9 Ways to Cut Auto Dealership Costs
Business expenses will always exist when you run a dealership, but you get to decide how much you’re willing to spend on them.
Peter is known as a smart dealership owner in the community. He is the top-selling auto dealer in his region and is well-known for stocking vehicles in great demand. His staff consistently receives top marks for customer satisfaction. Additionally, he spends a lot of money on all forms of advertising and has earned some local notoriety for his distinctive television commercials.
From the outside, Peter seems to be acting appropriately. Other dealership owners in the area are envious of him and inquire as to how he manages to generate so much money.
The reality? Peter makes pitiful profits. He only wants the finest for his dealership business—the greatest vehicles, staff, and advertising—and he is prepared to shell out a sizable sum of money to achieve that goal. Unfortunately, he’s overspending, and his outgoings don’t match up with his revenue.
He often uses the justification that “You have to spend money to make money!” However, he needs to control his spending before his company collapses.
Even if your circumstances are not as terrible as Peter’s, you are probably correct if you believe there is room to reduce your dealership’s costs. Even if you believe that your input versus output ratio is running well, it’s still worthwhile to review your books and see where you might be able to save costs. You might be pleasantly pleased.
How to begin increasing the profitability of your dealership business
“Someone in your company needs to go into the details of your costs…If not, you are obviously leaving up to 25% on the table every day, every week, every month, and every year, according to Doug Austin, founder and president of StrategicSource, Inc.
First, take a look at a year-over-year income statement for the business. You can evaluate your sales, cost of sales, gross income, and expenses with this worksheet. Do you see any patterns?
You should now start looking closely at your spending. Not all costs are created equal, so these should be divided into two distinct types. You’ll possess
1. Changeable costs
Expenses are directly associated with sales and carrying costs for inventories. These ought to alter in line with your sales and gross earnings.
Floor plan interest, demo costs, delivery costs, advertising, staff, employee perks, and absence pay are examples of variable expense types.
2. Fixed costs
These costs are quite stable from month to month.
Office and shop supplies, credit card interest, legal fees, postage, repairs and maintenance, insurance, and utilities are examples of fixed expenses.
Don’t just glance through the figures to check whether everything “looks good” once you’ve reduced your expenses for the previous year. You must examine the money that was spent in each category individually and determine why. If you’ve never done this, you’ll undoubtedly discover a lot of areas where you can cut costs without hurting your regular business operations.
Categories of dealership business expenses where savings are possible
Your particular dealership will determine where you finally decide to decrease costs, but the following are some typical places where others may do so:
1. Promotion
Running a dealership requires effective strategic management of advertising. Without additionally tracking results and return on investment, you can’t just throw cash at television ads, print ads, and pay-per-click advertisements. You may realize that despite how much you enjoy making TV advertisements, they aren’t necessarily generating the necessary amount of revenue.
2. Employees
Don’t start firing anyone just yet, but keeping an eye on how much overtime your staff is clocking is a simple way to save money. Before any overtime is paid out, get management’s approval. Moreover, choose your employees wisely. Dealership turnover is common and costly; attempt to reduce it as much as you can by taking the time to select the best candidates.
3. Store and office supplies
How can the price of supplies be reduced if you require them to operate your business? Shopping around for bargains and keeping supplies locked up at all times with designated personnel as keyholders are two straightforward ways to do this. Even when it comes to office supplies—”Who’s going to miss an envelope?”—employees occasionally have sticky fingers, but the costs pile up over time and can have an effect on your bottom line.
Inventory 4.
You lose money every single day because of those used automobiles sitting on your property. So that your merchandise keeps moving but your money doesn’t, a 60-day rule on your lot can be helpful (though it should ideally be 30 days).
Your dealership business revenues will significantly increase with little to no work if you take the time to analyze your expenses and tighten your spending.
5. Revision of Vendor Contracts and Business Process Streamlining
Renegotiating your vendor contracts is a useful strategy to consider for cost-cutting. There’s a significant chance that you can locate a more affordable rate than what you’re presently paying, whether it’s for janitorial services, IT support services, or equipment for vehicle maintenance. You might be able to move to a less expensive vendor who can provide the same level of services by using the promise of a long-term partnership to your advantage.
Another excellent strategy to reduce expenses is to streamline your company’s operations. You may come up with strategies to boost productivity while lowering overhead by figuring out where there are inefficiencies and redundant processes in your business. For instance, dealership management software may automate many processes, reducing errors and freeing up time that can be used more effectively. For instance, digitizing your documentation process can save on paper and printing costs while also improving the effectiveness of information retrieval and sharing.
6. Reassessing Marketing Plans
Digital marketing offers a more affordable substitute for conventional forms of advertising, including print and television commercials. Google estimates that 95% of automobile buyers get their information online. Moving your marketing efforts to platforms like social media, search engine optimization (SEO), and email marketing could therefore result in significant cost reductions.
Additionally, digital platforms have sophisticated analytics tools that let you monitor the success of your campaigns and adjust your marketing tactics in light of data-driven insights. You can dramatically lower your advertising costs while still efficiently reaching your target audience by concentrating on high-performing channels and removing ineffective ones.
7. Investing in the Training and Development of Employees
Even though it might seem contradictory, long-term cost savings can result from investing in your personnel. Employees that have received the proper training are more productive, make fewer mistakes, and offer better customer service, which increases sales and decreases waste. Additionally, offering opportunities for growth and development can boost employee retention and lower turnover, which can save expenses associated with recruiting and training new hires and promote employee loyalty.
8. Cutting Back on Energy Use
Another area where you might be able to save money is on your energy costs. Energy-saving techniques, such as installing energy-efficient lighting, insulating your facilities, and encouraging staff to turn off equipment when not in use, can result in significant long-term savings. Long-term returns on investments in renewable energy sources like solar panels can be large, and these investments are also good for the environment.
9. Putting Preventive Maintenance Into Practice
You may avoid future expensive repairs and replacements by doing preventive maintenance on the infrastructure and equipment at your dealership. Your assets can last longer and operate more efficiently if they receive regular maintenance. This can be as easy as timely maintenance of your HVAC systems and other utilities, as well as routine oil changes and tire rotations for your demo vehicles.
Increasing Profitability by Simplifying Automobile Dealership Costs
Cutting prices is one aspect of reducing dealership expenses, but another is resource optimization for the best outcomes. You can dramatically cut costs with rigorous analysis and strategic planning without sacrificing the level of customer service you offer. By doing this, you increase your dealership’s profitability while also increasing its long-term viability. Keep in mind that every penny you save increases your revenue.
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