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05

Sep

"You Must Run It as a Profit Center" Axiom Review

2. You Must Run It as a Profit Center


Can't serve as a cash trap or loss leader. Tightly control reconditioning costs and time to front-line-ready for sale.


Used equipment sales should play an important role in any equipment dealer's revenue stream. The better a dealer is at selling their used equipment for retail or wholesale valuations at the end of its useful rental life, the more confidence the company will have to buy more inventory, and the cycle repeats. Alternatively, if a dealer is forced to send their machines to auction at the end of its useful life, and incur 15% commission costs + freight on low valuations, the less confidence they will have to buy more inventory.


Selling used assets for top-dollar and minimal commission at the end of their rental life is how the best independent equipment dealers operate.


Mr. McDonald also points out: "Tightly control reconditioning costs..."


This is a key point. Reconditioning costs can quickly exceed the time and cost budgeted if not properly managed. To some mechanics, replacing one older part naturally leads to another, and another, and another... until the entire section has been replaced. This increases the reconditioning cost if not tightly controlled.


Increasing the reconditioning costs out of the original budget means that the supplier will likely not get that value in resale. If the price of a reconditioned machine is too close to the cost of new (say 75% of OEM cost), then a buyer will just buy a new machine with a warranty and better financing options. If a reconditioned machine is priced at half (or less) the cost of new, that could be seen as a great deal for the buyer. A supplier can afford to price the reconditioned machine at half the cost of new only if they have controlled their reconditioning costs well.


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