Motorcycle, Quad, ATV, Scooter Business Basics
by Vance Breese
At its core, the retail sales business isn’t that complicated.
Whenever something seems really complicated, I’ve usually found that it’s because I’m not seeing the truth. Understanding this helps me to be honest with myself and keep it simple. When I want to deceive myself, I make something even more complicated and imagine it as a unique situation.
Business, in spite of what I sometimes tell myself, is not that complicated or unique. Others have made it work, and we can learn from them if we are honest with ourselves.
The retail business consists of selling something for more than we paid for it, paying the overhead, and keeping a percentage for ourselves. To do this, we need to have something that people want to buy, let people know we have it for sale, and make the sale happen.
That means there are three ways we can increase our net income: by increasing sales, increasing margin, or decreasing overhead.
The Sales Factor
We can increase sales with better salespeople, better inventory control, or more effective advertising. Having a great location also helps, and having something that people want to buy is useful.
The conundrum here is to increase sales while controlling our expenses and living inside of our available capital. We know that if we could stock every part from every manufacturer, and we could find a way to tell every potential customer of this bounty, our sales would go up. We also know that we would need a large building and many people to manage the sales. We don’t have the capital to do this, so we have to strike a compromise. We need to determine the correct amount of inventory, the proper building size, and the correct number of employees for our market.
Maximizing Margin
We have control over our gross margin. If we charged too much, our sales would go down. If our margin were less than what it costs us to sell a product, no amount of sales would help our net profits.
To put this in perspective, most small retail businesses net around 4 percent of the gross. This means that if we gave all our customers a 5 percent discount, we would continue to go backward, no matter how much our sales increased.
It also means that if we cut our margins in half, we would have to sell four times as much stuff to make the same profit. Why? Because we would have to invest more in inventory, facilities, and people to make the sales.
Cutting margins also means we would always be competing against the people who discount. Our customers would be drawn to us mainly because of our low prices. There wouldn’t be much customer loyalty, because we wouldn’t have the profits to invest in customer service.
I would rather charge more, have fewer sales, and take care of my loyal customers.
Look Out for Overhead
Lowering our overhead is easy, but how does it impact sales and our ability to maintain our margins? If we move to a too-small, out-of-the-way location, or fire our employees, our sales will go down, and this will have a negative effect on our net profits.
If you could stock every product from every manufacturer, your sales would go up, but would your profits?
We have a product that few people need, so we must invest in teaching our customers how to enjoy their motorcycles, and that costs money. But if they don’t have a positive experience when they interact with us, we won’t be in the motorcycle business for long.
It’s important to see where the money goes. As uninteresting as the books are to most, they contain many important messages about how to get the business to be the correct size for our customer base.
Inventory is always a gamble; we are betting that we will have the part or accessory when the customer is ready to by it.
The Business Fundamentals
These business fundamentals add up to define our job description:
• We must increase our gross sales because that is what drives the rest of the business.
• We must teach our employees to help our customers enjoy their motorcycles. We need to be sure customers have a positive experience every time they interact with our establishment.
• We must process sales in an efficient way, so we don’t have to charge too much for our overhead.
• We must manage our capital outlays so we don’t outgrow our available resources.
• We must make sure that a percentage of the gross sales ends up in our pocket.
• Business is ever changing, so we must continue to learn and change with the times.
We have to work hard each day to make our business the best it can be based on these fundamentals.
In my experience, if something seems too complicated, it is probably a distortion of reality.
If we do all this well, our reward is that we get to participate in the American dream of doing what we love for a living.
Tags: Business Basics, Counterman Pro, custom, develop the right attitude, inventory control, motorcycle inventory software, motorcycle mechanic, motorcycle shop rate, PowerSports Dealer