Business Within A Business
by Vance Breese
Easy Inventory Tips
Buying and selling used motorcycles is different than selling new motorcycles
I love the motorcycle business. There’s always more to learn and more ways to make it work. Each time I think it’s going as well as it can, I find some way to do a better job. There’s always growth, and as I learn more, I find that money I’d left on the table now finds a way into my pocket. I love looking at the numbers because that’s how I learn about what works and what doesn’t.
Early on, I tended to do all business the same way when I was actually running many different businesses under one roof. I was more profitable when I learned to treat these businesses differently.
More Than Selling Bikes
Selling motorcycles seems simple enough: Have some motorcycles on the floor and people will come in and buy them. Put more motorcycles on the floor and more people will buy them. If you have too many, the flooring will eat up the profits. Discounting will eat up the profits. Commissions will eat up the profits.
When you only have 15 or 20 percent gross profit, the motorcycles had better turn over, and you need to be efficient. I was in a small town, and I had real limits on how many motorcycles I could sell, so I needed more businesses making money under my roof.
It’s easy to believe that you’re making money when you’re not because of the costs that go into getting a used motorcycle ready to sell. Because of this, I prefer to sell the motorcycle parts and labor at full retail.
Financing is another business. It doesn’t take up room and there’s no inventory. Fill out some paperwork, establish working relationships with some people, and you can make some money. It took me a long time to learn to ask “Would you like financing with that motorcycle?”
Insurance is a lovely business that many shops let slip away. In California, every motor vehicle must have liability insurance. If a motorcycle is financed, it needs to have collision and theft insurance to protect the lender. Getting an insurance license is relatively easy, and I still get checks from renewals even though I sold my shop in 2002. All I had to do was to ask “Would you like insurance with that motorcycle?” I had to let people know that I could help them with their insurance needs, fill out some paperwork, and make bank deposits. No inventory, no finance charges, and no warrantee hassles. I was using my shop in a more efficient way.
Selling Service And Stocking Parts
Service is a particularly challenging business. Most shops bill around 20 minutes of each hour available. There are 2,000 working hours in a man-year. Multiply your shop rate by 2,000 for each mechanic and that’s your potential. Compare that to what really comes in and it’ll help you understand how much money you’re leaving on the table. The car business is typically at 110 percent efficiency. Motorcycle shops are often around 33 to 50 percent of that potential. There are many reasons for this. In the motorcycle world, the biggest reason is we don’t do a good job of selling service, so we don’t charge enough. I was never able to get past 85 percent efficiency, and if I didn’t work at it all the time it was easy to slip to 65 percent.
The more varieties of parts and accessories we have, and the better they’re displayed, the more you’ll sell
Service parts is a business unto itself. There is less price shopping in service parts because it’s a smaller part of the bill. We can often plan when we’ll need parts so we don’t have to stock everything. We usually have a couple of days to get gears or pistons so we don’t have to stock them. Crash jobs are wonderful because you have the time to order all the parts so you can do a lot of business without a big inventory. Cables and electrical parts are something we stock to get people back on the road, so we have to invest some of our inventory dollars in these parts. It takes experience to properly stock items. We need to charge enough to provide a margin that’ll support the expense of having these things in stock. Seals and gadgets are critical items to complete a job, and we have to learn what ones to carry and how many. Taking a motorcycle off the lift for a lack of parts can take the profit out of a job. I’ve found that it usually takes at least 20 minutes, and on a two-hour job, that’s 16 percent. I’ve never been able to take home more than 12 percent of the gross sales, so you can see that this is going backward. Stocking too many service parts can use up capital that could be used for other profitable businesses operated under the same roof.
Oil and spark plugs fall into another category entirely. We know that they’ll sell, and our job is to keep from running out. We need to watch the freight costs for oil, and it’s a price-sensitive item because people buy it regularly enough to know how much it should cost. If you’re not price competitive on oil, it gives people the impression that everything in your store is overpriced.
Accessories And Apparel
Accessories are different than service parts. The more variety we have, and the better they’re displayed, the more we will sell. Hiding them on some shelf in the back won’t work. Knowing what you have and what it will do for the customer is important.
Salesmanship is also important. We can sell a lot by using the catalog. People love to have something that none of their friends have, so it would be difficult to stock everything that they might want. There’s no substitute for instant gratification, so it’s important to have a selection of accessories properly displayed.
Variety sells, so it’s better to have five different items than five of the same thing. At the same time, we don’t want to overlook the effect on the industry when someone important in the motorcycle community buys an accessory, and we need to be ready to respond to the demand that creates.
Having all clothing sizes at a few different price levels is important
Clothing is at least two businesses. We have the traditional biker jacket, and having all the sizes at a few different price levels is important. Having what the customer needs when he needs it is important. The customer should try on the next bigger and the next smaller size because apparel can be expensive, and he will probably have it for a long time. A little advice goes a long way, so we need to explain both quality and function. There’s a difference between a fashion jacket and a riding jacket.
T-shirts are about variety and size. Most of our customers aren’t small, so we need to have the sizes that sell. Customers like to leaf through the T-shirt racks to find their special treasure. Ordering T-shirts is a crystal-ball experience, and it’s easy to make a mistake. I did find out that cheap clothing hurt the shop’s reputation. Don’t be afraid to discount the ones that aren’t selling so you can invest in ones that do. When we got a new shipment of T-shirts, I’d mention it in our newsletter, and I was always amazed at how many people responded. Some clothing is more seasonal. Even in California, we didn’t sell a lot of tank tops in the winter. On the other hand, sweatshirts sell all year round. This is another place where experience pays off.
Although we didn’t concentrate much on selling jewelry, I learned that sometimes a man could get permission to buy something he wanted by buying jewelry for his lady. It also gave women visiting the shop something to look at and talk about so they wouldn’t be in such a rush to leave.
I love the complexity and variety of being in the motorcycle business, but it sometimes wears me out. Each business inside the business needs work and attention to make it profitable. Each day is an opportunity to make each part work a little better.
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