Growth Strategy: Commercial Vehicles
Is your dealership interested in revenue growth and increased profits? Are you experiencing slimmer vehicle margins due to Internet competition driving down retail prices? Worried about the changing landscape of vehicle ownership and use? Breaking into commercial sales may be a great fit for your dealership.
The advantages include:
- Better margins
- More loyal customers
- More profitable service business
- Faster buy cycle (commercial trucks are replaced more often)
- Leads for retail sales
- Increased community engagement
- Less competition due to fewer dealerships involved in commercial sales Fewer portals like TrueCar.com or Cars.com to comparison shop
- Increased differentiation for your dealership
If you already have a commercial department, but you think it isn’t living up to its potential, step back and take stock. Consider reconstructing your commercial department the right way.
Insights from Industry Leaders
Authored by industry experts, this whitepaper will provide you a high-level view of the commercial opportunity and how to succeed in it. It will outline the steps to leverage your dealer brand, your OEM brand, and the resources already available for you to get started.
This paper also discusses how to assess your specific market and gives you a list of key industry-specific resources. These can help you build your commercial business, focus on your profit, flooring, staff, sales, and marketing.
You’ll find recommended ways to increase your profits and improve your ROI on the commercial business using proven strategies.
You’ll also learn to identify some of the “land mines” of the business, which partnerships are important, and how to maximize those relationships so that your suppliers will support your journey to success. In the end, this paper can prepare you to make a profitable entrance into the commercial business.
Introduction: Why Commercial?
Every dealer should consider selling commercial vehicles for a variety of reasons, including the added revenue and new profitability to their dealership. One of the primary opportunities for selling commercial vehicles is that, compared to retail vehicles, each commercial sale yields more profit. The average profit on a midsize sedan is around $700. Whereas the profit on a class 3 truck chassis is $1,600 – $2,000, and closer to $2,600 on a medium duty chassis (class 4 – 5).
Here is an example of the math on an upfitted vehicle:
Selling commercial vehicles can also become an inroad into building high-quality relationships with retail customers. Buyers who come to you for upfitted vehicles for their business will often consider you for their personal, retail purchases in the future.
Offering Unique Value
Selling commercial vehicles is a specialized field. It takes specialized knowledge and mastery of stocking inventory but offers numerous unique opportunities. It helps if you understand what businesses are most active in your market and which ones aren’t being served well.
In 2020, over 8,000,000 commercial vehicles were sold in the US. About half of those sales were to locally- or regionally- based small companies—the perfect target for a franchise dealership.
Commercial customers typically need a vehicle because a) their old one is no longer functional, which puts their business on hold, or b) their business is expanding. In both cases, they need their next vehicle fast. If you have the right one on hand or can get it for the customer quickly, your customer usually won’t try to haggle. Like used vehicles, upfitted vehicles are unique. Your customers can’t compare 10 of the same vehicle, so they’re not just browsing for the lowest price.
Make sure your customers know your dealership is committed to their commercial business and will provide them with competent, professional assistance. This seems like a no-brainer, but you’d be surprised to know that many dealers with a commercial department do not highlight it.
“Frontline display” an upfitted truck to highlight your commercial business. A business owner is far more likely to come into your dealership when he or she sees a commercial vehicle on display. It’s also important to include your commercial inventory in your marketing.
If you sell commercial vehicles, take the “Click Test” to see how your dealership stacks up: the goal is to get your commercial customers to your trucks and vans in two clicks! Customers shop online for an average of 9.5 hours before buying, according to Cox Automotive. And only 6% of commercial dealers make it easy for business customers to shop by separating the commercial and retail inventory on their website. This means that it might take a commercial customer 12 clicks or more to find a truck or van. Many won’t be that patient.
Selling commercial vehicles also gives your dealership an opportunity to increase gross profit and customer loyalty through fixed operations. This can be done through expanding your dealership’s services, such as adding specialized technicians and offering extended service hours.
Of course, 2020 new sales and profitability were highly skewed by the pandemic, but through 2019 new vehicles continue to drive dealers' business, especially through OEM incentives. But used vehicles and parts and service took a slightly larger share of sales in 2019 compared with a year earlier, NADA's midyear report showed.
Lithia reported that used vehicles, finance and insurance, service, body, and parts sales comprised 41.8 percent of their revenue but made up 79.7 percent of its gross profits. Lithia increased gross profits in all of the dealership group's business lines, except the new-car department, during the third quarter.
