(Budgets are a good thing!)
Establish departmental budgets and life gets better!
Sadly, relatively few powersports dealerships provide department managers with a structured budget. This goes hand-in-hand with the general lack of enabling managers to control their departments. The purpose of empowerment is to allow effective managers the ability to improve productivity and profitability while establishing accountability for the overall performance of the department. Empowering managers without establishing departmental budgets is almost pointless.
Without budgets, managers can’t control their expenses for purchasing products or supplies, or develop effective marketing plans. They can’t maintain proper staffing levels, drive goals and provide performance rewards without a budget for compensation and incentives.
Establishing a departmental budget is not that difficult. Historical data is always the basis for building a realistic budget. Once you know how much has been spent on the department’s expenses, you need to break out the line items to only those expenses that the manager can control.
We know that personnel make up the bulk of expenses for most departments. A personnel budget can be established by comparing industry benchmarks with historical sales data. For example, industry benchmarks that might be used for a “typical powersports sales department” include:
o Average personnel expense per vehicle sold. Multiply your projected unit sales by your target benchmark number. Then take this figure and break it down into salespeople, support staff and the manager(s) and also split it into salaries, commissions and spiffs.
o Another benchmark would be personnel expense as a % of department GP. The overall powersports industry expense average is generally less than 30%.
o Keep in mind these benchmarks are heavily influenced by product mix. If you sell mostly low-cost units your numbers will be different than a dealer who sells high-end products.
Establish your own benchmarks based on your own data!
So, what are some other controllable expenses that might be included in a sales department budget? New units have a lot of variables (OE programs, market trends, etc.) and are generally not part of the manager’s budget. Marketing would be considered if your sales manager plays an active role in preparing your unit sales marketing plan. The average budget for marketing a powersports sales department tends to run .8% to 1% of projected sales revenue. Flooring costs can be another budget item if your manager is involved in controlling aged inventory. Incentives for exceptional results help drive improvements. Other budget items might include things like goodwill (or policy) expenses, uniform shirts, office supplies, cleaning materials, etc.
This was just an example of a sales department budget. Each department has its own controllable expenses that could be used to establish a departmental budget.
Budgets are always a work in progress – they must respond to seasonality and other current situations. Quarterly budgets are generally easier to adapt. The important point is to get budgets established so you can spend less time working “in” the business and more time working on the “big picture” aspects (the owner role).
ACKNOWLEDGEMENT: This article was previously published in my Powersports Business Magazine column.