And every single machine contributes to the foundation of your long-term success.

There’s an old saying – I’m sure you know it – that a salesman sells the first machine to a customer, and every machine that follows is sold by the parts and service departments.

For parts and service, the machine is the customer. But how do we deal with each of these new opportunities? Let me present a short series of questions:

  • Do we go to the customer at the time of delivery?
  • Do we visit with the customer after delivery and talk about all of the programs and service that are available from the dealer?
  • Do we explain the warranty program, what is covered and what is not?
  • Do we talk about the maintenance programs that are available and sell one of these programs to the customer?
  • Do we sell extended warranties?

I am sure there are a lot of heads nodding yes. What I want to know is, why doesn’t every dealer do them for every sale of a piece of equipment?

The usual answer I get is that we don’t have enough salesmen. I agree. Those of you who read these columns regularly know that I want each dealer to have an equal number of product support salesmen as they have equipment salesmen. But that doesn’t normally happen, does it? I find that both puzzling and troubling.

The parts and service businesses are the foundation of a profitable dealership. The gross margins in parts and service are respectively three times and six times the gross margin of a machine. So again I wonder, why don’t we cover the market more completely than we do? I believe part of the answer lies in the fact that we give the parts and service businesses within the dealership a pass on market penetration and market capture. We don’t know what the market share is for our parts business and our service business.

Let me suggest to you, based on survey data published in AED’s Product Support Opportunities Handbook, that our market share in parts on the high side is 40 percent of the available labor market, and service on the high side is 30 percent. Note I am suggesting that is the high side of the market share. My belief is that 90 percent of the dealers have less than 15 percent market share in labor and maybe 25 percent in parts.

The trouble is we can debate forever and no one can prove or disprove it.

With all of the technology available to us today – machines with GPS and telematics connections to the dealer management systems, machine population systems, and customer relationship management – why don’t we know the potential business available from each and every customer? The truth is, we can make that calculation. So why don’t we?

Is it because it is too much work? Is it because we really don’t want to know? I believe we are on the brink of a significant shift in the management of our businesses. Erik Brynjolfsson, the director of the MIT Center for Digital Business and a research associate at the National Bureau of Economic Research, suggests that we need to have a generational change in the leadership of business before the general purpose technologies truly penetrate the operation of organizations. He graphs productivity changes and suggests that the period from 1890-1940 is similar to the period 1960-2011. He suggests the coming transformation of business will be caused by mind, not matter; brain, not brawn; ideas, not things.

From the perspective of product support selling today, we could track each machine all day of every day. For instance, we could determine the percentage of time that the machine idles. Is that an important piece of information? If you are looking at the life of components it sure is. If you are looking to calculate the potential business of each machine to the dealership it clearly is significant. It is working hours that determines parts and service consumption not idling hours. This is something that each dealership will have to get a hold of soon.

I suggest to all of you that you look at your parts and service market with fresh eyes. That you focus on increased and improved market coverage. That you focus on increasing market share for both parts and service. That you work hard to eliminate customer defections. If you do that you might radically transform your businesses. It is no longer good enough, if ever it was, to continue to do what you have always done.

The time is now.

by Ron Slee
October, 2014
CED Magazine


About CED Magazine

Construction Equipment Distribution is published by Associated Equipment Distributors, a nonprofit trade association founded in 1919, whose membership is primarily comprised of the leading equipment dealerships and rental companies in the U.S. and Canada.

With CED, content is king. No fluff, no advertorials – CED just gives AED members what they want to read: business information, industry and association news, plus fresh, original and useful feature articles that they share with their management teams. Our subjects range from rental, product support, sales strategy and customer service to technology, construction markets and legislation – and much more.