Scratching your noggin staying up at night wondering why certain aspects of your business aren’t performing? Cause and effect dictate what that performance is and what it isn’t. This should not come as a great surprise to anyone. A business’s performance indicators continually remind us that cause and effect is present and accounted for. For example: How does your team work together? That working relationship is the cause, and the effects will show up in your dealership’s performance. What processes and polices do you enforce to drive your business? You can have great policies and processes but, if they’re not being followed, you’ll see a cause and effect that was not what you wanted — ouch!
Whatever we do or don’t do will always show up someplace. That’s why we watch the indicators, run the reports and monitor what’s going on in our businesses. You can’t correct or strengthen what you don’t know. Here’s a cause and effect indicator for you to think about: Yearly gross profit generated per employed team member. Do you use this as a performance indicator? Do you know what yours is? If you don’t, here’s something to ponder.
All businesses have to generate a certain amount of gross profit yearly per team member employed to be profitable. And just because someone in that business holds a position that doesn’t generate income doesn’t change what needs to be generated. The higher your gross profit per employee is, the more profitable you are. The lower it is, the less profitable you are, cause and effect.
Gross profit per employee shows you the productivity and efficiency of your business —each department, each manager and your entire team. What does this number need to be for a dealer to be profitable? There are variables (expenses, cost of labor, etc.) in different parts of the country that may change what you need to be profitable, but performance is performance. What your team is generating is a reflection of that.
Unless you have no expenses (wouldn’t that be nice?) it’s challenging for many dealers in the country to be profitable or to just break even when their yearly gross profit per employee falls into the low $70,000 or lower range. When the range is this low, payroll starts gobbling up almost 50 percent of what dealers are making. Cause and effect. Then you’ve got fixed expenses, variable expenses, interest — there’s just not enough to go around for everything you’ve got to pay, let alone be profitable. This is not true for every dealer, but for many it is.
When do you start making? For most if you’re in the $80,000 to $90,000 range, as long as your expenses are in-line, you’re keeping the lights on and making a little something. There’s a lot to be said for this. When you start averaging $100,000+ per employed team member yearly you’re starting to keep a little a bit at the end of the year — yahoo! If you get into the $120,000+ range perhaps you get to start keeping 3 to 5 percent (after paying yourself!) and maybe even more after all is said and done. The most profitable dealers I’ve seen in the country are in the $150,000 range and, yep, they’re extremely profitable, and very happy to be so.
Every business indicator or ratio is affected up or down by yearly gross profit generated per employee. If you’re not using this indicator as a performance gauge for your business, why not give it a try? Cause and effect. What’s in your wallet?
Have a great July, everybody! —MM
Mark Mooney is the principal of Mark Mooney Powersports Consulting, a Santa Cruz, California, company that works with OEMs and powersports dealers to strengthen dealership performance. Mark is a nationally known speaker and teacher that works with dealers throughout the United States. Mark Mooney Powersports Consulting is “empowering performance and strengthening profitability through practical solutions.”