By Walter J. McDonald, President, The McDonald Group, Inc.
What are the most important KPIs that a machinery dealership should track this year? In this very challenging environment, the four most important Key Performance Indicators (KPIs) are:
- Sale Mix
- Absorption Rate
- Off-Shelf Parts Fill Rate to Service
- And, with the emergence of digital marketing in your business, add
- Sales Conversion Rate
Machinery dealer KPIs track performance areas that drive profitability, market share, cash flow and customer retention.
These four big numbers reveal a significant amount of information about a dealership’s management strength and skills. I purposely left out machinery market share and machinery gross profit margin on sales because I know most of you are already pounding away at those targets.
Sales Mix
This is the percent of total dealer gross sales generated by each source: New Machinery, Used Machinery, Rentals, Parts and Service. This has huge implications on the business. Unless a dealer is achieving at least 38% of total sales from high-margin Parts and Service operations, the business will have great difficulty achieving the Holy Grail of 100% Absorption Rate.
Absorption Rate
Absorption Rate is Gross Profit from Parts, Service and Rentals divided by Fixed Operating Expenses. High-performance dealers work toward achieving 100%. A high score means:
- The dealerships positioned to survive the ups and downs in the economy.
- Management has established overall Product Support Operations as a strategic focus.
- Expenses are under control.
- Technician productivity is at satisfactory levels.
- The management team is focused on overall profitability not just machine sales.
- At 100% Absorption Rate the dealership is able to invest in market share growth from revenues generated by machine sales.
Off-Shelf Parts Fill Rate to Service
Most dealers do not track this KPI. For your Primary Line, off-shelf fill rate should be above 95-96%. Just do a manual tally of 3 weeks of repair orders. How many line parts items were filled 100% immediately off the shelf divided by total parts line items on that batch of repair orders. A high score means:
- Parts leadership is making the time and effort to skillfully manage the Stock Status Report.
- There is strong collaboration between Parts and Service.
- Technician productivity is improved.
- Fire fighting is reduced and customer satisfaction is increased.
- Parts Obsolescence is under control.
- Warehousing and inventory management practices are ensuring accurate inventory count on the Stock Status Report. Ins and outs are accurately and promptly being recorded.
- Emergency orders and freight expense are kept to a minimum.
Sales Conversion Rate
Sales Conversion Rate tracks the percentage of leads or prospects that result in sales. With more and more leads being generated from web visitors, I would track both digital leads as well as overall sales lead conversion or deal closure rate. This KPI is critical for evaluating sales team effectiveness and marketing ROI in a highly competitive, capital equipment market. Very surprisingly, a recent industry study indicated that, on average, machinery dealers are only pursuing 35-40% of digital leads. A high score means:
- Sales reps are promptly following up on sales leads.
- Potential customers are contacted by email, phone and potential personal visits.
- Diagnostic selling skills are successfully being employed.
- Sales reps are effectively getting commitments and closing deals.
- Sales training has been effective.
Please contact me if you have any questions or would like to discuss any aspect of this article. For more information on KPIs and related quantitative performance targets or benchmark performance standards, see my Achieving Excellence in Dealer/Distributor Performance available here on our website.
Walt
Walter J. McDonald, President
THE GLOBAL LEADER IN DEALER DEVELOPMENT
P.O. Box 730, Arlington Heights, IL 60006
1+847/340-5518 www.mcdonaldgroupinc.com