Asbury Automotive Group of Duluth, Ga., has a similar cost structure. Used-vehicle retail sales, parts and service, and F&I made up 87.3 percent of Asbury's gross profits in the third quarter of 2019 but comprised just 44.1 percent of revenue at the seventh-largest U.S. franchised auto retailer. New vehicles, by contrast, contribute 53.6 percent of revenue but make up just 13.2 percent of gross profit, compared with 55.8 percent of revenue last year and 15.1 percent gross profit.
DeLongchamps, of Group 1, said dealers' profit models are healthy when they focus on the parts of the business they can control, including parts and service, F&I, and used cars. "We're all still concerned about eroding margins on the new cars, and there's a lot of reasons for that," he said. "But they're all very real."
Commercial sales opens the door for your dealership to new revenue and controllable and dependable margins.
Dealership Support a Must
Before launching a commercial department, it’s important for your principal and general manager to commit to the business.
First, because it takes time to build, a commercial department is a business-to-business venture that requires relationship-building. Sales will likely start slowly as the book of business is being built. Meaning some patience and commitment are needed. Commercial salespeople, called Truck Pros, are unique from retail salespeople, receiving both a base pay plus a commission.
Second, because your dealership must commit to marketing to the community on the existence of the commercial department, and
must authorize the purchase of the necessary digital tools to manage sales, marketing, and inventory.
How Can Dealerships Support Truck Pros?
Other departments must realize that commercial customers have specific needs, and the commercial department is the best suited to serve them. It’s critical for your dealership to support the commercial effort by directing all commercial buyers to your Truck Pro(s).
When your Business Development Center interacts with a customer, your associates should have a system of identifying if they’re a commercial customer. Then, they should direct the relevant prospects to your commercial specialist. The process can be as simple as asking, “Will this vehicle be for business or personal use?”
OEM Commercial Program
Some business buyers are OEM brand loyal and will automatically start their search with their local dealership. Many OEMs have special commercial programs that can offer you support and enhance your customers’ satisfaction. They can encourage you to stock the right vehicles and ensure you offer commercial parts and service in your facilities.
Examples of commercial programs include Business Elite for General Motors, Commercial Vehicle Center for Ford, and Business Link for Fiat Chrysler Automobiles.
If you want to succeed as a commercial dealer, you should seriously consider participating in your OEM’s commercial program. Fulfilling the requirements for their program can make you a preferred “fleet friendly” dealer for your brand, so you can get field support from your OEM’s commercial team.
Your OEM might have requirements on staffing, minimum inventory, marketing activities, and service bay dimensions. They may also require the ability to provide next-day service and special training for sales, service, and parts. There’s usually a monthly fee, as well.
Review the program details, keeping your internal resources and local market in mind. Then you’ll be in a better position to decide if the OEM program is a good opportunity for you.
Ask your OEM(s) to provide their program agreement. Ask what tools and services they support with their commercial program co-op and how their field team can help your dealership.
Ask your OEM for names of other dealers who are part of the program. Then, reach out to those dealers to answer any questions you have before becoming fully committed.
Commercial sales and development advisor Ken Taylor is available for a free first session to help dealers considering commercial sales. His group also provides comprehensive commercial sales training in a “Boot Camp” setting and as a consultation held at your dealership (See the Resources section for more information.)
Commercial vehicles typically have a higher average cost, and the buying process takes longer than retail. Because of this, mastering flooring is an important key to your profitability.
Through technology available today for smart ordering and improved access to inventory, you can sell vehicles before the period of free flooring ends. By doing this, you can earn $7-$10 for each day remaining in the free flooring period. That can add up fast.
OEM Floor Plan Assistance can incentivize you to stock a healthy supply of commercial inventory, including typically slower-moving work trucks and vans. If you’re participating in an OEM’s commercial program, there could be an extended period of free floor planning based on specific vehicle models.
Upfitted vehicles add another variable to flooring costs. When a chassis leaves the factory, it can be shipped to an upfitter who performs the conversion, then bills you for the service. Here’s the good news: your source of financing can pay the upfitter for the service, and that amount is added to your floor plan.
Here’s an example of how all these elements work together:
- The vehicle is a Ford and has an MSRP of $35,000, options of $5,000, and a $10,000 upfit.
- The invoices for this vehicle total $49,250, prior to marketing association fees and other add-ons.
