“Keeping it Lean” …a Discussion on Expense Control
"Expenditures rise to meet income.”~ C. Northcote Parkinson
What a profound statement! Don’t we find when operating any type of business, the more we make, the more we spend? Years ago, I worked with a General Manager who named him boat, “Just One More Deal” and this was because when a vendor came in to solicit a program or a service, after an enthusiastic presentation, he would sign up with the justification “Just one more deal will cover the cost”. Well, when we entered a recession in the 80’s and the unit sales fell off, we found ourselves bound in all these contractual agreements and could not get out of the terms.
I am going to open up this discussion on expense control with inviting Doug Austin, President of Performance Management Group to discuss this in a little more detail. I also invite all the members of Dealer Elite to contribute with a suggestion or a best practice as to how they cut expenses.
I will start with my first question regarding expense control…Who in your business is responsible for opening the mail??? It really should be the President, Operator, Comptroller, or someone with authority who will question each invoice, each piece of correspondence and ask the questions: What are we purchasing here? Do we really need it? Can we get the same value cheaper from another vendor? Have we negotiated the price with this vendor lately? Does it have a purchase order? Was it authorized? Are we in a contract with this vendor? When does the contract come up for renewal and do we have to write a letter of intention to terminate ahead of time? And so on…..
Okay…I started it…Let’s keep it rolling!!!!!
Replies to This Discussion
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Permalink Reply by Douglas Austin on
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Nancy -
Great question to open up - because centralizing the process has significant benefits and can mean the difference of tens-to-hundreds of thousands of dollars on your bottomline profit.
In terms of purchasing, if everyone in the organization is doing something different - you are compromising leverage and economies of scale - both causing immediate hard dollar increases in expenses. These items may NOT even have a direct connection to your customer's experience!
The flip-side of this is the 'soft' cost side. Why make A/P cut three invoices rather than one? Why try to manage varying terms and conditions for the same products/services? How much time is lost in simply managing these expense categories?
When designating a central point - it is important that the contact has a great feel for the dealership, its culture, and its needs. One size does NOT fit all -- and your supplier partners, both direct and in-direct, should fit your overall value strategy.
Example - You have a janitorial service that cleans your dealership three times per week. The owner purchases ALL of his fleet trucks from you (3 per year).
Would it be wise to consider going a different direction? Consider numerous factors - example:
1. If you find savings elsewhere - is their true savings after potentially compromising the sale/profit of three trucks per year?
2. Is this supplier/customer a 'champion' of your business/is there other business to be jeopardized that this suppier 'drives' your way?
If you answered NO to question one, and YES to question two -- it may behoove you to attempt to negotiate a happy median with the incumbent if possible.
If you answered YES to question one, and NO to question two - it may be wise to consider the other option.
Just remember when negotiating - information (especially marketplace information) is the leverage you will need to make significant progress.
dougaustin@pmgpurchasing.com -
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Permalink Reply by Wendell Hardy on -
Nancy,
Great topic. I agree with you on who "opens" the mail. I will share a very sore subject with me that happened years ago, but one that taught me a great lesson.
When I purchased my 1st dealership, we evaluated each department for ways to improve profit. After much thought (about 10 minutes) we decided to close the body shop. I had a partner in this dealership as well as a GM that opened the mail and signed the checks on Friday.
Six months later I was in the store on a Friday, and wanted to sit down and sign all of the checks for that week. One by one I asked"who/what/why" on each one. I was shocked to find that we had been paying a vender about $275.00 monthly for "body shop materials"..We called and the guy said to just disregard the bill.
A few months later I was told that I needed to be in Dallas for a 20 group meeting. One of the things I needed to bring for the "class" was good idea to share with the everyone. I remembered the Body shop bill, and wanted to see if my store was the only store that just wrote checks without questioning everything. I got the address of everyone attending the 20 group and sent them all a bill for $986.47 . There was 16 stores in the class, I handed 14 of them envelopes. The little bills need to be watched as hard as the big ones. -
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Permalink Reply by NANCY SIMMONS on
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Wendell, Great story! and thank you for sharing that. I worked in a dealership in 2000 as a Comptroller with GM responsibilities. My first week I began to evaluate and assess their policies in regards to compliance issues and reporting. I learned quickly that there were no policies and most of the management staff including the dealer principal were not educated in areas of lemon law, cash reporting, etc.. I asked who opened the mail and it turned out to be a young college girl who worked in the evening after school filing and making copies. I rest my case!
