NATIONWIDE SURVEY RESULTS: Dealers Reveal Top Tactics to Protect Profits

 

© 2009 Door & Access Systems
Publish Date: Spring 2009
Author: Tom Wadsworth
Pages 38-40

NATIONWIDE SURVEY RESULTS
Dealers Reveal Top Tactics to Protect Profits

By Tom Wadsworth, Editor

Our 2009 survey of Door Dealers & the Economy* asked dealers how they are adjusting their businesses to compete in this tough market. The results offer some insights for dealers who are searching for ways to stay profitable.

Should You Raise Prices?

In 2008, most dealers (84 percent) felt compelled to raise prices. When asked why they had raised prices, 98 percent said they did so because they received price increases from manufacturers. Two thirds (65 percent) attributed their increases to the spike in gas prices.

In early 2008, rising steel costs forced manufacturers to raise prices, often several times. In the summer of 2008, gas prices hit $4 a gallon, forcing manufacturers and dealers to make adjustments for their over-the-road costs. According to our survey, these two factors caused the most price increases by garage door dealers in 2008.

In spite of these pressures, 16 percent of all dealers were reluctant to increase their prices. Dealers in California and Florida, among the hardest hit by the housing crisis, were the most resistant to raising prices. Of all dealers who did not raise their prices in 2008, 45 percent were in those two states.

A Virginia dealer who had increased prices twice in 2008 admitted that he may have lost some price shoppers. “Those customers seem to be the most demanding and time-consuming anyway. Not every job is one you really want, even in a down economy.”

An Iowa dealer whose 2008 sales were up 15 percent said, “We feel that being strong in service, training, and customer service will make us a best choice—not low prices.”

A Self-Defeating Policy?

Not raising prices when hit with several price hikes from suppliers seems to be a self-defeating policy. Yet, in hard-hit areas, dealers are often more reluctant to seek more from consumers.

“I would love to raise my rates,” said one California dealer, “but it’s not a good idea in this economy.”

“Everyone is hurting,” commented a Connecticut dealer whose overall business is down 20 percent. “It’s hard to raise any consumer prices and still get work.”

What Prices Should I Increase?

Our survey asked dealers to identify (from a list of 22) profit-protection measures they had implemented in the last six months. Then, given a list of 10 specific profit-protection measures, we asked dealers whether or not they recommended that measure.

In 2008, raising prices for parts was the most common and most recommended tactic used by dealers to protect their profits. While 55 percent of dealers said they had increased part prices, 76 percent said they recommended doing so.

Raising product pricing was the second most common profit-protection measure. About half (51 percent) of dealers said they had increased product prices, but 66 percent said they recommended doing so.

Reducing cell phone costs was the second most recommended profit-protection measure. This tactic was recommended by 69 percent of all dealers, yet only 27 percent of dealers had actually reduced their cell phone bills. Apparently, it’s easier to recommend it than to do it.

Labor and Trip Charges

Increasing labor charges was also popular. Almost half (47 percent) of dealers said they had increased hourly labor charges to customers, but 61 percent said they recommended doing so.

A similar profit-protection measure is increasing trip charges. While 37 percent had increased these fees, 52 percent recommended the practice. A few dealers noted that they had imposed a fuel surcharge when gas prices spiked in 2008.

Cutting the Workforce

Most dealers did not recommend cutting employee compensation (72 percent) or health benefits for employees (61 percent). Yet, 38 percent of dealers said they had reduced the owner’s compensation.

“Employee compensation and workforce reductions should only be done as a last resort,” said one California dealer. But a New Jersey dealer commented, “It’s a good time to lay off all difficult employees.”

Almost half (45 percent) of all dealers had reduced their workforce by layoffs, while 62 percent recommended the practice.

The Advertising Debate

The most-debated issue was reducing advertising expenditures. While 41 percent had actually done so, another 41 percent did not recommend it. The issue attracted several comments.

A couple of dealers argued that increasing spending on advertising, not decreasing it, was a smart move in a down economy. “Increase advertising for market share increase,” said one dealer.

Dealers that are doing well tended to agree. Of all dealers whose overall business was up 20 percent or more, 71 percent did not recommend reducing advertising expenses.

Others argued for smarter advertising purchases. “Sharpen your pencil and the focus of your advertising,” said another California dealer. “Change (the advertising) mix to hit your exact target.”

The debate resurrects the old adage, “I know that half my advertising is wasted. I just don’t know which half.”

It All Depends ...

Our survey revealed many good ideas that all dealers should consider, but it also revealed that dealers in different markets face different pressures that may call for different measures.

As one dealer said, “Some of these measures must take into account the dealer’s market conditions and the type of competition.”

After considering our list of 22 profit-protection measures for a down economy, another dealer wisely noted, “It all depends on how bad things get.”

To comment on this story, send an e-mail to the editor at trw@tomwadsworth.com.

* The Door & Access Systems study, conducted online from Jan. 19 to Feb. 1, 2009, collected input from 181 door dealers in 43 U.S. states and three Canadian provinces.

Top 10 Profit-Protection Measures
The top 10 profit-protection measures implemented by dealers in the last six months of 2008:

1. Increase prices for parts (implemented by 55% of survey respondents)
2. Increase prices for products (51%)
3. Reduce capital expenditures (vehicles/major equipment) (48%)
4. Increase hourly labor charges to customers (47%)
5. Reduce workforce (by layoffs) (45%)
6. Reduce advertising expenses (41%)
7. Reduce owner’s compensation (38%)
8. Reduce expenses for meals and entertainment (38%)
9. Reduce the number of vehicles in operation (37%)
10. Increase trip charges to customers (37%)

 

The Most-Recommended Measures
The top profit-protection measures recommended by dealers.

1. Increase prices for parts (recommended by 76% of dealers)
2. Reduce cell phone costs (69%)
3. Increase prices for products (66%)
4. Reduce workforce (by layoffs) (62%)
5. Increase hourly labor charges to customers (61%)
6. Increase trip charges to customers (52%)

The Least-Recommended Measures

1. Reduce employees’ compensation (not recommended by 72% of dealers)
2. Reduce employee health benefits (61%)
3. Reduce training/education expenses (48%)
4. Reduce advertising expenses (41%)