Making the grade

It has been many years since most dealers have had to worry about maintaining a certain grade point average. And it has likely been even more years since they've worried about intercepting a report card in the mail.

Why, then, is there all this talk about grading dealers?

For those unaware, there's a certain momentum building to affix a “grade” to dealers, their businesses and how they run them. It's a grading system not unlike that which most of us are familiar with: As, Bs and Cs are handed out in an attempt to judge the skills and define the qualities these dealers boast … or regret.

For years, the old 80/20 rule has existed: 20 percent of the dealers are good; 80 percent are not.

A grading system, which has become more prevalent in recent years and most immediately in association with the concept of dealer certification, looks to delve into the details of the 80/20 rule. It looks to define the qualities, the characteristics, the facilities, and the abilities of the nearly 5,000 dealers who are the marine industry's frontline to today's consumers.

You could say that it's a grading system for professionalism, a term that has become the prevalent buzzword of late. The truth of the matter, however, is that there has been very little definition applied to this grading system. Sure, A-level dealers are the cream of the crop, and C-level dealers are the ones who need the most work. But what differentiates a B-level dealer from an A dealer? Or what puts a C-level dealer on the bottom rung, when he sells more boats than a B-level dealer?

It's a tricky formula. But it's an important one.
Without definition, the 80/20 rule delivers an “incomplete” grade to 4,000 dealers - with no opportunity for making up the work. In an effort to assist that 80 percent to improve, Boating Industry has made a bold attempt to clarify this over-used, yet little understood grading system.

Pay attention. You'll be graded on the test that will follow.

The Holy Grail

The idea of certifying dealers is not a new one. Much of the same discussion, albeit not to the same extent, took place back in the late 1990s in the form of the Marine Industry Certification program-an effort that imploded. The latest iteration of a certificate program-that you can read about on page 28-looks as though it will stick, and most, if not all of the criteria we've outlined over the next few pages, will be incorporated somehow into it.

Just about everyone we spoke with - dealers, engine manufacturers, association presidents, boat builders, marina operators - had some sort of idea what grading dealers meant to them. But mostly their ideas related to one or two specific items that could help certain dealers improve their business in one or two key areas only.

One person, however, lead us to the Holy Grail of grading systems.

A retired boat dealer, Noel Osborne ran dealerships in New Jersey, Pennsylvania and Florida before he turned the reins over to his son. Known throughout the industry as someone who genuinely cares about helping dealers improve their business, Osborne, since retiring, has dedicated himself to helping dealers run profitable businesses through speaking and training engagements, one-on-one consulting, and working with marine manufacturers to help them work better with their dealer bodies.

“I wish you weren't here,” he told a room full of dealers as a Yamaha University Dealer Management Symposium got underway last December in New Orleans (read about Yamaha U on page 10). “You're not the ones who need to be here. The dealers who should be here are the ones who decided to
stay home.”

He had a pretty good point. The 65 or so dealers who attended the New Orleans meetings were investing in their future, trying to improve themselves and their businesses. And that's one of the most important aspects of what makes you a good dealer - having the desire to make yourself better and acting on it - Osborne says.

All too often, he pointed out in his first session of Y.U., marine dealers enter the business because they love it, but they're not businessmen, and they soon find themselves making a miserable profit or, worse, losing money.

Their profitability, he says, is probably the single-most important part of becoming an A dealer. But it's not the only defining characteristic. Osborne has defined a grading system for CSI, dealership service departments, customers' perceptions, marketing plans, education, retirement and business planning.

“Whether you realize it or not,” he wrote in the Yamaha University handbook, “you are categorized as an A dealer, a B dealer or a C-level dealer by your suppliers.”

“And here I thought we were ranked 'good,' 'bad' and 'ugly,'” quipped Dennis Fountain, a dealer from Temple, Texas.

Units: Not applicable

The first thing you probably noticed using Osborne's model is that the number of units you sell has nothing to do with your grade. Volume does not equate to anything. High volume, by itself, could mean prime location and few consumer alternatives. Low volume could mean merely poor location.

On the flip side, however, volume equates to revenue, and what you do with that revenue is what's important. An A dealer produces the highest level of net profits, typically 5 percent or higher. Most A dealers target a 10 percent net profit and do everything they can to achieve it. C-level dealers oftentimes fail to make a profit, and if they do, are lucky to produce net profits of 2 percent. And in the middle, you've got the B dealers, who typically realize net profits of 2 to 5 percent.

