important part to the person who has a piece of broken gear, but that it is not to the customer who walks up to the counter who needs strings, or to the individual who just bought his or her first guitar and wants lessons to learn how to play it.
Each department plays an equal role in your overall combined success.
Having been blessed with the opportunity to work with and in music stores for many years, I have come to understand that a store’s success is not dependent upon doing one thing well. Rather, it is reliant upon doing many things exceptionally well. Contrary to what your employees might feel, there is no single department that is more important than any other is.
You can have the greatest service department ever, but, if you can’t get the parts you need because the buyers are not doing their job, then your shop is not going to perform. You might have an office staff at the top of their game, but, if the service department is struggling, profits can’t grow at the rate they should. If you have both an office staff and a service department that shine above all your competitors, but the sales department is weak at selling instruments and rentals, then both office and service struggle because they need instruments in the field in order to drive the business to build revenue and profits.
Finding a balance is crucial.
Keeping balance in your business is absolutely critical to maintaining strong profits, and knowing your numbers is what helps you find that balance.
If service is a big part of your business, then how well you manage your parts inventory will have a huge effect on the overall efficiency and profitability of that department. It’s essential to keep a well-stocked inventory of the most common parts needed. Time is money, and waiting for parts for common repairs will clog up the shop, slow down your cash flow and create many levels of frustration. A balanced department, running with efficiency, should have margins of at least 45 percent and higher. Take advantage of buying opportunities from your suppliers and negotiate stock balancing plans whenever possible to eliminate the stockpiling of dead parts inventory.
On the retail side, balance for some stores means pruning lines down so they have better control over their commitments and inventory. Margins are always an issue, with many targeting them between 22 percent and 33 percent. Sure, there are products that might generate higher margin, but competition from a variety of sources tends to drive profits down. Bundling high-margin products and services with low-margin products makes sense. Take a hard look at including services that cost less and create repeat traffic, rather than relying on discounting to move inventory. By including a quarterly restringing or cleaning, you’ll serve your business better by getting these customers back into the store. Train your sales staff to identify up-selling opportunities, create eye-catching displays and build showroom excitement that will inspire add-on sales during these visits.
Margins do matter.
Yes, margins on the retail side are tight as compared to your services; however, there are other considerations. Namely, time invested versus amount of profit. If it takes you only 30 minutes to sell a parent a $1,200 trumpet at a 20-percent margin, that sale generated you a $240 gross profit, or about $8 per minute. To make the same gross profit in your service department, with a much higher gross profit margin of 50 percent, it would require you to earn $16 per minute in the same 30-minute window. Most repairs take more time and require many steps to complete, making it difficult to match this shorter window. So, although the margins are less, profits relative to time and personnel are much greater on the retail side as compared to in your service department.
Although that one-time retail sale brings in a lot of dollars, you will only sell so many trumpets in one year. But, with those horns out being played and experiencing wear and tear, customers will come back to you for those high-margin parts, as well as for repair and maintenance services.
All of this holds true for Internet sales. Yes, there is always someone else who will sell the same item for less. However, if you can bundle those items with higher-profit products and services, you will be able to create new sales that generate a high profit relative to the amount of time invested. Although there are other expenses associated with running a Web site, there are still profits to be made from selling online.
Balance helps to create a healthier store. Dealers who understand this and spread their attention to areas that generate profits will have a stronger and more viable business. Looking ahead, the future looks bright for stores that position themselves to fill the voids left by those that have given up. Now is the perfect time of the year to begin to reset and rebalance your store and to take advantage of the possibilities in service, parts, Internet and retail that you will be presented with over the next several months.
David Hall is Vice President – Sales & Marketing for Cutting-Edge Solutions. Its eCommerce products, The Generator and Pro-Active Websites, are utilized by leading vendors and retailers within the music products industry. Contact him at email@example.com.