Can The Pareto Principle Improve your dealership? (Updated)
Running an independent used car dealership is not a smooth process
From managing inventory, staff, and even time, there is never a dull moment when it comes to the day-to-day operations of a car dealership. Running an independent used car dealership is not the smooth process that we all dream about – there are many cogs in the machine. Just one seemingly small detail falling through the cracks can lead to a disruption of the entire process.
Sometimes, it can seem overwhelming when you are trying to micromanage every single small detail along the way. However, there are ways to make your busy life as the manager of a business less stressful, such as introducing the Pareto principle into your dealership.
If you haven’t heard of the Pareto principle before, you may know it by one of its many other names (the 80/20 rule, or the principle of factor sparsity to name a couple). The idea is, you can use the Pareto principle to prioritize your tasks and resources accordingly. By identifying the most important 20 percent of your causes, you can focus on addressing those causes to achieve the greatest impact. This principle is named after the Italian economist Vilfredo Pareto who observed 80 percent of the land in Italy was owned by 20 percent of the population.
Put into business terms, 20 percent of your sales bring in 80 percent of your profit. While this might not sound too bad up front, this brings up an important question that everyone who works in sales should consider: if only 20 percent of my actions drive 80 percent of the results, then the other 80 percent of my actions might be a waste of effort, time, and valuable resources. No one wants to hear that 80% of their actions go to waste. In reality, that time and those efforts are not wasted but you can probably find ways to maximize them using the Pareto principle.
Now, you can go down an entire rabbit hole exploring how you can apply the Pareto principle to the remaining 80 percent of your time and effort. Using the Pareto principle does not stop with business. You can use it to maximize productivity and efficiency while eliminating distractions almost anywhere in life or business. Over and over again, you will find how the Pareto principle can help you get the most out of your staff as well as their time and efforts.
How can you take the Pareto principle and begin applying it to your used car dealership successfully? Here are a few ways you can start:
- Streamline your inventory management. You can use the Pareto principle to identify which makes and models account for 80 percent of your sales. Focus on stocking and promoting your top-selling models to improve inventory turnover and reduce the amount of money you have invested in slow-moving inventory.
- Take a look at your marketing budget. If you are paying for generic marketing or third-party referral sites, there’s a good chance that you are marketing toward people who aren’t even interested in buying from your dealership. You should create ad campaigns that are specifically targeted towards the clients you want to see at your dealership – target certain neighborhoods or social media apps of the clients you want to see. Stop casting a wide net and start casting a net specifically for your target customer base. Don’t let your marketing budget go to waste.
- Reach for the top 20% of clients. If 20% of clients bring in 80% of the profit, then targeting those clients specifically will make sure that your effort does not go to waste. Pay attention to who your core customers at your dealership are, and focus on making their experience the best that it can be.
- Reward the top 20% of staff. Dealers know who their best salespeople are, and you should focus on rewarding the stars of your business just like you are targeting your ideal customer base. Give all of your staff the tools to succeed, but put extra effort into your top performers. Make sure they know that you appreciate their work, and invest in them so that they feel motivated to keep up the hard work. Having a good relationship with your staff can go a very long way for a business.
These are just a few ways to apply the Pareto principle to your dealership. Remember, just 20% of your efforts often lead to 80% of the profits – don’t let the rest of your effort go to waste. Focus on the 20% of clients, staff members, inventory, and marketing that yields the most return, and you will see a humongous change in your dealership in no time. You may even become passionate enough about the Pareto principle to use it as a way to improve other areas of your life as well!
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Discover how the Laser Appraiser Used Car Dealer Management Software and VIN scanner app can give your used car dealership the winning formula with a free used car dealer software demo today! Please share this article and start a free Laser Appraiser VIN Scanner or Dealer Studio demonstration to see how you can use these tools to increase your average used car profit margin on every transaction.