What I Told ProSales Magazine

By Jim Moody, CAE

CSA President

My good friend Craig Webb, editor of ProSales, contacted me the other day to pick my brain on some issues. Most people who pick my brain find that there’s not much left to pick, but I shared what little I know with Craig. Following are some of his questions and the answers I gave him based on conversations I’ve heard during our spring roundtable season. 

Are you seeing dealers use any particular metrics more often these days than they used to? If so, which ones? I would bet people have been measuring gross profit, gross margin, and net profit from the beginning of time. But are you noticing any dealers that have begun putting other metrics into their regular tallies of performance?

I’m seeing a lot of focus on delivery cost and inventory. As you know, during the downturn many (perhaps most) dealers delayed replacing trucks. It’s pretty typical today for dealers to have an entire fleet of really old vehicles that have been held together with spit and duct tape. Figuring out how to ensure that the increase in sales isn’t eaten up with cost of delivery has been a big topic of discussion in all our roundtables. They all need to replace trucks, but you can’t replace them all at once. Even if you had the money to do so, they’d all wear down at about the same time and you’d be in the same situation again in a few years.

Total truck expense: Gas & Oil+repair+ lease or depreciation/delivered sales should be 1.8 or less. We see very, very few people meeting that benchmark even with lower fuel prices.

Delivered sales/# of delivery trucks should be $1.75 million (some argue that this benchmark is too high). Obviously economy of scale comes into play. You have to have a truck or two even if you are a micro dealer. But, we see lots and lots of larger dealers with numbers way below the benchmark. There’s a general lack of vehicle discipline in the industry.

Also, as sales increase, it would be very easy to fall into a trap where you increase inventory too much. I’m seeing a lot of focus on the inventory measures – turns, GMROI. I’m hearing dealers say that they want to maintain the inventory discipline they learned during the downturn, but it’s hard to keep your eye on that ball when business is improving so much.

Turns ought to be 8-12. High retail will lower that somewhat but most people aren’t even close to 8. The 2015 average in our Building Material Operation Comparison system was about 6.5 -- nearly identical to 2014.

GMROI is gross profit/average inventory. The goal is 2-3, and we are seeing people hit this mark. What’s interesting here is to look at it by product line. This can be an eye-opening experience.

Aside from the usual metrics, are there any that you recommend dealers track regularly that most don’t usually track right now?

Returns. We measure this in BMOC, but it’s surprising to me how many dealers say they just plug in a “guesstimate” of returns. You need to track returns for all sorts of reasons. Do you have certain customers who always over-order? If so, that needs to be factored into their pricing. Do you have issues with sending the wrong thing to job sites and need to tighten up yard operations? Every journey costs you money (fuel, wear on vehicles, driver time, opportunity cost for what that truck/driver could be doing if he weren’t on a non-revenue run).

How common is it today for dealers to give discounts to customers who pay their bills by the 10th of the month? I’ve heard this practice might be waning, but at other times I’ve gotten the feeling that it still is common.

The system can’t directly answer that question, but anecdotally I’m hearing similar things among dealers in the South. I will say that the “discounts allowed” measure in our system varies wildly by region. This is becoming a bigger issue as more customers want to pay their account by credit card. Most people still allow credit card payment of account only as a last resort, and when they do, they certainly don’t apply an early payment credit. But, I’m hearing a few more people who allow credit card payment on accounts.

Speaking of ProSales ...

Jim Croome of Sandersville Building Supply in Sandersville, GA, sent a letter to the editor of ProSales regarding some feelings he’s had about the national and large regional dealers. I suspect that Jim was speaking for many of you when he opined that bigger gets all the attention but deserves little of it. Jim told me he had lots of positive comments from across the nation after his letter was published. If you didn’t get a chance to read it in ProSales, click here for a link to Jim's letter.