We recently started holding some Profit Team Peer Groups with people in attendance. We are fortunate enough to hold a number of our meetings in Fort Worth, Texas which has opened to the point of small social and business gatherings are permissible. One of the best parts of the peer group meetings in the interaction amongst the attendees. The sidebar conversations that take place during breaks and dinner are tremendous.
I have had some mentors that have made me understand the value of eating well during a business meeting. The location must allow for a slow paced dining experience that allows everyone to visit and have detailed conversations while relaxing in a business environment. I use this as the backdrop to some of the conversations that we have been having at these peer group meetings.
Inflation is either here or on the horizon and that means that our costs to operate will be increasing. That leads to margin compression unless dealt with. This is not something that is unique to auto recyclers but to all businesses and people in general. In our Self-Service Profit Teams, we have been talking about how bundling of parts into packages reduces sales without providing customer loyalty. In the full service world, the creating of packages is how a lot of pricing objections are overcome.
Now back to dinner. We spent a nice 2 hours enjoying some fine Texas beef and cocktails and as I am paying the check, I notice the itemization of the dinner. Right there before my very eyes is the dissection of the meal including cocktails. There was a charge for the alcohol and mixer which was not surprising but the charge for ice was. It was labeled as “rocks” but it was certainly itemized out on the receipt. The food / entertainment segment of the business community is looking at the cost of things and making sure that they are dealing with their margin compression.
Having recently suffered a family tragedy, I took my wife to Hawaii to rewind and recover. I stopped to buy a couple of Pepsi’s and some chips to take to the room. When I requested a bag – sack in TX – they rang up 15 cents and loaded my stuff. Is that a Hawaii thing or something that is coming to the rest of us as margin compression hits?
We are in a supply and demand business that has a supply line in turmoil at the moment. The competition for vehicles is intense with the win rate going down as the price point continues to rise. This is a period of time that the numbers that drive your business better be known. How much margin compression have you had? What is the increase in car cost versus the projected sales the vehicle will produce? That is the target number to chase to maintain your profitability.
If you cannot maintain your current margin, you must increase the number of vehicles you run in order to make that money back.
Many people confuse a commission compensation plan for management. It is a pay plan, merely a tool that drives behavior. Management of all departments and the proper motivation and supervision of people in order to keep the margins from being eroded to point of danger. Part of a successful business is investing in the team so that they know how the company makes money and how they can do their best to allow the company to prosper that allows everyone in the company to be successful also. Keeping the team abreast of the rising cost of things in real money in real time will help engage them in the process.
It is not just auto recyclers that are feeling margin compression or at least preparing for it. What are you doing? If the answer is nothing, are you asking for trouble? If your answer is to provide additional training while diving deeper into the numbers this will be exciting times moving forward.
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