Using a Trade Network to Reduce Flooring Costs
Using a trade network to sell and move commercial vehicles faster is a great strategy to keep your flooring costs down and your profits up:
Let’s say you have a “work ready,” upfitted truck on your lot, and you’re approached by another dealer who has a customer for that vehicle. You, the stocking dealer, have the option to become a “wholesaling dealer.” You can sell it to the other dealer at dealer invoice, even retaining hold-back because of the costs you’ve accrued from that vehicle if the vehicle has a “stocking dealer” invoice from a body upfitter, that gives you a second chance to profit. The other dealership benefits because they complete a sale. And since work-ready trucks are hard to find, their customers are less likely to find the right upfitted truck somewhere else. The other dealership won’t have to worry about competing for the lowest possible price.
Encourage your commercial team to use a trade network to move older vehicles. It’s better to accept a lower margin on one vehicle and gain an opportunity to start stocking the newest model in demand than to continue paying flooring in hopes of a sale.
Work with other dealers to stock different types of finished vehicles, covering more of your local market’s demand.
Use tools that track buyer trends, such as Google Analytics, to understand how your commercial inventory is being searched for and looked at online.
Unique Market Opportunity
One of the best things about commercial sales is that it’s a local and regional business. Because of that, you can start by focusing on a few specific vocations that are strong in your market, adding more vocational segments over time. The opportunity isn’t affected by the size of your business, only by your focus and commitment. Deciding your first commercial specialization is an important step. To meet the specific needs of commercial buyers, you must understand the upfits required for their vocation.
A typical Standard Industrial Classification (SIC) code list is provided in the Resources section. This is to help you consider what vocations you could be serving in your local or regional market.
By building relationships with local dealerships, your commercial department can create a regional trade network. Additionally, you can subscribe to a national dealer trade network. These can help you quickly locate the right vehicle for a commercial customer if you don’t have what they’re looking for in stock.
How Upfitting Works
Dealerships order upfits and accessories directly from the body manufacturer or regional distributor who will modify the vehicle. Upfits and combinations of accessories range in both complexity and cost. The average cost for the most popular body—a utility or service body, commonly used by electricians and contractors—is $7,000 - $15,000. Other specialty bodies or accessories such as snowplows, cranes, and lifts can increase that cost significantly. Dealerships have an opportunity to increase profits by adding a mark-up, either a flat fee or a percentage, to the cost of these upfits. This amount is typically 10% - 15% but can vary significantly, with some unique upfits producing over $5,000.
To provide a better experience for your customers, find a way to let them search your vehicles by their specific vocational needs. This can build their confidence in your dealership. Work Truck Solutions offers a customized commercial inventory site and other tools to help you convert more of your online shoppers into interested buyers. (See Resources section.)
Make sure your dealership has at least one “Work Truck Professional” who understands upfits. Commercial customers should ALWAYS be directed to them immediately. Your customers appreciate being helped by someone who understands their business needs, and commercial customers are also much more loyal than retail customers. In business-to-business, relationships count for a lot.
Marketing and Sales
Your commitment to commercial sales begins by letting customers know you’re in the commercial business. A marketing program is critical to your success as a commercial dealership. If you identify a large commercial sales opportunity and you intend to stock upfitted vehicles, it’s important to promote your business and inventory with a comprehensive marketing budget.
Creating an intelligent budget is the most important thing your dealership can do for commercial business. Here are three questions your dealership needs to ask before creating a marketing budget for commercial business.
- What are our goals?
- How fast do we want to scale?
- What is our risk tolerance?
When creating a marketing plan, you need to set measurable goals that the department can track and adjust. You can test a local market by focusing on a unique vocation or two, using a trade network to supply commercial vehicles outside of your selection. With this specialization, your marketing can be much more targeted. The strategy is not only to build a new business but tell customers that your dealership is unique.
You should review the outlets currently used to advertise similar businesses and leverage them to educate your local small businesses' market. By using both traditional and digital media, you can reach commercial vehicle buyers in a variety of ways, including memberships in local associations, attending local and regional trade shows, direct mail, email marketing campaigns, Google AdWords, social media, prospecting, sponsorships, and third-party online classified sitesƾ and no2, even a national market+lace is available ǜComvo4.comǝ. Whatever the outlet, the objective is to target businesses and direct customers to your commercial inventory online or on the lot.
