Editor’s note: The Dealer LAB is a joint editorial project between Dealernews and PowerHouse Dealer Services, a consulting firm operated by Bill Shenk who is also owner of Destination Powersports in Punta Gorda, Fla. Financial information in this report is sourced from Destination Powersports’ Composite Report (prepared from the dealership’s monthly financial report) which is supplied to Dealernews by Shenk under an exclusive agreement. Shenk also provides Dealernews contributing editor Joe Delmont with exclusive access to select store and team meetings and other updates; Delmont uses this information as well as interviews with Shenk to develop the monthly Lab report in Dealernews and on Dealernews.com.
The financial information in this report is taken from the dealership’s Composite Report supplied by Shenk and prepared for the dealership’s participation in the PowerHouse Dealer 20 Group. The Composite Report is prepared from the store’s monthly financial report. In preparing these reports, Dealernews reviews the dealership’s unaudited P&L statement and balance sheet, as well as its Composite Report.
In April, Bill Shenk’s team at the Destination Powersports dealership in Punta Gorda, Fla., blew the doors off with its financial performance, nearly doubling the net profit the store posted in the first three months of the year.
The store recorded a net profit of just over $52,000 in April, compared to the $56,579 it made in the entire first quarter of this year. The April 2011 profit compares to a loss of $1,418 in April 2010 and a loss of $55,431 in first quarter 2010. Indeed, the April profit number is more than three times what the dealership did for the entire year of 2010 (when it lost $29,844).
The store’s net profit performance in April also exceeds the average of Top Gun dealers participating in Shenk’s 20 Groups. The dealership’s monthly profit was 7.4 percent of total revenue, compared to 7 percent for Top Gun dealers. Unit sales revenue as a percent of total revenues also exceeds Top Gun performance, 78.4 percent for the dealership compared to 76 percent for Top Gun.
Total sales for April approached $700,000, more than double the $320,510 which the dealership recorded in April 2010.
January through April 2011, the dealership earned $108,590, up $164,021 (296 percent) from the loss of $55,431 the store posted January through April 2010. Total revenues for the four-month period were $1.95 million up 87 percent (or nearly $1 million) from the $1,040,589 recorded during the first four months of last year.
Consider that, according to Motorcycle Industry Council reports, total new-vehicle sales from MIC reporting members dropped 1.5 percent, or 2,322 units, during the first quarter compared to the same period in 2010. Sales were buoyed by the scooter market, which recorded a gain of 2,070 units (up 49.6 percent).
So what did our Punta Gorda store do right to outperform the industry and post a huge turnaround from last year?
“April is our biggest month of the year, because it’s the peak month for motorcycles, ATVs and watercraft, and the Snowbirds are still here,” Shenk explains. Therefore April presents the dealership with its biggest “potential” monthly sales of the calendar year.
There were no super sales nor promotions to produce the big numbers. “It was pretty much business as usual,” Shenk says. “We’re getting better inventory and more positive exposure in the marketplace.”
The biggest indicator of the dealership’s improved reputation? Increased customer exposure from the parts and service departments. Local enthusiasts using the store’s service department increased to 307 in April 2011 from 211 in April 2010, a 45 percent bump. Additionally, customers making purchases at the Parts and Accessories counter increased to 651 in April 2011 from 508 in April 2010, a 30 percent improvement. Tire sales went to 62 in April 2011 from 15 in April 2010, a 400 percent increase in tire purchases among the most active customer group.
The store recorded a substantial gain in number of motorcycles sold (new and used) during April. The dealership sold 23 new motorcycles, up from nine in the same month in April of last year, and 18 used bikes, compared to eight in April 2010. Unit sales revenues jumped $332,830 (155 percent), climbing to $547,195 this year from $214,365 in April 2010.
Revenues from F&I, accessories, and service climbed as unit sales jumped. Net F&I revenue improved to $30,990 in April 2011 from $13,701 in April 2010. Accessories revenue hit $42,400, up from $19,000 last year, and Service revenues climbed to $44,379 from $29,246 in April 2010.
Profit from these departments increased substantially:
• The contribution to dealership profit from Sales jumped from a loss of $15,479 in April 2010 to a profit of $17,188 in April 2011;
• F&I profits climbed to $17,636 from $7,152 in April 2010;
• Service improved its profit line to $16,391 in April 2011 from $6,975 during the same month in 2010; and
• Parts and Accessories profits increased slightly from $1,905 last year to $2,080 in April 2011. The weak performance improvement was due in part to the fact that Parts revenue dropped to $33,244 in April 2011 from $44,201 in April 2010.
MANAGERS ARE 'OWNERS'
The dealership’s profitability increased even though total expenses increased by 26 percent. Expenses climbed to $116,000 in April, versus $92,000 in April 2010, The biggest expense was in payroll, as sales payroll climbed to $35,000 in April 2011 versus $22,000 a year ago; P&A payroll increased to $9,500 versus $6,000 in April 2010; and service payroll moved up to $24,000 from $18,600 in April 2010. Total Payroll for April 2011 was $68,702, up $22,115 (47.5 percent) from $46,587 last year.
Note that payroll costs increased as the number of employees decreased by two.
Shenk says he doesn’t mind the increased payroll costs right now because the sales department created more gross profit this year ($100,143 vs. $42,544 in April 2010), and payroll is calculated as a percentage of gross profit. “Last year, we paid 52 percent of GP in sales payroll,” he explains. “This year, it was only 35 percent. We made more money even with higher payroll.”
Here’s the key: Each department manager is responsible for his or her own budget, including revenue and the direct costs over which he has control. The manager gets to keep anything that’s left over (overhead costs are not included). This helps a department manager think like an owner/operator, Shenk says.
In sales, payroll is budgeted at 40 percent of the department’s gross profit. The sales manager had about $19,000 left after subtracting payroll and direct costs from the department’s gross profit. He got to keep that amount as “owner” of the sales business. “Each department manager has a real incentive to make it happen,” Shenk notes.
This story originally appeared in the Dealernews July 2011 issue.