Thursday, December 5, 2013

Dave's Top Ten Indicators: "Number TEN: Parts Net Profit"

We've finally made it to the top in our ten part series titled "Dave's Top 10 Indicators" with our last indicator being Parts Net Profit!

As we have with our previous nine indicators, we will "drill down" the Net Profit indicator within itself. Most of us realize that if we do well with the other nine indicators, or by "doing the right things", the bottom line net profit will take care of itself.

Although this may be true to a point, we still have to measure and control this net profit by understanding all the variables and not by just managing the previous nine indicators. Variables such as expense allocation percentage, dealer location or demographics and manufacturer franchise requirements can impact the net profits heavily from dealer to dealer.

Managing a "predictable" and successful bottom line net profit requires Parts Managers to meet and exceed all the guidelines in the previous indicators as well as working with the variables. To simplify it even further, the Parts Manager needs to establish his "budget" and that "budget" is gross profit.

The Parts Gross Profit is the one "constant" that we need to use in setting our budget. Setting this gross profit budget is the key in achieving a "predictable" bottom line net profit.

Establishing this gross profit "budget" begins with sales and gross profit history and trends. Much like our own personal "budget", we shouldn't be spending what we don't have. In order to achieve net profit guidelines, we have to start with what we can afford, including all the variables and allocations. As the old saying goes..."It is what it is"....

Even though the dealer looks at his financial from the bottom up, it all starts at the top of the page with sales and gross profit. This is why we climbed the mountain in our "Top 10 Indicator" series with Parts Net Profit being number ten and not number one. Achieving a successful bottom line Net Profit always starts at the top.

There is one "variable" that I have not mentioned yet and it's one of the hardest for a Parts Manager to manage and that's "origin of sales". In most Parts Departments, parts sales are highly dependent on other dealer departments.

In many dealerships, parts sales dependency on other internal departments can be as high as 70% or more. This requires the Parts Manager to manage personnel expenses very closely as this category is normally the highest expense category in the department.

Parts Department Net Profit Guidelines also vary between manufacturers and dealers, ranging from 25% - 40% or even more with some manufacturers.

These guidelines help in determining just how much of the Parts Department "budget" can be allocated for Personnel, Semi-Fixed and Fixed Expenses. Keep in mind that Fixed Expenses are "fixed" for a reason.

The Parts Manager must control the expenses that he/she can control based on the gross profit "budget" without any deviation, much like our own personal budgets. As sales and gross profits grow, our "budget" grows due to the increased cost of doing business. 

Managing the Parts Department Net Profit may seem to be a "juggling act" at times, but it can be done. Following the guidelines laid out in our series of "Top 10 Indicators", these may be just the tools needed in achieving "predictable" bottom line results. 

If you missed any of our issues in this series, or want to review previous issues of "Smart Parts", just visit our website at

Lastly, we hope you have enjoyed our series on "Dave's Top 10 Indicators", but more importantly, we hope this series along with numerous  "takeaways" help to improve YOUR bottom line!

To all of our "Smart Parts" Readers:

 "Happy Holidays" and  a Prosperous New Year!

Dave Piecuch is the Vice President of Automotive Consultants Group Inc. and is the Head Coach for Smart PartsTMThe only "Results Based" High Return Training, Coaching, and Consulting company in the world!  Dave can be reached at Cell 786-521-1720 or E-mail at Vist our Website at