“The key is to end up with an operating margin of 5% or better. To do this, your need a healthy dose of service and parts revenue since wholegoods will at best get you to an honest (with all write-downs) 2.5% bottom line with volume included. Our parts profit benchmark is 12% bottom line and service is about 15%. So to get 5%-plus overall, you will need for parts and service to be 25% or more of your total business.
“It is also typical that a healthy dealership is showing parts volume at double their service volume. So with a hypothetical $100 million volume dealership, you would like to have wholegoods of $70-75 million, parts at $15-20 million and service at $7-10 million, yielding 5% overall. ($75 at 2.5%, $17 at 12% and $8 at 15%. Total average operating margin of 5.1%.)”
— Don Van Houweling, Van Wall Equipment, Perry, Iowa
“All service (with a high profit margin) would be great; but not usually achievable. So what we have seen traditional dealers work for is: 70% equipment sales; 20% parts sales; 10% service/labor sales.
If the gross profit margins are maintained this way, our experience is that each department then delivers about one-third of the gross profit each. That would mean each department is equal at some level. But then the expense load to achieve this can be different once we all achieve this equal balance of gross profit. Even with that nice approach to equal parts of gross profit, parts will generally bring in 4 times the net profit and service will bring in 3 times the next profit of equipment. So this large sales mix percentage for equipment sales is not always in the dealership’s best interest.
“If we could bring that down, while still holding market share for our manufacturer, we would! Or said a different way, if we can increase the aftermarket sales volume, we would be happier. That is our goal this year. To that end, we are training and implementing aftermarket salespeople. Their focus is to get closer to the large customers and make sure we are getting as much of their business as possible. The ideal sales mix is one that puts as much profit to the bottom line as possible!”
— George Keen, New Virginia Tractor, Charlottesville, Va.
“Obviously, there are market factors that impact what we feel our ‘ideal’ revenue mix should be. In general, we would like to see approximately 35-36% of our revenues be generated by our parts and service departments, with parts departments making up two-thirds of that revenue.”
— Kim Kistler, Stotz Equipment, Avondale, Ariz.
“Our ideal revenue mix would be: wholegoods new and used 65%; parts 16%; service 16%; other 3% Our best margin is in parts and service.”
— Alex Lush, Connect Equipment Co., Rockwood, Ont.
“My ideal mix would be: wholegoods 70%; parts 19%; service 11%. This can be very difficult to achieve and something that we are striving for. The reason why this mix is healthy is that it provides for a strong absorption rate. If you have absorption covered, then the dealership can function well in a tough sales environment.”
— Clint Schnoor, Agri-Service, Twin Falls, Idaho
“The following percentages work well for us: new sales 46%; used 22.6%; rental 3.9%; parts 18.6%; service 7.7 % and other 1.2%.”
— Drew Williamson, D&W Group Inc., Jarvis, Ont.
“What works is what the customers need, and that varies from year to year. Parts and service are always in demand and make up a necessary percentage of business. In the last few years when new sales were soaring, parts were not as big as now when folks are continuing with older machines. Fix them up and keep them going. Service may stabilize with fewer new machines hitting the field to work the bugs out of.
Sideline items — making things easier and quicker — have picked up this year. Whoever has to have a perfect mix of profit from each department may be locking themselves out of opportunities, which change from year to year. New and used wholegoods usually need to be 60%-plus of sales for us.”
— Greg Simpson, Simpson Farm Ent., Ransom, Kan.