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Permalink Reply by Agustin Vasquez Jr on
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After buttoning up the mail process... Controlling your inventories, employee compensation, and your advertising are the next biggest expenses that your dealership will have.
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Thanks again Agustin,
Let's take them into consideration one at a time.... Let's talk about advertising first....What works? What is our actual return on investment? Are we looked into agreements with advertising agencies? Are we in contract with the right advertising agency that fits our needs. Are they in touch with the dynamics of our particular store, location, demographics, community, sales trends, niche markets, etc..? There is a lot here to talk about! Thanks Agustin! Have a great day!
Agustin Vasquez Jr said:After buttoning up the mail process... Controlling your inventories, employee compensation, and your advertising are the next biggest expenses that your dealership will have. -
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Permalink Reply by Ryan Kleinjan on
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Nancy -
You bring up some great points in selecting your advertising partner - make sure you AND them understand the niche you are trying to go after.
1. Establish who your target audience is and where you should be to reach them -- If you are trying to attract college grads - look at the medians to reach them (example Pandora Radio, Hip/Hop Stations, Entry-level job advertising sites, college sporting events)
2. Make sure your message is tied to the market
3. EVALUATE, EVALUATE, EVALUATE - set controls to measure your ROI - this can be done through post-sale interviews, the use of keywords to obtain special programs ('tell them Mike in the Morning sent you'), or simply by having your sales people ask "how did you hear about us". Be careful with your expectations - one target market may have a different purchasing process/length than another (fresh college grad with school loans may have to be careful and thoughtful to their first major purchase VERSUS marketing luxury cars to executives who may seek service and ease of purchase - if you get them in the door and treat them right - they will purchase as this purchase is not near the investment to them).
Remember - the smaller your operation is - the more critical advertising can be -- customers who don't see your brand will often assume you might have been another 'victim of the recession' and look for your larger competitors.
Thats my two cents - and I don't sell/design advertising - I am just a bit of a marketing dork!
Best wishes to all of you!
RK -
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Wow, Ryan! Appreciate your 2 cents! That was fantastic commentary! I just love DealerELITE for this reason... Anyone else????
Ryan Kleinjan said:Nancy -
You bring up some great points in selecting your advertising partner - make sure you AND them understand the niche you are trying to go after.
1. Establish who your target audience is and where you should be to reach them -- If you are trying to attract college grads - look at the medians to reach them (example Pandora Radio, Hip/Hop Stations, Entry-level job advertising sites, college sporting events)
2. Make sure your message is tied to the market
3. EVALUATE, EVALUATE, EVALUATE - set controls to measure your ROI - this can be done through post-sale interviews, the use of keywords to obtain special programs ('tell them Mike in the Morning sent you'), or simply by having your sales people ask "how did you hear about us". Be careful with your expectations - one target market may have a different purchasing process/length than another (fresh college grad with school loans may have to be careful and thoughtful to their first major purchase VERSUS marketing luxury cars to executives who may seek service and ease of purchase - if you get them in the door and treat them right - they will purchase as this purchase is not near the investment to them).
Remember - the smaller your operation is - the more critical advertising can be -- customers who don't see your brand will often assume you might have been another 'victim of the recession' and look for your larger competitors.
Thats my two cents - and I don't sell/design advertising - I am just a bit of a marketing dork!
Best wishes to all of you!
RK -
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Permalink Reply by Wendell Hardy on
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Adverising is the biggest "h***" in any store that I've walked into. Normally, two things are happening. First- The store is not spending any money to speak of. Second- the store will have a decent ad budget, and spend it everywhere. $20k budget...spending on TV,RADIO,NEWSPAPER,MAGAZINES,DIRECT MAIL,3RD PARTY LEAD SOURCES and so on... Both examples are "INSANE!" If both of these two example are "same size stores"..demographics, roof top counts, like brands, similar inventory size, etc..Then the store NOT spending any money is a VERY easy fix and control the budget. Why? Store #1 has already identified what the floor is on units sold NOT spending. Any increase in volume will be identified as a direct result of dollars spent.
Store # 2 is a mess..They have NO idea what is driving traffic because they are not picking a medium and dominating it. I have found that we can't rely on our salespeople and management staff to give accurate info about "what broughtca in today?" Most stores are still using a "desk log"..have your managers list by each customer the answer to that question. Most will be "drive by". There are ways to get these answers, but that's another topic.
