Turning Parts into Profit

Aug. 1, 2000
There's nothing mystical about adding to the bottom line through parts sales - it just requires planning.First, make sure you have reliable suppliers

There's nothing mystical about adding to the bottom line through parts sales - it just requires planning.

First, make sure you have reliable suppliers for all the parts lines you sell. Determine which suppliers offer the best discounts and carry good supplies. Ask about their order fill rates (the higher the better) and freight policies - one of the silent thieves of parts profit is freight. For example, some companies will ship freight-free if you order a certain amount, while others charge a fixed freight charge or the actual freight cost.

It's important that your parts manager knows the freight policy of each supplier so that you can pass the cost on to your customers. Any profit on a $10 part is eaten up quickly by a $4 freight charge.

When you don't know the actual freight cost of a special order, you might want to charge a minimum shipping and handling fee, say $4.95, unless the part is heavy or comes with a truck freight.

You also can ask a supplier to estimate the shipping charge and charge your customers accordingly.

Time is money All these steps involve time - another hidden cost in any sale. The "cost of sale" needs to be accounted for, like any other cost.

From the time a customer walks up to your counter until the sale is closed, your employee is being paid to sell the item. If a customer buys a part with a list price of $1 and your discount is 40 percent, the sale nets you 60 cents, which means your parts counter person shouldn't spend 20 minutes finding it.

First, arrange parts in order, such as by part number, and have an up-to-date parts catalog or look-up system so the part can be found quickly. It not only saves on the cost of sale but impresses customers as well.

Second, time shouldn't be wasted trying to find parts without having a complete model and/or serial number. Often, customers have no idea what the model or serial number of their machine is. If they bought the equipment from you, this is where those sales records can save time. If not, customers should be told politely that they have to supply the information to get the correct part. A sign can be posted to this effect.

You also should post your minimum shop charge, your labor rate, the minimum freight charge and your return policy on parts. Having these policies clearly posted in black and white will prevent arguments.

Abandoned parts Another hidden cost in parts sales is abandoned parts. People sometimes order a part and then forget to pick it up. If you have trouble getting the part, they might even get it elsewhere and leave you with a part you might not sell.

To avoid this situation, require prepayment on any special order part. If the customer paid for it, chances are he or she will come back for it. The only exception to requiring prepayment might be when you are out of a regularly stocked item. If the customer doesn't pick it up, you won't be shortchanged. Second, order parts on a timely basis. If you charge for shipping and handling on special order parts, there should be no problem with ordering promptly.

Keep a file on special order parts and call the customer as soon as a part comes in. You will be amazed how many repeat sales can be generated by getting parts quickly.

Many of the same rules apply to selling parts you stock. Set a "target level" on any part you stock, and when the part reaches that level, reorder it. You can't sell from an empty wagon, and by following this rule, you can avoid that problem. One system I've seen over the years is to keep a list for each supplier and order from a company when its sheet fills. This will help keep you from ordering three times in a week, saving freight.

Keeping records of lost sales is also an excellent way to build business. You can't stock everything, but if you get 10 requests in a month for a certain part, it wouldn't be a bad idea to stock at least one.

Finally, make sure your customers know you carry and have access to several parts lines. Signs in your store are a good start, and you might want to work it into your advertising.

In the next article, we'll look at the most important ingredient in the recipe for success - recruiting and retaining quality people.