Article

The Rise And Fall Of Profit Centers

September 2006, Auto Dealer Today - WebXclusive

by Tim Randall - Also by this author

Here’s something I seldom hear about when I talk to dealers: profit centers. They speak of the overall profits different departments within the organization bring to the bottom line but never refer to them as a profit center or mention the various profit centers within the departments. A profit center is any area of your business that makes more money that it costs to run it.

If it isn’t making money for you, it should be called a “loss center.” Loss centers must be avoided to ensure the health of a dealership. Through careful evaluation, ferret out those not meeting your profit equation and close them. Or better yet, make the necessary changes to turn them into profit centers.

Let us look at a few of the profit centers currently at your dealership, starting with your sales force. Look at each manager and sales person on your staff. Are they really part of the profit equation? Are they selling to their maximum capacity? If they are and you want to move more units, you’re in need of additional sales people.

Are your Internet or Special Finance (SF) departments overwhelmed with business? If so, additional personnel (profits centers) are required to maximize the opportunities available. On the other hand, do these centers lack sufficient traffic and leads? Adding new lead providers, direct mail programs or print advertising outlets may be the key to increased business within these departments. Every change you make should be carefully calculated with the intent of increasing the value of a profit center.

Your area of responsibility in the dealership affects your outlook on the importance of other profit centers within the company. Normally, department managers focus entirely within their area of responsibility and fail to consider how they affect other dealership operations. In many cases, through meaningful interaction with other departments, they can increase profitability for the entire store.

Here’s an example: The SF department can let the Business Development Center (BDC) know what their goals are and how the BDC can help them reach those goals. This simple action will help the BDC set more appointments through increased focus, which in-turn, will improve sales for SF and increase profits for the dealership. Working in concert with other departments will only improve operations. The old saying “two heads are better than one” is an absolute truth. Letting ego manage your department by segmenting your profit center will inevitably lead to a reduction of profits for the entire store.

Profit centers are something that should be protected and molded into the dealer business model. Updating of procedures and continuous training is necessary to ensure the profit centers stay healthy. Accountability of those in charge of the process is mandatory for continued success. If a profit center isn’t performing as well as they did in the past, dissect what has happened, and fix the problem. Normally the reason for radical profit declines can be traced back to changes in personnel, normally not the “worker bees” but the profit center managers. This can be easily fixed with redirection of efforts toward the procedures worked prior to the change.

Why do some managers continually step over dollars to make dimes? Cutting advertising that feeds a known profit center will only accomplish one thing: fewer sales, meaning decreased profits.

Here’s a true example of poor decision making that destroyed a profit center. A business manager employed by a well known automotive dealer group in Texas was put in charge of cutting expenses for one of the dealerships. This person looked at the current expenses and decided $15,000 annually could be cut from the advertising budget by canceling service offered by an Internet lead provider. This person felt the fee was outrageous. Sure, the number was impressive enough to brag about and show the boss, but what this person failed to evaluate before severing ties was that this lead provider was a huge profit center for the dealer. Their uneducated decision cost the dealer money instead of saving it. That advertising cut closed a profit center that provided the dealership over $500,000 in gross profits throughout the 12 months prior to this business manager’s arrival. This “cost-cutting measure” actually lost the dealership more than $40,000 a month in gross profits.

The moral of this story: Keep your current profit centers! Don’t cancel a known profit center to subscribe to an unknown. Why would you even think about it? Once a profit center is solid, keep it. Then go out and look for new profit centers to add to the existing ones.

Any new idea put into action is always anticipated to create a profit, otherwise why would you do it? If you have done your homework and put all the right people in place with the necessary tools to get the job done, then theoretically, profit centers will flourish.

 
Continuously reviewing the numbers and tweaking new programs will enhance the profitability of the program. Once you’re satisfied with a new profit center’s results, make it a permanent segment of your business model, and go look for other profitable opportunities. With this concept in mind, you will be constantly adding profit centers to departments in an effort to continually improve the health of your dealership. Nothing makes an owner happier than a healthy, profitable business.
 
Vol. 3, Issue 7

Comment

  1. 1. Jessica [ December 14, 2015 @ 05:07PM ]

    There is some used car department specific details on http://www.simplerecon.com/Recon-Blog/How-to-improve-profitability.htm5 that is relevant to this thread

 

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