During every meeting I have been in this year, expense review has been a common occurrence that deserves a deep dive. No matter the market, the OEM, or the department, dealers are looking to ensure expenses are in check as we prepare for the future. However, cutting expenses is a not always an easy process. If the proper areas are not funded you can end up doing more harm than good, ultimately preventing what you set out to do in the first place, setting up your business for long term success. Today, I am going to help you examine your expenses, so you can make the proper decisions on where you are overspending, and where you are seeing returns.
The Big 3
Every store has the Big 3 when it comes to expenses: personnel, advertising, and floor plan. These 3 expense items have continued to grow over the past few years due to wage increase, volume sales pressure, and increasing floor plan rates. While these three areas are reviewed regularly, the other controllable expenses across your dealership have continued to show growth during this same period.
Tool and Programs:
Every meeting contains conversations about a new program or tool that will generate more sales, save on time, follow the vehicle through the recon process, and generate more dollar results. Like any tool, it is only as good as the person using it and how often it is utilized. Many of these tools we signed up for had us convinced that it would help our business (or was the required by the manufacturer). Of course, it isn’t some silver bullet. These tools would allow for big results if used correctly, as that is ultimately why we signed up for the tool in the first place. At some point, we have signed up for so many tools that we do not utilize each one properly, we just continue to pay for their services.
Is your manager fumbling around looking for his login and password?
Can your team accurately speak to what a specific tool does? Or how it helps improve their job?
How many of these new tools do similar things to another tool you already purchased?
Realistically, if your manager doesn’t know (or can’t easily find) a password, you are not using that program. If your team can describe what a program does, or how it helps them with their daily tasks, then they are not using it. If you own two programs that do the same thing, maybe it’s time reevaluate which tool to keep, and which one is surplus for your business.
Additionally, when was the last time you thoroughly reviewed ALL outside vendors and how well they are utilized? With margins continuing to shrink, we need to look at these expenses to find the leaks. At a recent meeting, one of my 20 Groups found that a store had 3 different tools doing basically the same thing and were not utilized by anyone at the dealership effectively.
The group asked the same set of questions:
Is each of your tools bringing you a positive return on investment?
If this tool does not have to have a dollar sign attached to it specifically, does it drive behavior to give you a dollar sign ROI?
Are all the tools in your tool box being used efficiently? If not, why are paying for them every month?
Together with our NCM 20 Group members, we have been reviewing the last 3-year trend of grosses and expenses. When the deep dive is completed for each group, we find that our Big 3 expenses have seen the increase we all expected. However, other expenses are increasing rapidly in areas like outside services, data processing, other advertising expenses. I would encourage you to take a deep dive into these areas and ask yourself the same questions as before:
Is this tool helping my business?
Is my team utilizing the tool properly?
And can I attribute ROI directly to this tool?
Are you seeing expenses rise in certain areas of your dealership? Have any tips on controlling expenses in specific departments? Let us know in the comments below!
For further reading on controlling expenses, we would suggest How to Track ROI on Digital Advertising, Fracking From Your Dealership Well, and How to Control Expenses Across Departments from the other automotive experts at NCM Associates.