By Bob Clements
Utility vehicles, all-terrain vehicles (ATVs), quad runners, go-karts, motorcycles, barbeque grills, bird feeders, pecans, portable storage sheds, portable signs, trailers, golf carts, model airplanes, rental equipment and bicycles. This is a list of a few of the many products, in addition to outdoor power lines, that dealers across North America sell to generate extra income both in and out of season. When it comes to looking at diversifying the income of your dealership, there is absolutely no shortage of ideas and opinions as to what will, or will not, work.
As I and my team travel across North America working with dealers, we are always on the lookout for complementary products and lines that can be used to diversify income streams. The challenge we have is that, depending upon the region and the customer mix, what works well for one dealer may not work at all for another.
So how do you determine what will work for you? First, decide to diversify. Providing new revenue streams for the slow season is smart business — as long as it fits some key criteria. As an OPE dealer, you need to think about the slow times ahead, and now is the perfect time to be looking for ways to diversify your business, and expand your product and service mix to meet the ever-changing needs of your customers.
Before you decide how to diversify, you need to evaluate four critical areas:
#1 Your competition
Evaluate the competition in your area for the same or similar products. If you are looking at adding a product that is currently being sold by three other companies in your trade area, think long and hard about adding it to your product mix. Your competition will already have the all-important “first-in-the-customer’s mind” position with that particular product. It doesn’t mean you can’t capture business, but when looking to diversify, you don’t want to have a product that you have to work hard to sell. As an OPE dealer, you already have that type of product.
#2 Your dealership
Evaluate your physical location. It’s important to take into consideration the size of your showroom, lighting, interior signage, and personnel. If you are thinking about adding another wholegood line to your mix, what size footprint will it need inside your store to market if effectively? In most cases, you will need enough room to adequately display three or four variations of the product. Lighting and signage are critical to strong retailing. Finally, do you have an employee that you can train to successfully market and sell the product to your existing customer base?
#3 Your area’s economic situation
The third area to evaluate is the financial situation of your area and region. What is going on economically? Are there plant closings or layoffs? Are the businesses in your area expanding and growing? The economics of every area are different. If there is a lot of money flowing, higher-end products will sell well. If the economy is tight, you will want to look at lower-cost products to meet the needs of your community. A good example would be areas that have a high concentration of farmers. If you are living in an agricultural area, then business should be booming with most farmers currently making more money than they have made in years. When money is plentiful, people are open to spending more to get what they want.
#4 Your customer mix
Finally, you want to look at your customer mix. If your customer base is made up of families that have young children, then the products you want to consider would vary greatly from a customer mix of retired couples. For example, if your customer base is maturing, and you live in an area where your customers have hobby farms or small acreages, then you might consider handling a line of small utility vehicles, but probably not quad runners. Money is seldom going to be an issue, and the brand is not going to be as important as the service you provide. Keep in mind if your customer base is younger with kids, then the small utility vehicles would not be as good of an option as quad runners or go-karts.
There are several approaches to providing additional services and products. The first to consider is complementary lines. This is an excellent choice if you can match the complementary product to all three of your profit centers — wholegoods, parts and service.
Many dealers look toward complementing their existing product offering by adding a powersports line. In most cases, it will be a quad runner or ATV type of product. There are many positives to adding this type of product to your mix. First, there is a natural match for all three profits centers of the dealership.
Regardless of the brand, the equipment will break at some point and require parts and service, which will add to the total profit of the dealership. Second, by adding a powersports line, there is seldom a need for additional staffing. You will add some inventory to your parts department and may add some cost to your service department, depending upon the training required by the manufacturers and any special tools required to fix the equipment. But overall, most dealers who add a powersports element to their product lineup find it a pretty good fit.
Based upon your current wholegood product lines, you should consider the accessories that go along with the existing products you sell. Accessories are broken into two categories: essential and complementary.
Essential accessories are any product or service that you offer that makes operating or using the existing products you sell safe and simple. A few examples of essential accessories would be eye, hearing, hand and leg protection for those who are buying mowers or handheld products. If you sell utility vehicles, ATVs, quad runners, scooters or go-karts, then it could be a helmet and potentially gloves. I would even consider an extended warranty program as an accessory sell. It doesn’t make the operator safer, but it sure fits with making the owner’s life simple for the term of the warranty period, drives any potential service business back to your dealership, and provides strong margins on the original sell.