As an example, let's say these dealers have equal amounts of volume, and each totals $5 million in sales. An A dealer will take home $250,000 at 5 percent net profit, and for every percentage point higher, he'll net an additional $50,000 to the bottom line. B dealers will recognize between $100,000 and $200,000 in net profit; and C dealers will be lucky to make $100,000. In fact, a C dealer would be lucky to reach $5 million in sales.

Osborne's opening-day seminar, the longest of all seminars at the three-day Y.U., focused intensely on improving profitability. Early in the seminar, he quoted Genmar's Irwin Jacobs, who reportedly once said that marine dealers don't make enough money to properly service their customers - and he built his presentation around fixing that fact. The amount of time Yamaha dedicated to the topic and Osborne's obvious passion for the subject underscored the importance of the content and the message. And not once during the three-hour session did he mention volume.

What's in it for the customer?

Servicing the customer is perhaps the No. 1 shortfall of the marine industry in its current state. The efforts under way with the Grow Boating initiative are looking to improve that with NMMA certification and dealer certification, but there are many improvement tools already in place for dealers.

For dealers, no one knows their customers like they do; and if they know them well enough, then they know how their customers perceive the dealership. According to Osborne, that perception means everything.

“If your customers and your prospects or future prospects in your marketing area perceive you as being the best,” he says, “they will want to do business with you.”

That's the mark of an A dealer: They are perceived to be a great place to do business with and typically the first place that pops into a customer's mind when it's buying time. The B dealer is thought to be an OK place to do business, but customers typically recognize that they are not the best and would likely give a better dealer more money for their products. And the C dealer is recognized as a lousy place to do business and is generally regarded as the cheapest, but not the best, place to buy a boat.

Perception is tough, though. There's no real definition to it, and some people don't really know how they are perceived. So Osborne also points to CSI ratings as a defining characteristic for a grade.

The A dealer, should reach CSI levels in the 90-plus-percent range. He's typically “obsessed with taking care of customers,” Osborne says. Their dealerships boast an “I am here to take care of you” atmosphere. And assisting with that high score, they have higher quality employees and higher quality manufacturers who demand certain levels of CSI.

B dealers recognize that CSI is important but do not have a business model devoted to delivering results. Their scores are typically in the 80 percent range. And the C dealer, who might attain a 70 percent CSI score, could care less about CSI. They typically have abnormally high customer turnover rates because customers tend to shy away from them. Additionally, the C dealer's customers typically won't bother filling out the CSI form, making the dealership's customer service hurdles difficult to track.

If there's one area of a dealership that interacts with the customer the most, it's the service department, another telling area of the grading system. The A dealer, according to Osborne, delivers excellent service. Their technicians are the best and are compensated accordingly. They do not accept having unhappy customers, and they'll do everything necessary to reassure customers that they care.

The B dealer actually understands what good service is and makes an effort to take care of the customer - but fails all too often. This dealer typically puts a higher emphasis on sales. Likewise, the C dealer doesn't focus on service, either, only offering the department because it has to. And he'll typically display the “you didn't buy it here, so don't bring it here for service” attitude.

Planning to plan

Yamaha President Phil Dyskow tells a funny story that demonstrates the importance of proper planning as it relates to grading dealers.
When approached by a dealer at the outboard manufacturer's dealer show, the dealer asked Dyskow, “Are you going to have enough of those F150s for me this year?”

Dyskow takes a step back and says, “I'm not sure, can you tell me how many you need?”

The dealer thought for a minute and responded, “Well, I don't know, but you had better have enough.”

And that's the problem with our industry, Dyskow says - we're always chasing supply and demand.

One of the largest sections of Osborne's Y.U. seminar focused on business planning. And on Day 2 of the symposium, he gave another hour-plus session on planning and forecasting. Because, he says, “one of the most crucial problem areas has been our failure to recognize the need for comprehensive business plans for our dealers.”

Those dealers who understand it are A dealers. They understand the importance of creating a plan and running the business in accordance with the details in that plan. They'll typically have a profit and loss statement in their hands by the 10th of the following month. B dealers will monitor financials and nothing else. C dealers don't plan or monitor anything, and their financial results reflect this.

According to Osborne, there are three parts of planning, other than the business planning, that help define the quality of a dealer's business: marketing, training and retirement.

When it comes to marketing, the A dealer has an annual plan in which he has carefully selected the best media and the best timing for his advertising money. The B dealer doesn't put as much importance on it and seldom capitalizes on the benefits of co-op advertising. The placement of his ads are typically decided at the last minute with little effective content or design. The C dealer doesn't understand a marketing plan and how it works for him.

