What if your next ad campaign was a huge success? What if you advertised in the local paper, and your sales suddenly skyrocketed? What if customers came into your dealership in droves because of a letter you mailed out?
You’d be announcing your retirement, I bet. Not so fast. Before you quit your day job, consider this: More sales won’t necessarily bring you more profits.
Though the scenario above is admittedly far-fetched, it should get you thinking about your business operations. If your tire and wheel sales suddenly doubled, would you have enough in stock? Would you have to place special orders and make customers wait for their tires? Would you have enough service bays to mount and balance double the number of tires and wheels you currently handle? Would you have enough employees? Would your building be big enough to handle double – or even triple – the traffic flow?
Sure, it sounds like a good problem to have. And it is. But it’s also wise to size up your business first by analyzing its strengths and weaknesses before you launch that next great promotion. Having more sales than you can handle can ruin you.
Diagnose First, Then Act
Analyzing your business capabilities is akin to a doctor treating a patient, says certified management consultant Richard P. Morgan of Morgan Marketing Solutions Inc. Before making a diagnosis, a doctor must first study the patient and reach an educated conclusion. He or she must discover the root cause of the symptoms. Only then can the patient be treated.
"Action without diagnosis is malpractice," says Morgan. Taking immediate action to increase sales can do more harm than good, especially in a small business with limited financial and personnel resources, such as an independent tire dealership.
Morgan has advised many independent tire dealers since his firm was founded in 1989. He remembers one in particular who came to him with financial difficulties and asked Morgan to help him increase sales.
"I asked him to consider what would happen to accounts receivable if sales rose," Morgan recalls. "What would happen to his inventory? Well, they would both go up. And, considering that he was already teetering on the brink of bankruptcy and had considerable bank debt, more sales wouldn’t help unless he had another source of financing," Morgan says. The tire dealer soon realized that increasing sales was just about the worst thing he could do. It was action without diagnosis.
Morgan’s recommendation to the dealer: "You have to ask yourself, ‘If this is successful, will my finances support it? Will my facilities support it?’ Don’t promise more than you can deliver.” In consultant circles, this questioning process is known as a "break-even analysis" or "marginal income analysis," says Morgan. But all that really means is being reasonable about your operational capabilities.
Small Steps
Before attempting to increase that tire dealer’s sales, Morgan recommended he first balance his business to build a foundation for growth. How? By making small changes that would bring down his operating costs and generate more cash. “We worked on getting his receivables (bills owed by customers) down,” says Morgan. To do this, the dealer made a few collections calls to some of the customers he had let slide in the past. "We also selectively increased prices on a few slow-moving items and eliminated old inventory," Morgan adds.
Morgan also recommended that the tire dealer narrow his long list of suppliers down to just a few. Reliable, easy-to-deal-with companies that supplied a large amount of product to the dealer stayed on, and other suppliers were eliminated. The dealer moved his business from an array of old suppliers to the few he chose to keep. Those suppliers would provide a larger portion of his inventory. As a result, the tire dealer could then negotiate volume discounts. "It doesn’t take much to make a big difference," Morgan explains. "Margins get better with just a 1% to 3% better price from suppliers."
The tire dealer also made some small but effective changes in the way he handled his best customers. For instance, he started providing a few extra, unexpected services for his best customers. "Repeat customers who brought their cars in for service would get a free ride to work and then a ride back to get their cars," says Morgan.
These changes, though subtle, did not happen overnight. But once they were made, the dealership was finally ready for more sales. Only then did Morgan initiate a direct mail campaign to the dealer’s geographic area.
The ABCs of Closing
Now, suppose you’ve done the diagnosis, prescribed some small changes and you feel you’re ready to accept more sales. Go ahead and put your ad in the local paper or mail that promo piece. But, keep in mind, the process is not finished once customers come rolling in. You still have to get them to buy. So, it might also be helpful to consider a few tips on closing a sale.
In the movie Glengarry Glen Ross, Alec Baldwin’s character, Blake, tells a group of real estate salesmen to remember their ABCs – A for "Always," B for "Be" and C for "Closing" – "Always Be Closing." In a nutshell, good salespeople should always be pursuing the sale. After all, that’s why you’re in business. And it’s helpful to think of every employee in your dealership, including yourself, as a salesperson.
At least that’s the view expressed by Tony Passwater, president of AEII, a consulting, training and system-development company based in Indianapolis. “Key to closing the sale is delivering what the customer wants, when he wants it and at a price he perceives has value," Passwater says.
First, remember this: You sell the invisible every day. You sell more than just tires; you deliver a service. And you develop relationships. Tires can be commodity items if you let them. Or, you can differentiate your tires from those at the dealership down the street by the solid relationships you develop and the great service you provide to your best customers. Building relationships with repeat customers is one of the most important things tire dealers can do to grow their business, according to Morgan.
Closing a sale involves three steps, Passwater says. Those steps are: determining customer needs or problems, presenting a solution and, finally, closing the sale with honesty and integrity.
Passwater explains that the sale actually begins when customers first walk in the door. "Your front-desk staff needs to be trained to determine what the customer really wants," he says. They need to ask questions, such as: "How do you use your vehicle? How old is it, and how long do you plan to keep it? Were you referred to us? By whom?" The list goes on.
Sounds like a lot of information gathering prior to the actual sale? It is. But it’s also a way to diagnose the customer’s condition so that you can recommend a treatment – buying tires and services from you. "Having your front-desk personnel build a relationship with the customer will significantly improve a shop’s closing ratio," says Passwater.
The next step for a successful closing should be good presentation. Passwater recommends retail business owners ensure products are displayed neatly and in an organized manner, making certain that items are easy to find.
“Make sure that what the customer sees and experiences is of a high standard – 100% of the time,” adds Passwater. To achieve that look of professionalism, he says, avoid three things in particular: receiving your merchandise and supplies through the front office; having technicians in the front office; and conducting staff activities that appear unprofessional.
And finally, close the sale with sincerity, Passwater advises. "Honesty and integrity are the most important factors in closing the sale," he says. "They’re what truly builds a strong, customer-focused business." How can you develop honesty and integrity in your employees? Start by telling them never to promise what they can’t deliver.
Hopefully, by the time you’re closing that sale, you’ll be able to deliver on all of your promises because you’ve studied your capabilities and implemented practical changes. Only then did you increase your sales, and profits followed.
SIDEBAR:
Is Your State Small-Business Friendly?
Each year, the Small Business Survival Committee releases its Small-Business Survival Index, a comparative measure of state-by-state small-business economic incentives.
The methodology behind the Index includes a review of the following factors for each state: personal income tax rate; capital gains tax rate; corporate income tax rate; individual alternative minimum tax; corporate alternative minimum tax; property taxes; sales, gross receipts and excise taxes; death taxes; unemployment tax rate; health-care costs; average revenue per kilowatt-hour for electricity utilities; workers’ compensation costs; crime rate; right-to-work status; number of bureaucrats; tax limitation status; Internet access taxes; gas taxes; and the minimum wage.
Though the Index gives scores to all 50 states, plus the District of Columbia, we’ve provided just the top-10 small-business friendly states here. States with lower rankings are more small-business friendly than those with higher rankings. For the complete list, visit the Small Business Survival Committee’s Web site at www.sbsc.org.
1. South Dakota 6. Texas
2. Nevada 7. Tennessee
3. Wyoming 8. Washington
4. New Hampshire 9. Michigan
5. Florida 10. Mississippi
