Understanding the Balance Between Margins and Volume

,One of the biggest reasons dealers think they need to avoid doing business online is because they will most likely have to lower their margins to stay competitive. What these managers are missing is that selling online isn’t about profiting from margins, but rather winning the volume game. 

And winning the volume game is easy when you are selling your parts online to a much wider customer base. When you sell online, you can hit volumes that would never be possible in-store.

If you don’t already know, your margin is the difference between how much revenue your parts department collects on a part or accessory sale and the cost you incurred to create that sale (cost of the part). 

When it comes to sales, the result is more important than the process. In other words, gross profit (what you report at the end of the year) is a much more important number than the profit margin you collect on each sale. It’s smart to incorporate competitive parts pricing (even if you’re collecting less on each sale) in order to maximize your gross profit.

Let’s put it this way: No matter how big or small your margins are, if you are not selling parts and your gross profit is not increasing, you are losing the game. 

Gross Profit > Profit Margin

calculating gross profit chart

This diagram shows that if you accept a lower profit margin on some parts sales, you enable yourself to sell more parts, yielding a greater gross profit at the end of the day.

free pricing guide banner for parts managers

 

A Sale is a Sale

You may be pressured to maximize your profit margin on every part sale, but what if focusing on profit margin doesn’t yield as much gross profit as focusing on sales volume at the end of the year? 

You know as well as anyone that all that matters is the number you can show your boss at the end of the year. In an increasingly digital parts and accessories marketplace, asking for 30%+ profit on every part sale isn’t realistic, especially when some of the bigger OEM retailers are trying to undercut your pricing. 

Two can play that game. Here’s how to win.

By selling parts and accessories online, you can achieve a significant increase in units sold (at a lower profit margin), which allows you to:

  1. Obtain more loyal customers
  2. Sell parts and accessories across the country
  3. Earn volume kickbacks from your manufacturer  

All it takes is a willingness to sell some parts at a slimmer margin. After all, a sale is a sale! 

Balance Margin and Volume to Maximize Profit

While selling at volume is beneficial to increasing gross profit and growing your parts business, that’s not to say there isn’t value in maximizing your profit margin on each sale. To be successful and get the most bang for your buck, you simply need to find a balance between profit margin and sales volume. 

This can be done by creating a pricing matrix and using it to strike the right balance between profit and volume.

sample pricing matrix for parts managers

By grouping your parts and accessories based on their cost, you can determine a standard for how much of a profit margin you are willing to accept on those parts. This allows you to sell stress-free knowing you’re making savvy pricing decisions while enabling your business to capture more sales. This can be tricky to do on your own, which is why RevolutionParts eCommerce experts have spent years finding the perfect pricing formula to maximize gross profit.

 

Kickback and Relax When You Focus on Volume

Many OEMs offer kickbacks when you sell a large volume of parts. If this is something your OEM does, it’s just another incentive for why you should focus on your ability to sell more parts rather than make more profit per part. 

With an online parts and accessories business, smart parts pricing, and volume sales, many parts managers see a significant amount of revenue on the backend through OEM incentives. In other words, don’t freak out if your competitively-priced cost+ model doesn’t lead to a crazy return on its own. Start winning the volume game and add a nice kickback to your parts revenue to get your real total return.

 

Win the Parts Game With RevolutionParts

Setting up an online parts and accessories business doesn’t have to be difficult, and it doesn’t have to be a lot of work. With the right strategies in place, your parts department can increase parts sales, streamline processes, and stay on top of inventory management. Interested in learning some expert tips on pricing parts online? Download our free eBook, “OEM Parts Pricing Guide to Maximize Gross Profit,” and get the full details.

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