Don’t Let Modest Margins Lead to Marginal Service

It’s no secret that as the precision hardware market continues to mature, profit margins are shrinking for many dealers who are selling into a saturated and increasingly competitive market.

Talking with a group of dealers recently, several said they are fortunate to make single-digit margins on some new products, and they don’t anticipate those to increase anytime soon.

There are alternatives to the mainstream precision product lines and dealers are capitalizing on a “fries with that order” mentality to sell complementary products that prove useful to farm customers.

But even the fast food industry isn’t what it once was, and while supplemental products can be sold at 30-40% margin, profit from these products isn’t enough to sustain a precision business.

So how about service? Dealers see a combination of agronomic, technical and equipment services as a gateway to creating a recurring, more stable stream of precision revenue.

One of our recent online polls asked dealers to define their precision service margins. The results revealed a clear divide between those who are close to or have already made the transition to a more service-based business model and those who are still carving our their service niche.

Some 27% say they are making more than 25% margin on precision service, and it’s a consistent source of revenue. Another 27% say they are making 10-20% margin on service.

The remaining 45% say they are losing money or barely breaking even on precision service margins. At the 2017 Precision Farming Dealer Summit, Colin Hlavinka, precision farming manager at Hlavinka Equipment Co., acknowledged that not every service offering is going to be profitable.

He shared that the 8-store dealership average 8-10% margin on its service plans, of which it has about 50 active programs with farm customers.

“Is it a huge profit center? No,” he says. “But our goal is to try and realistically give the customer the perception that it is a partnership. Creating that impression that we’re dedicated, professional and knowledgeable is what will keep them coming back and over time that service performance means something.”

Setting a high standard from the start — regardless of margin — is how dealers can differentiate themselves.