A dealership can have a carefully structured parts pricing matrix and still struggle to improve its customer-pay gross profit.
Why?
Because the matrix only affects the parts that actually use it.
During the latest PartsEdge webinar, Chuck Hartley shared a dealership example that demonstrated just how significant that distinction can be.
In an analysis of one dealership's customer-pay parts sales, PartsEdge found that only 1.18% of parts sold were using the pricing matrix.
The remaining 98.82% were sold at or below the alternative pricing being applied, rather than through the matrix.
The dealership's overall gross profit margin was 34.79%.
Interestingly, the parts that did go through the matrix produced a 51.81% gross profit margin.
The issue wasn't simply that the matrix wasn't aggressive enough. It was that so few sales were being priced through it.
Chuck emphasized that increasing matrix escalators won't necessarily improve overall gross profit when most customer-pay sales aren't affected by the matrix.
Consider the example he discussed during the presentation: if only 10% to 15% of customer-pay parts sales are matrix-priced, those sales can't reasonably be expected to carry the profitability of all the remaining menu-driven and other sales.
This is why he encouraged Parts Managers to evaluate how parts are actually being sold before making major pricing changes.
Chuck recommended pulling 60 to 90 days of customer-pay parts sales, with 120 days also an option for a broader view.
The evaluation should identify which sales are matrix-priced, which are menu-priced, and which are being sold at or below retail.
From there, Parts Managers can review gross profit percentages and identify the categories that deserve attention.
Chuck noted that having 15% or more of customer-pay sales priced through the matrix is a strong benchmark in his experience.
But the most useful number is the one coming from your own department.
Before adjusting escalators, ask a simpler question: How much of our customer-pay business is actually using the matrix?
The answer may change where you focus your efforts.
Want to see the complete dealership example and Chuck's approach to evaluating matrix performance? Watch the full PartsEdge webinar and register for the next webinar to join the next discussion.