Parts and Service Promotion Drives Dealer Profit

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Insight for Industrial and Capital Equipment Industries

Parts and Service Promotion Drives Dealer Profit

Andy Wilhelm / Sr. Product Manager | August 5, 2013

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The most recent AED Cost of Doing Business Survey reveals the highest gross margin area of the business is in service (54.6%) and parts (27.2%). Yet despite high profitability, most dealers spend far less money promoting these profit centers than they do promoting new machine sales. High profit dealers spend more on advertising and promotion (0.4%) than average AED dealers (0.3%).  Are they driving their parts and service business with advertising and promotion?

High profit dealers had a higher absorption factor (expense covered by parts/service/ rent-to-rent gross profit) of 83.6% compared to the average AED dealer whose absorption factor was 70.7%. A strong parts and service business is a clear driver of overall profit. High profit dealers had double the profit margin than the average AED dealer (7.6%, compared to 3.5%).

Promoting your parts and service business makes perfect sense. But how?

Advertise consistently

One-shot advertising efforts will never be as effective as a consistent campaign that reaches potential buyers, multiple times, and through multiple channels.

Frequency is the key to effective advertising, especially when it comes to parts and service.  It takes several impressions for buyers to even notice you, more to get them to buy from you. Some customers wait for machines to break down before requesting service while others are proactive – adhering to strict preventive maintenance schedules. 

Because you just don’t know when your customer will be ready to buy parts and service, your advertising needs to be there all the time.

Reach out to new customers with a variety of methods

Many dealers have turned to email marketing in recent years to save money. While email is great for reaching existing customers, in most cases it is not a good tool to acquire new customers. To acquire new customers, marketers can purchase direct mail lists as well as utilize Internet advertising to find buyers who are actively searching for parts and service. Combine methods for higher response. Direct mail followed up with a phone call performs better than direct mail alone.

A strong offer encourages response

A strong incentive encourages response. The offer must have value. Consider a first time customer discount or value-added service such as a free oil analysis. Is there something exclusive to your dealership that you can offer? Think about the needs and interests of your customers and strive to make your offer memorable, simple and easy to communicate.

A success story

In a recent article in Construction Equipment Distribution, Cleveland Cat shared the importance of online advertising to growing their used parts business. They captured sales far beyond their machinery sales boundaries. Where an average dealer will get one turn on used parts inventory, Cleveland Brothers recently achieved four-and-a-half turns. The company believes that actively promoting the quality and value of OEM branded used and new parts is essential to gaining market share in the highly competitive aftermarket parts business.

So what’s the bottom line? Drive sales in the most profitable area of your business: parts and service.

 

 

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