So how do we answer the question of what's the best way to control the budget, and spend the $'s correctly?
Know what you would sell with no money spent. Track the daily increase when you are running a campaign, and cross reference the unit "increase" with the data that you have that shows what you sold with no extra campaign. Keep a monthly calender that shows how many new/used sold on each day. List the conditions(rain/snow etc) as well as the amount of staff on shift that day.
I watch people spend 12k on dierect mail or something for just a week. When it all flushes out, they may sell 10 additional units..How much did they REALLY make?? Just my .02c -
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Wendell~
Thanks so much for your comments here and your .02 cents is most welcome on all accounts! I love the two very different scenarios that you outlined here and I would guess the majority of dealerships fall into #2. This is where their frustration initiates, with absolutely no clue as to what is effective, what is providing them with a notable return on investment...if any at all! Then a month goes by, nothing is working...they scramble for that out of the box creative idea... their inventory is rising and the sales are not climbing.... stupid dollars are thrown at a "gimmicky" campaign which "promises" immediate results!
Every dealership, big or small, should treat their retail operations business like a major corporation in a professional manner. A business plan, outlining marketing strategies for in house, out-sourced, on line, etc. needs to be designed, implemented and tracked very carefully. With month to month results, (or lack of), tweaking is allowed to redistribute dollars to the effective measures. I still know dealers who are writing ads, 20 minutes before the newspapers' deadlines hit, and just throwing something together, running by the seat of their pants, so to speak....
Sales objectives which run in proportion with inventories, need to be supported with an advertising budget, a marketing strategy, and a plan of action.
Thanks so much Wendell for your two cents and this was my two cents... Wendell, perhaps, as the CEO of Top Gun Marketing, you could elaborate a bit on the dealer/agency relationship and how they can coordinate efforts to obtain the best results for their advertising dollars.
Wendell Hardy said:Adverising is the biggest "h***" in any store that I've walked into. Normally, two things are happening. First- The store is not spending any money to speak of. Second- the store will have a decent ad budget, and spend it everywhere. $20k budget...spending on TV,RADIO,NEWSPAPER,MAGAZINES,DIRECT MAIL,3RD PARTY LEAD SOURCES and so on... Both examples are "INSANE!" If both of these two example are "same size stores"..demographics, roof top counts, like brands, similar inventory size, etc..Then the store NOT spending any money is a VERY easy fix and control the budget. Why? Store #1 has already identified what the floor is on units sold NOT spending. Any increase in volume will be identified as a direct result of dollars spent.
Store # 2 is a mess..They have NO idea what is driving traffic because they are not picking a medium and dominating it. I have found that we can't rely on our salespeople and management staff to give accurate info about "what broughtca in today?" Most stores are still using a "desk log"..have your managers list by each customer the answer to that question. Most will be "drive by". There are ways to get these answers, but that's another topic.
So how do we answer the question of what's the best way to control the budget, and spend the $'s correctly?
Know what you would sell with no money spent. Track the daily increase when you are running a campaign, and cross reference the unit "increase" with the data that you have that shows what you sold with no extra campaign. Keep a monthly calender that shows how many new/used sold on each day. List the conditions(rain/snow etc) as well as the amount of staff on shift that day.
