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Sacrifice Gross Profit to Win Conversion Parts Sales?

Sacrifice Gross Profit to Win Conversion Parts Sales?

What kind of crazy idea is this!?  Experienced parts managers know that gross profit (GP) is essential to a successful money-making business. So where does the logic come in?

In today’s competitive marketplace, parts managers are recognizing the need to borrow some aggressive selling strategies from their front-end, retail-oriented counterparts. That strategy is to look at the total sale where a lower gross profit on some components can help capture and convert a larger, more profitable transaction with an overall higher GP. The result can be both higher top line and bottom line revenue.

Breaking Old Habits

Sounds great in theory, but in the real world, old habits are hard to break for several reasons:

  1. Most parts countermen have been trained to look at each individual part – versus the entire parts order – when considering conversion pricing. This concept is further reinforced by parts reporting in the DMS, which looks at only individual part profitability based on cost and sale amounts. The concept of taking a lower gross profit, or selling below cost, on one part to capture a competitive sale does not translate well when most dealership management relies on DMS exception reporting.
  2. Calculating the gross profit of an entire order can be a time-consuming process when trying to manage a busy parts counter. There are multiple factors to take into account including part cost, desired gross profit, OEM programs, custom pricing by shop, etc. In a time-starved parts department, many parts managers admitted that some conversion opportunities may sometimes fall by the wayside simply because of time.

Let Technology “Show You the Money”

The above obstacles are real but today’s intense competition requires new ways of thinking. Luckily, there is parts ordering technology, such as CollisionLink®, that simplifies the entire process of calculating a profitable order, not just a profitable part. The illustration below shows a possible conversion opportunity for three parts. Of the three parts, the gross profit ranges from 4.16% to 14.00% guiding many to forego selling the part(s) with the less than desirable profit margin.

conversion opportunities

But, take a second look. The technology automatically calculates the total order gross profit revealing a 10.05% overall gross profit. So by sacrificing a lower GP on the A/M Impact Bar, the dealership knocks out the competition while still making a desirable 10.05% gross profit. And, more importantly, this simple sale helped solidify customer satisfaction and the increased potential for repeat “knock out” business.

Don’t Lose an Order Over One Part

The message is simple. Shops want OEM parts at competitive prices. With technology automating OEM programs, the opportunity to convert aftermarket parts has never been greater. Use this technology to help change your pricing approach and evaluate the total order’s profitability versus only line-by-line. Yes, you may take a lower GP on one part, but you can still “win the war” and capture the order with a higher-than-expected overall gross profit. That’s some logic – and numbers – your GM just might like!