Used-Parts Is A Profitable Business. Do You Know How To take Advange Of It?
Used-parts are one of the most profitable segments of the equipment dealers business.
It can also be one of the more complex part of the business.
What do I mean by that?
1. Normally used parts will need separate part numbers from new parts and be located in a separate section of your Parts warehouse.
Why? They are easily confused with new parts. Their appearance will be very similar to new parts.
2. If your dealer management system (DMS) is not set up to accept separate part numbers you will be required to track the inventory using another system.
I have found several construction equipment dealers who have set up used parts in an Microsoft Excel spreadsheet or a Microsoft Access database.
However, these databases normal do not automatically integrate to accounting system.
That can create accounting nightmares as you expand this segment of the business.
3. The laws in many states and countries require dealership to account for the sales and gross profits with used parts; that can be tricky when the information is not integrated to the dealership’s accounting systems.
4. Another issue that can make the used parts business complicated making certain your Parts staff has a thorough understanding of the guidelines for saleability.
You will need experienced personnel that are trained in “reusability guidelines” in order to determine if the part will meet reusability guides.
Most manufacturers of construction equipment have developed guidelines on acceptable wear limits in order to sell used parts.
5. Ask the manufacturer’s Service department to provide the guidelines they have established.
There is one possibility you should consider.
There are a few good distributors in the United States that specialize in selling used-parts.
They have the ability to buy and sell used parts and have been specifically trained in the business.
One of the companies I can recommend is RFE Distributors. I have used their services when I was managing the Parts business for a Caterpillar dealership. For a good source for used-parts use this link to go to Rock and Dirt website. If your dealership has decided to get into the used parts business, I highly recommend that you start with the manufacturer you represent as your mainline business.
After a period of time you can expand into competitive lines but not until such time that you have had a level of success in your current line of equipment.
What are some of the other important considerations in getting into the used-parts business?
1. Keep your used parts inventory in separate locations in your warehouse. You must avoid selling a used-part versus a new part. After all they will look similar or exactly the same as new.
2. Establish separate part numbers for used parts versus new parts. This will allow you to track the sales and inventory of these parts
3. Your dealership’s Service department can become your best customer. Used parts are at a lower cost and will lower the cost of repair. Create a competitive advantage for your Service department.
4. Typically customers who purchase used parts are willing to pay 65% to 80% of the cost of new parts (depending on the difficulty of sourcing the used-part).
5. As a guideline, dealerships should seek a gross profit margin of 35% to 50% for this part of the business.
6. If your dealership is not prepared to establish the systems, processes and trained personnel to enter the used parts business find a reliable source for securing good used parts it has great profit potential for your dealership.
Thanks for reading this article and I wish you great success in the used construction equipment parts business.