I watch people spend 12k on dierect mail or something for just a week. When it all flushes out, they may sell 10 additional units..How much did they REALLY make?? Just my .02c -
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Permalink Reply by Wendell Hardy on
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Dealer/Agency relationships are not always easy Nancy. Look around at the stores in ANY area that are consistantly doing well. Those stores have the same "tone" to the message. The content will change, but the "tone" stays the same. These stores have had the same agencies for years and they TRUST them. The customer is conditioned to know the "jingle" or "talent/person" and associates that with the dealership. Look at Gieco..they don't change the color or voice of the gieco every month do they? Gieco also stays true with the message. Point being, advertising is a familiarity campaign, and most dealerships just don't get that. Dealerships need to focus on what they are good at..Running a business, and tracking results. Help the agency by providing solid feedback. When a good agency has "real" data( up counts, units sold daily, ) we are able to hone in on how to do our job more effectively. Advertising agencys are responsable for driving traffic..NOT SELLING CARS! I have had conversations with dealers that are very upset because they had a bad weekend. My first question is, how many customers did you have through the door? In almost every case the amount of customers is NEVER the issue...It's the selling process. If an agency drives 200 people through the door over a three day weekend, and the dealership only sells 10 vehicles, who has the problem?(we all do)
My best clients, and long term friends, are smart enough to look "inside" the process. A dealership that changes ad agencys every quarter, really need to identify the "real issues". The BEST relationships are established upfront. If your ad agency isn't visiting your store, asking for new and used car run sheets...Then you have the wrong agency. I expect "real" up counts daily, and what sold(new/used). We can not do our job without this data. I guess the answer to your question Nancy, Is the dealership and Agency HAS to be a TEAM! www.topgunautomarketing.com -
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Thanks so much Wendell~
Such great insight! That brings us to training personnel and having the proper processes in place.... Should we shoot this discussion over to Craig's group...Where oh where are the salespeople gone....Oh where oh where can they be? He guys, if you have not yet joined that group, please do so... Business is about people and percentages... We will talk perentages here and Craig can talk People over at his group.... We will have all bases covered... oops wrong sport...We will have the court covered!!!!
Wendell Hardy said:Dealer/Agency relationships are not always easy Nancy. Look around at the stores in ANY area that are consistantly doing well. Those stores have the same "tone" to the message. The content will change, but the "tone" stays the same. These stores have had the same agencies for years and they TRUST them. The customer is conditioned to know the "jingle" or "talent/person" and associates that with the dealership. Look at Gieco..they don't change the color or voice of the gieco every month do they? Gieco also stays true with the message. Point being, advertising is a familiarity campaign, and most dealerships just don't get that. Dealerships need to focus on what they are good at..Running a business, and tracking results. Help the agency by providing solid feedback. When a good agency has "real" data( up counts, units sold daily, ) we are able to hone in on how to do our job more effectively. Advertising agencys are responsable for driving traffic..NOT SELLING CARS! I have had conversations with dealers that are very upset because they had a bad weekend. My first question is, how many customers did you have through the door? In almost every case the amount of customers is NEVER the issue...It's the selling process. If an agency drives 200 people through the door over a three day weekend, and the dealership only sells 10 vehicles, who has the problem?(we all do)
My best clients, and long term friends, are smart enough to look "inside" the process. A dealership that changes ad agencys every quarter, really need to identify the "real issues". The BEST relationships are established upfront. If your ad agency isn't visiting your store, asking for new and used car run sheets...Then you have the wrong agency. I expect "real" up counts daily, and what sold(new/used). We can not do our job without this data. I guess the answer to your question Nancy, Is the dealership and Agency HAS to be a TEAM! www.topgunautomarketing.com -
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Permalink Reply by Fran Taylor on
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I believe it is about percentages. If you stay on a fixed budget you ususlly stay the same year after year and wait for the economy or a selling season. I have nothing against advertising people. How ever radio , tv, and news paper doesn't work like it did five or ten years ago. What are the odds that a dealer can pick a day,time, and a station that a buyer is going to be listaning or watching a tv show. Slim to none. I know dealers that spend less than $10,000 a month on one promotion and sell 25 to 50 units a month like clock work. They do other advertising as well.I know of a way that if a dealer has 15 sales people they can sell 15 a month without spending a dime. It's not how much you spend it's where. I helped a dealer go from 45 to 196 cars in 20 months. The Toyota store only spent $22,000 that month on advertising. Thats $112 per car that month. I ended up doing an article about them in Auto Success Magazint. All I can say is if you aren't happy look for a new way that has a proven record and go for it. There is an advantage traveling around the USA doing training . You get to see what is hot and what is not. That's my two cents. Want to know more just ask and I will be happy to help. Good luck to all.
NANCY SIMMONS said:Thanks again Agustin,
Let's take them into consideration one at a time.... Let's talk about advertising first....What works? What is our actual return on investment? Are we looked into agreements with advertising agencies? Are we in contract with the right advertising agency that fits our needs. Are they in touch with the dynamics of our particular store, location, demographics, community, sales trends, niche markets, etc..? There is a lot here to talk about! Thanks Agustin! Have a great day!
Agustin Vasquez Jr said:After buttoning up the mail process... Controlling your inventories, employee compensation, and your advertising are the next biggest expenses that your dealership will have. -
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