By Robert Currie
As with most surveys, you can always find the positives as well as the negatives when reviewing the results. The 2011 DiSC Reports for both industrial truck and engineered systems/storage and handling (ES/ SH) are no different. Generally speaking, the economic climate continues to show positive results, as evidenced by revenue growth in both segments. The liquidity of both is also a strength, and it shows the need for continued consolidation. Employee productivity, mainly gross profit per sales representative, labor revenue per technician and asset utilization, are areas of opportunity.
The average industrial truck dealer grew their revenues in 2011 by 22.7 percent, while the high performing dealer averaged 32.0 percent. The average ES/SH dealer grew their revenues 17.7 percent, while the average high performing dealer grew their revenues by 22.8 percent. These are strong figures when compared to the target of 15 percent. The growth came in all segments of the business, with product sales and short-term rental leading the charge.
Another area of strength for both segments is the liquidity of the dealerships, namely strong capitalization and debt to equity. In our experience, industrial truck dealerships are properly capitalized with a debt to equity ratio of 3:1. The industrial truck segment average dealer came in at 2.1:1 and the high performing dealer came in at 1.4:1. When dealers approach 2:1, start thinking about acquisition and/or expansion opportunities. When dealers approach 1:1, an acquisition is almost a necessity.
As for the ES/SH segment, a properly capitalized dealer is 1.5:1. The average ES/SH dealer came in at 1.6:1 as did the high performing ES/SH dealer. Similar to industrial truck dealers, once you approach the 1:1 ratio, start exploring acquisition and/ or expansion opportunities.
When we analyze the areas of opportunity for both segments, employee productivity and asset utilization come out on the top. One of the main areas of concern for employee productivity for both segments is gross profit per sales representative. Our expectation for industrial truck is that the average sales rep should produce $240,000 in equipment gross profit. That includes new trucks, used trucks and allied product gross profit. The average dealer in the DiSC report came in at $175,000 per sales rep, while the high performing dealer was not much better at $183,000.
For the ES/SH segment, our expectation is that the average sales rep should produce $360,000 in project gross profit. The average dealer came in at $340,000, while the high per forming dealer averaged $368,000 in gross profit. These figures are much closer to the expectation than industrial truck, yet the average dealer still has room for improvement.
In all of our research and work with both our best practice groups and individual dealer projects, we have found one correlating factor for success in sales management. The amount of time spent in the field by sales managers coaching their sales reps is the single biggest factor for share and revenue growth. So, our challenge to those who are not hitting the targets of $240,000 for IT and $360,000 for ES/SH is this: How many days a week do you require your sales managers to be in the field? A minimum of three days should be a good starting point.
For the industrial truck segment, another employee productivity area of concern is labor revenue per technician. A reasonable target on a monthly basis from our research is $12,000 per tech, or $144,000 per year. The average IT dealer and the high performing IT dealer both come in around $132,000, or $11,000 a month. That is $1,000 a month shy of the target. The biggest area of opportunity we see is the number of “pick up” travel hours achievable with proper dispatching and scheduling as well as how disciplined dealers are with time allotments and finding second segment work with planned maintenance agreements.
Another area of concern for industrial truck is asset utilization. The amount of aged inventory (the percentage of dollars in inventory for more than 12 months) for both new and used equipment and parts is very high. Our expectation is that 0 per cent of new and used truck inventory be more than 12 months old. The survey results show that the average dealer is carrying 15 percent of their new inventory and 41 percent of their used inventory in the aged category. The parts inventory for the average dealer is 19 percent. These percentages represent real dollars of capital that is being tied up and unavailable for growth and expansion opportunities.
So to summarize, the areas of strength are strong capitalization and liquidity along with quality revenue growth. The areas of concern are primarily employee productivity and asset utilization. With some hard work and proper discipline, we are confident that dealers will make steady progress in the challenge areas in 2012 and beyond.
Robert Currie is president of Currie Management Consultants, Inc., located in Worcester, Massachusetts, and at www.curriemanagement.com.