Dealers in the past have been challenged by limited data on commercial buyers, leaving them to use the “how we’ve always done it” or “shoot from the hip” technique of projecting sales. But now there are some new tools to help you get a better picture of your business. These tools aggregate buyer interest, trends, and benchmarks. They can give you a better idea of what your customers are looking for, which vehicles are getting the most or least views, and how to increase the traffic coming from your site to your dealership.
Proactive, Relationship-Based Sales
Activity-based sales are key for a commercial sales department. Successful commercial salespeople (Truck Pros) proactively call local businesses and discuss how to best meet needs on an ongoing basis. These activities include: setting appointment sales meetings, following up, practicing word tracks, and calling for appointments. In business-to-business sales, the main goal of an initial call is to get the next appointment—not to sell a truck or van immediately.
Your approach is also critical in business-to-business sales. Research indicates there is a 1% chance of making a commercial sale on the first appointment call. A Truck Pro who pushes selling a vehicle too hard will never get a second appointment. Even on a second appointment with the same prospect, chances of closing only increase to 3%. However, savvy Truck Pros who begin by establishing a relationship with a business can expect great things. By the fifth consecutive contact, the chance of closing a deal jumps to over 81%! Success is developed by building a relationship first, adding value second, and selling third.
Commercial trainer Ken Taylor explains that Truck Pros can get calls and build relationships through networking “groups.” For example, a vital part of an activity-based plan is the sponsorship of events, such as meetings, golf tournaments, and fishing tournaments. Committed commercial and fleet departments sponsor events at least once a quarter to gain maximum exposure.
With a solid combination of sales and marketing strategies, Ken Taylor suggests each Truck Pro should have a goal of selling 15 vehicles each month and moving the average up-front gross profit to $1,500 per vehicle.
Make sure your commercial inventory is easily found on your site, separate from your retail inventory. Your work trucks ƙ vans should be searchable by vocational body type, and customers need an easy way to reach out to your commercial team. Remember the Click Test: the goal is to get your truck buyer looking at specific, relevant trucks in two clicks.
Commit to at least one proactive marketing campaign.
Sponsor golf tournaments, trade shows, and contractor-appreciation days at your dealership. These are great ways to gain broad exposure and collect data on hundreds of potential customers.
Since social media marketing is im+ortant, create a commercial fan page on Facebook, a YouTube channel, and a commercial LinkedIn account.
Incentives from OEMs
OEM commercial programs also provide unique incentives, typically on a seasonal basis. These can help your customers with the cost of upfits. Incentives like this are part of your OEM’s commercial program and do not affect your overall profitability.
Whether these incentives help “pad” the total package your customer can buy or just drive overall sales, they increase your total store profit. Also, by increasing sales, the incentives increase the commercial inventory allocations your dealership earns. Meaning more trucks on your lot and more opportunity to differentiate your dealership.
Use a marketing newsletter service to communicate directly to commercial buyers. This can let your customers know about what vehicles you have in stock and what promotions your OEMs are offering, such as rebates. (See the Resources section for information about Ken Taylor’s newsletter and Work Truck Solutions’ targeted commercial email service, Communicator.)
Join local vocational groups and attend their meetings to distribute incentive materials provided by your OEM.
Spend time with your OEM’s commercial, regional representative, so you understand all the incentives available.
Incentives from Body Manufacturers
You may receive special pricing or delayed invoicing from body companies that need finished vehicles in your market. Body manufacturers may also have a reward program where dealers, or Truck Pros, can earn personal incentives by selling their specific upfits.
Don’t be afraid to stock work-ready trucks—it puts you in the driver’s seat and expands your market area as well. Your local distributors are a big help.
You can receive direct referrals from a body manufacturer when a customer asks them or searches their site for an upfitted vehicle. Work Truck Solutions is placing locator buttons on body manufacturers’ and distributors’ corporate websites to direct truck buyers directly to a stocking dealer’s inventory.
Work with a supplier to get a landscaper’s chipper truck or something used by a specific vocation active in your market. Display it on your dealer lot. Even if it’s wholesaled away, order another in its place. Drive-bys will see your dealer has what they need, and when they need one, they’ll know where to go.
Commercial vehicle sales experienced solid growth in 2020, with new categories such as home delivery taking off. New products targeted to specific vocations, new commercial van models, and alternative fuels are just a few of the other exciting product opportunities that are available to dealers in this exciting business.