Educating and training employees for the future is another strong characteristic of the A dealer. Typically, the A dealer has a plan to train all of his employees - not just sales and not just service - understanding that the dealer's profits are directly related to employees' performance, which is directly proportional to the education they receive. The B dealer typically sends a few employees-usually technicians-to training opportunities. And the C dealer doesn't train anyone unless he is forced to by his suppliers.

And then there's retirement. If a dealer hasn't planned for anything else, there's a good chance that he won't plan for retirement. The A dealer plans for it and thoroughly enjoys it, Osborne says. He knows when he wants to retire and plans accordingly, realizing that retirement planning is an integral part of financial planning.

B dealers retire on a shoestring in most cases. They have typically set some money aside over the years, but it's nowhere near enough for them to lead a comfortable and rewarding lifestyle.

Then there's the C dealer who never does get to retire. They work until they die, are bought out or go out of business.

Making the grade

So where do you fall in the grading system?
Are you going to be forced to work until well beyond your golden years? Or do you have a plan? Are you making enough profit to justify your six-day 50- to 70-hour work week? Do you even know if you are?

If Osborne's estimations are correct, you're probably not. He says that 50-60 percent of dealers are B dealers, 20 percent are C dealers and a mere one out of four is an A dealer. That's 1,250 dealers that can be considered quality dealers.

The importance of knowing where you stand goes without saying. Simply put: You cannot manage what you don't measure. If you don't measure your performance, your customers surely will. Or maybe they already are.

But you need to be honest with yourself in reviewing these eight critical areas - if you want to improve. But these are just starting points. There are many other areas where your business could be judged. There's commitment to your customers, your suppliers, and your employees. There's the value that you provide to those same people. There's your overall brand. And if there are some characteristics that are higher on the importance scale than others, Osborne admits, they begin with profitability and customer service.

“I think that all dealers have to recognize one basic thing,” he says. “They are all in business for two reasons: to take care of the customer and to make a reasonable profit. You can just stop there. And then say, OK, what do we have to do to achieve that?”


What are you worth?
By Tom Johnson, Boating Industry magazine editorial advisory board member and dealer standards and quality task force member.

Sam Snead once said that the only reason he worked so hard at golf was so he could afford to go hunting and fishing. I wonder how many boat dealers know why they are in business. Perhaps they have lost sight or totally forgotten why they own their business.

Despite all the excuses for staying in business there really is only one good reason to own a business and that's to make money. You can be a successful and poor doctor, or a poor but great artist or even a successful accountant with low income. But you can't be a poor, successful business owner. That's how you tell a successful business owner from an unsuccessful business owner - by how much money they are making.

Boat dealers often have a self-esteem or self-respect problem. They accept the years of long hours and low pay as if they can't do anything else. They are both ignorant and too closed minded to make the necessary changes to improve their lives. They don't see themselves as worthy of a better income.

They suffer through owning a mediocre business while their wife, kids and employees have to adjust to these poor standards. We live in the richest nation in the world, and you work in a difficult industry that demands risk, experience and professionalism. A boat dealer should command the respect and income that goes with this profession.

Our industry often talks about grading the dealers. Everyone has their own scale that they use to weigh the pluses and minuses of another dealer. I'd recommend we use our own scale to weigh ourselves. We each can decide what grade we deserve.

First of all, figure out what you are worth. You have thousands of dollars, vast knowledge and years of experience invested in a very specialized industry. You deserve to be making a lot of money right along with all of your employees.

If you are making a reasonable amount of money, the future for your wife and kids is secure and your employees are making a decent living, give yourself a “D”. If not, you are flunking and deserve a big “F.”

If you are making at least what you are worth, the wife and kids are well taken care of and your employees are doing better than average give yourself a “C.” When you make twice as much money as you did as a “C” and at least five times as much as you ever thought you would, give yourself a “B.”

If you get to the point of being happy because you are making much more than you are worth, you have freedom and peace of mind, your family's future is secure and your employees love working for you, give yourself an “A”. Isn't that what you should have been doing all along?

You have no excuses. Just demand more of yourself and of your business. You have the MRAA, Spader, the industry, the library and a world full of knowledge to help you. Just look in the mirror, see a potentially great successful businessman and then decide to live up to your potential. You only get to live once, why not be a success for yourself and all the people that depend on you.

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