The 5 Steps of Finances

This month’s column focuses on the financial aspects of managing your parts and accessories operations.

So that we are on the same page in regard to the financial aspects of your parts and accessories operations — and of each of your departments — I will explain the “Five Steps of Finances.”

These five steps are:

Sales (-) Cost of Sales = Gross Profit (-) Expenses = Net Profit or Loss

As you can see, it is important to control expenses to realize as much net profit from the gross profit as possible because if expenses are too high, then the bottom line is a loss.

At this point, some of you might be asking:

How To Control Expenses?

Can we agree that personnel are an expense? Could we also agree that if you could achieve more efficiency from your personnel, this might be a form of expense control?

Allow me an explanation: If your parts associates could process each sales transaction more efficiently, then could each of them possibly process more sales transactions? This could possibly add to the sales (Step 1 of the 5). With personnel expense fixed (Step 4) because you haven’t added any parts associates, then with the increased gross profit (Step 3) you would have a corresponding increase to the net profit (Step 5).

Perhaps you are now asking:

How To Increase Employee Efficiency?

As with most of Selway’s Suggestions, there is some effort required to accomplish this, and that could be in developing detailed written procedures (DWP).

• DWP incorporate at least two methods of increasing parts associates’ efficiency, and these are:
• Providing a documented set of steps for performing a process
• Training parts associates in the established procedures for performing a process

By developing DWP for most (preferably all) of your operational routines and by training your parts associates in the efficient, consistent processing of these routines, you minimize the chance for an error. By minimizing these error opportunities, you therefore reduce the chances that an associate will have to perform the same operation again — a “redo” as some in our industry term them.

The reduction/elimination of redo’s increases the efficiency of your parts associates, which opens the door for added transactions. It also enhances your customer service performance because the customer has a positive experience. “Doing it right the first time” could increase your customer loyalty and therefore your opportunity for additional sales.

Maybe some of you have already implemented DWP in your RV business. If so, you might be asking:

How Else Could Employee Efficiency Be Increased?

Your dealership management system (DMS) might include a function that could increase the speed and accuracy of many of the repetitive sales transactions in your RV business. This function might be termed materials list or service tasks — or some similar name. If you are uncertain if your DMS offers this function, I suggest that you contact your DMS support team after reading my explanation of the possible features within this type of function.

These two functions have a slightly different purpose, yet each can reduce the processing time and any errors related to commonly performed procedures.

A materials list contains the goods required to complete a routine procedure, many of which could be performed by one of your DIY customers who is interested in the installation of an accessory. By including every item required for the performance of this process, you minimize the time required to sell this accessory and you minimize the opportunity that a needed item will be overlooked.

The service task function takes this to another level by including the labor needed to install an accessory or to process a maintenance/repair on an RV. If you have developed a materials list for the goods and materials required for a routinely performed procedure, then you merely need to add the labor charge(s) related to the process.

If any special tool(s) is/are required for your technician to perform this service, then you could include it/them in the service task.

A related benefit to developing these functions in your DMS is that your personnel can quickly and accurately quote total costs of either a materials list or a service task.

The development of these materials lists and service tasks will require some effort. However, you should realize a substantial return on your development time investment with each recurrence of these routinely performed procedures.

Maybe some of you have already incorporated these DMS functions in your fixed operations and you might be asking:

How Else Could I Increase Operational Efficiency?

The following are some additional examples that could possibly enhance the efficiency of your parts operations.

Occasionally, your parts associates might be contacted by a customer who is RVing and has need of an item (or items) for repair of her RV. If your parts associate offers to order the item(s) so they will be available when the customer arrives for service, it might be necessary to collect some specific information so that the correct item(s) can be procured. Requesting the customer send some photos might be a great way to minimize errors and save time for the customer and for your parts associate. Since “a picture is worth a thousand words,” using this form of digital technology could increase the efficiency of your parts associates.

When working with some of my clients to improve their operations, I frequently suggest that they document a process with a DWP. If they agree to do so, I work with them to develop at least one DWP. Usually, I have the parts manager schedule a brainstorming session with all the parts associates and at least one representative from any other department that might be impacted by this process. By including other departments in the development of the DWP, you enhance the opportunity that the process will be successful because everyone had a voice in the development.

There are other opportunities for increasing the efficiency and profitability of your parts operations, such as:

• Using cardboard cartons with trash can liners as trash receptacles rather than plastic or metal trash cans
• Using the blank side of report paper to make notepads for your personnel rather than purchasing notepads
• Scheduling your personnel based on workflow requirements rather than everyone working the same shift

Remember, your bottom line is impacted by how efficiently you control your operating expenses. When working through the Five Steps of Finances, less expenses could mean more net profit.