The equipment industry is a capital intensive business and the threshold for entry continues to rise. You need a location, you need inventory, you need people, you need marketing, you need transportation, you need technology, etc. Now that you’re in business, you need to generate Gross Profit Margin to pay your bills. Not all of your revenue streams have the same yield. At the end of the month, it is the mix of revenues that you generated that tells the story, not the top line revenues.
According to AED 2015 survey statistics, the average dealer has a blended GPM of 20.5% while in contrast the high performing dealers have a 24.1% GPM. That my friend is a 20% difference! Don’t think for a minute that those dealers are able to sell machines, parts and service at 20% higher margins…they can’t. The secret is the way they approach rental, not only in fleet size and capital commitment, but also in their diligence to keep the fleet highly utilized.
Someone in your organization should be monitoring the revenue mix and the margins being created and engineer your way to better profitability. You actually do have control over the products and services you offer and it needs to not only serve the local market, but make sense from a financial perspective. Don’t take on lines of equipment or services that will use a disproportional amount of resources and not ADD to your Gross Profit Margin.