The Right Mix: Maximize Both Tire Sales and Vehicle Service Profits - Tire Review Magazine

The Right Mix: Maximize Both Tire Sales and Vehicle Service Profits

I have coached thousands of tire dealers on how to increase their service business, but, sometimes, a sharper focus on service can diminish tire sales or change mix percentages.

Is that a bad thing? Absolutely!

Tiremakers, programs, franchisees and tire retailers have all created business, staffing and facility models that worked on paper. Some had 70% tire sales and 30% service models, and others planned for 30% tire sales and 70% service.

Many independent tire dealers just let the mix seek its own level, focusing on the customer’s needs instead of percentages. So, which is correct? What is the best tire/service mix?

The answer: None of the above and all of the above. There is no such thing as a ‘best practice mix.’ Your best mix depends on your specific business, staffing and facility models.

If you planned for a certain tire mix, you had better maintain it or your suppliers may not be able to give you the same discounts and volume rebates. “So what?” you might say, “I make more money on service anyway.”

Not so! If you know what you’re doing, the opportunity to make more money in gross profit per hour on tire sales vs. service is very easy.

For the majority of my 35 years in this industry, I focused on service and had a misguided belief that service was always more profitable. But, when I had the opportunity to work with tire dealers, I saw the error of my ways. The contribution of margin dollars after technician cost per hour will always be higher in tire sales than service sales. The margin percentages might be higher in service, but you pay your bills with dollars, not percentages.

If you want to see my analytical equations on this, send me an e-mail, and I will send them to you.

So, let us get back to the mix. Let’s look at how you can maintain your tire/service mix while still growing your service business.

Creating the Right Model

When a business, staffing and facility model is designed, it is typically created to produce a certain net profit to the owner.

If you don’t work with a tire supplier that has created a business, staffing or facility model to help you, you’ll have to create your own.

Let’s start with the business model. For this, we must not ignore the fact that cars, trucks and tires are much more reliable and last much longer. As a result, car count will naturally decrease unless you do something to stabilize or increase it. Because they offer more options – tires and tire services, naturally – most tire dealerships have higher car counts than service-only facilities.

If you change your tire/service mix by only focusing on service, tire sales will decrease. This will eventually erode car count, giving you fewer opportunities for service sales. Plus, reduced tire sales will bring an upward adjustment in your tire buying prices. Since you make money on the buy and not the sale, you may kill the goose that lays the golden eggs – tires.

The answer is to focus on both products equally. Separate your tire and service businesses on your profit and loss statement. Both of these segments have very different key performance indicators. If you combine them, you won’t be able to diagnose why you’re not making the money you deserve.

The staffing model is more complicated, since having an A or B service tech change tires will hurt your tire margins. Tire techs should cost approximately 5%-7% of your tire sales; a service tech, loaded with full benefits, should cost no more than 20% of your service sales.

In general, your tire dealership needs tire techs, a good diagnostic A tech, parts changing B techs and general-service technicians to perform simple preventive maintenance. If you want your business to deliver complete car-care service, being able to perform requested work, take on previously declined work, offer 30-point courtesy checks and perform scheduled maintenance are musts.

Consider that an excellent service tech can only service about three to four cars (with an average RO over $300) per day. The key to your success is getting and retaining a service manager that can handle three of these technicians at one time and deal with the associated customers. This ‘team’ will generate $1 million in service sales per year – if everyone does his or her job correctly.

We’ll continue with the facility model in the next issue, and then, we’ll move on to the 21 tire key performance indicators you need to measure progress.

Click here for more ways to strengthen your sales efforts.

Chris “Chubby” Frederick is president of Automotive Training Institute.

You May Also Like

Tire Industry Labor Shortage: Improve This to Keep Employees

I’ve spoken to many representatives from manufacturers, wholesalers and retailers who report that techs, counter people, drivers and even white-collar team members have walked off the job, failed to report, or given notice, and their businesses have been impacted by these departures. This isn’t just a tire industry issue—and goes beyond the tech shortage that

Tire Industry-Labor Shortage-Great-Resignation

I’ve spoken to many representatives from manufacturers, wholesalers and retailers who report that techs, counter people, drivers and even white-collar team members have walked off the job, failed to report, or given notice, and their businesses have been impacted by these departures. This isn’t just a tire industry issue—and goes beyond the tech shortage that has plagued the industry for decades.

Consider Software Solutions to Streamline Operations

Representatives from several software providers share how solutions drive efficiency and profitability, as well as what to look for when considering a system in your shop.

software-solutions-stock
How Data, Analytics Can Boost Profitability for Tire Retailers

By collecting and analyzing data about a dealer’s sales history, inventory levels and market demand, data and analytics platforms can analyze the performance of each dealer’s store and recommend actionable improvement opportunities.

How to Start the PPP Loan Payback Process

For many PPP loan recipients, it is time to start the repayment process—or file for PPP loan forgiveness. Read on to find out which portion of your loan may be forgivable and how to apply for forgiveness, as well as how to start the repayment process.

Creating a Positive Work Environment

Larry Sutton of RNR Tire Express shares seven different practices that have helped him create a positive work environment.

Other Posts
Understanding the different types of tire customers

Understanding how to interact with different customer types can lead to loyal customers for life.

TR-Continental-customer loyalty
Goodyear America Q1 2024 sales down, but net sales up Y/Y

Americas’ first quarter 2024 sales of $2.6 billion were down 9.7%.

goodyear-hq-1400
Michelin sees steady sales volume in 2023 YOY, increases NA market sales

The company said sales for the year amounted to approx. $30.6 billion, down a slight 0.9% from 2022.

Michelin-Magog
Bauer Built reorganizes tire sales division with regional directors

Bauer Built promoted six to new regional director positions to handle customer service and operations across nine Midwest states.

restructure