Complementary accessories are any items that go with your products that may not be necessary for the safe operation or that, in some way, make your products simple to use. Branded clothing such as caps, T-shirts and jackets would be complementary accessories, as would collectable items such as miniature replicas. Loading ramps, trailers, tie-downs and even portable storage would be considered complementary accessories. Be willing to think outside of the box when it comes to this add-on sales area. Don’t be afraid to try a few different ideas. In many cases, the companies that produce this type of product will be willing to put a sample on consignment to let you experiment with it.
When you are considering branded products, I do want to post a quick warning on this type of accessory. As an OPE dealer, there are very few manufacturers that have the loyal brand following that would warrant carrying branded caps, jackets or replicas. The last thing you want to have is product in your store that only you — and the sales rep that talked you into carrying it — can identify as a recognized brand. Keep in mind that you make no money on accessories that you can’t sell.
Remember, if you decide to make either type of accessory a strong part of your attempt to diversify your dealership, your showroom space — both internally and externally — has to be able to support the merchandise displays to showcase the offerings, and your employees have to be trained to sell the high-margin items, along with equipment sales. That may mean you have to adjust your existing compensation program to reflect the new focus for your business.
Let’s go outside the box for a moment, and look at a couple of other options. Without a doubt, over the next several years, energy is going to be a top-of-the-mind concern for most North Americans. With the ongoing debate over issues related to climate change —either global warming or global cooling — depending upon whose science you align yourself with, the lack of power, the cost of power, or cleaner power is going to drive people to look for options they don’t currently have.
In thinking about how my dealers could potentially leverage this situation to their advantage, I started to evaluate what options are available to the public to produce its own energy and how dealers might take advantage of the vacuum that currently exists in the marketplace for a trusted supplier of those products.
Today, you can travel almost anywhere in the United States and see a phenomenon that is sweeping the land — wind and solar generator systems. As you watch the news, read the papers, or search the Internet, you will find a lot of information on how power companies are harnessing the power of both sources to help fill the energy void.
If you continue your search, you will find many companies that produce power generation products for the homeowner. Unlike the old days where the systems simply generated enough power to charge batteries, today a homeowner can invest in a system that is connected into the power grid to not only supply power to a home, but generate enough power that can be sold to the utility company. These systems vary in price from $10,000 (about the price of a nice zero-turn mower) up to $40,000 (about the price of a nice car).
After conducting research on energy-efficient product lines, I found that there are several manufacturers that produce and install the equipment, but the marketplace lacks a lot of dealers. In having conversations with just a couple of the companies that produce the equipment, it appears like there is a good match between the customers who buy equipment from an OPE dealer and the customer who would be interested in investing in their own energy system. There is no inventory cost, and the margins on the equipment are running from 20 to 25 percent.
In addition, there are several states that have economic incentives for consumers to purchase the systems, and, for most areas, it seems to be a simple enough process to get the permits needed to install the equipment. As a dealer, one of the upsides of the systems is that they are connected into the power grid, so if the system goes down for some reason, your customer doesn’t go without power and you don’t end up with an emergency call. For some of my dealers, I think it might be a strong fit — no big hassles, no big emergencies, no big inventory, and a 20- to 25-percent profit margin. What’s not to like?
A compass always points north, and in your business, north is always your core products. Regardless of what direction you choose to travel in the process of diversifying your business, make sure it doesn’t pull you away from your 120 days of prime selling time. Outside of that, you owe it to yourself to investigate opportunities to diversify your income stream.
As I stated in my introduction, there are several products you can add to your store mix to diversify your income away from mowers, blowers, chain saws and tractors. Take some time to evaluate what your competitors are doing, look at your store both internally and externally to consider your space and ability to effectively market and sell additional products, consider your area’s current economic situation, and re-evaluate your customer mix. If you are willing to spend some time outside of the box you work in every day, you will find a way to diversify your business, and success will be yours.
Bob Clements is the president of Bob Clements International, Inc., a consulting firm that specializes in the development of high-performance dealerships. His organization works hands on with dealerships throughout North America, helping them attain the personal freedom and financial wealth all entrepreneurs strive to achieve. For more information, contact Bob Clements at (800) 480-0737 or firstname.lastname@example.org or visit his Web site at www.bobclements.com.