Commodity Pricing Approach Must be Re-Examined

Automotive & HD Business Management Articles.
Bob Greenwood. February 28, 2013. ( over 8 years ago ) 1,668 views

Over the past ten years, many managers have focused on the percentage return of their commodities. It has taken the form of “gross profit” percentage guidelines. It has worked very well for many shop owners, however, these strategies must now be fine-tuned as a new problem has hit our industry that must rapidly be recognized and immediately dealt with internally.

Consider the following:

Commodity quality from the Pacific Rim is starting to improve.

A lower cost Pacific Rim production can produce a lower cost purchase price for the shop.

“White-box” is truly “White-box” as most parts now fit into a “Good, Better, Best” category.

Successful client relationships mean the shop owner must still focus on “Quality” commodities.

Shop Management pays its shop bills in “Dollars” not “Percentages”.

When a shop manager only focuses on “cost purchasing” instead of “profit selling”, he/she is going to end up heading the shop into a “sinkhole” of debt. Incorrect labour rates coupled with a cost price focus, won’t provide the dollars to sustain or grow their business. We must remember that shop expenses are paid out of profit dollars and not cost percentages. For example a “Good” part that costs $10.00 and has a suggested list of $22.22 providing a 55% gross profit sounds great, but it only provides a dollar gross profit of $12.22. When a “Best” part costs $27.00 and has a suggested list of $45.00 providing a 40% gross profit, it may appear at first glance worse than the “Good” part in percentage terms but it provides a dollar gross profit of $18.00. There are more dollars with the “Best” part at the lower margin than the “Good” part at the higher margin!

When you see your Jobber, start discussing this issue. It affects his/her business as well. You’re in this together, so it’s important that you communicate that quality of the commodities with your shop is number one and discuss with the Jobber the parts he/she should stock to accomplish this standard. Once the Jobber clearly sees that your focus is on quality and service, I’m confident he/she can now focus on the topic of fit, form and function of the parts that they carry and their compliance to all makes and models. Take the time and keep the communication lines open with your Jobber… they have access to the industry trends which will affect your businesses profitability.

We’re heading down a road of many challenges over the coming years and it’s going to be very important that your business relationships are secured in order for you to be continuously and properly informed. Your relationship with your Jobber of choice must grow, but it will take a concerted effort from both parties. A competent Jobber can and will talk about the dollars they can bring to the table for your business for first call, paid in full, loyalty, as they understand that dollar profit focus is more critical than percentage cost focus to ensure you move forward in a profitable manner together.

Bob Greenwood

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Bob Greenwood
Surrey, British Columbia, Canada