On top of bringing new business to your dealership, a commercial department can dramatically increase retail sales. Business customers who rely on your dealership for their 2ork vehicles are more likely to come back to you for general pickups and cars. In fact, these business relationships will not only drive retail sales from the individual owners but their employees and families as well. Research conducted by one OEM shows that for every medium-duty truck sold, an additional 7 - 10 vehicles are sold to em+lo4ees of that business.
Business customers also rely on local dealerships for commercial servicing, financing, and more. Once you take care of a business customer well, they can bring you all their business for years to come. Compared to retail, the loyalty between dealers and buyers is much more developed in commercial sales.
Now is the time to jump into the commercial business. There is a lot of opportunities, and not too much competition yet. The overall sales force is closing in on retirement, too, which opens even more market potential. Your dealerships can bring creativity, passion, and personalized style to a quickly growing opportunity.
Talk to other commercial dealers about how the decision to become a commercial dealer increased their profitability on parts, service, detailing, body shop, and financing.
You know that loyal customers tell others. Commercial customers are the most loyal of all.
Go online and search for a specific upfitted vehicle such as a flatbed truck or a service body. Document how long it takes to find the vehicle (count the clicks). With a Work Truck Solutions dealer, it’ll take only two clicks!
The following resources have been committed to being available, at no charge, for an initial discussion with you on starting, expanding, or maximizing a commercial department in your dealership.
Nationally-known “America’s Corporate & Personal Coach.” Ken is the author of two books and over 1,000 articles that have been published in fleet and commercial newsletters and publications. He speaks to over 5,000 sales professionals a year and is considered the foremost expert in sales and marketing for commercial and fleet sales in the nation. His team consults with dealerships across the nation, and he works with General Motors, Ford Motor Company, Fiat Chrysler Automotive, Mercedes Benz USA, and Nissan as well as working with industry partners such as Ally Financial, Work Truck Solutions, Work truck Trader, Knapheide, Adrian Steel, and many others. His consulting team is unique in that they actually make sales calls with their clients.
CEO/Founder of Work Truck Solutions. Work Truck Solutions is the first commercial vehicle inventory solution that enables dealerships to display and search truck inventory by chassis and body type, creating a simplified process for finding, quoting, and floor planning work truck inventory online. Launched in 2013, Work Truck Solutions is growing rapidly and gaining success with OEMs, body manufacturers, and individual dealerships across the country. Today Work Truck Solutions is serving dealers from all major commercial brands and has co-op programs in place with several manufacturers to off-set 50 percent of the monthly fee. For more information about Work Truck Solutions, please visit www.worktrucksolutions.com, or contact Kathryn.
Founder of Work Truck Success and Upward Trends Management Services and the author of Work Truck Success, a comprehensive guide for building, rebuilding, and effective, successful, and profitable work truck operations within a retail auto dealership. Now in its second edition, Work Truck Success is available on Amazon.com.
- Phone: 707-434-9967
- Email: email@example.com
- Website: www.commercialtruckdealersuccess.com
National Truck Equipment Association (NTEA)
Established in 1964, the association represents nearly 2,000 companies that manufacture, distribute, install, sell and repair work trucks, truck chassis, truck bodies, truck equipment, trailers, and accessories. The association is unique in its resources for helping industry businesses grow through technical information, education, networking, and member programs.
Typical Standard Industrial Classification (SIC) Vocations
The Standard Industrial Classification coding system is a widely-used method to classify industries. In use for 80 years, SIC codes are used by governments, businesses, and non-profit organizations to categorize data. From the vast list, the following are highly relevant to commercial vehicles.
- Agriculture Farm Labor Contractors
- Air Conditioning Contractors & Systems
- Building Contractors
- Cabinet Makers
- Electric Contractors
- Electric, Gas, Utility and Water Services
- Forestry Services
- Furniture and Fixtures
- General Contractors
- Heating Contractors
- Heavy Construction
- Industrial and Commercial Machinery
- Landscape Contractors
- Lumber and Wood Products
- Masonry Contractors
- Mining, Gas, Oil
- Plumbing Contractors
- Primary Metal Industries
- Remodeling & Repairing Bldg Contractors
- Rubber and Plastics Products
- Stone, Clay, Glass and Concrete Products
- Textile Mill Products
- Tile-Ceramic-Contractors & Dealers
- Trade Contractors
- Trucking and Courier Services
Commercial Department Success
These have been selected as examples of what successful dealerships are doing to increase profitability by selling commercial vehicles.
Learning How to Stock:
One dealer had never stocked a dump truck. However, with dumps showing on their site because of the trade network, their Google Analytics provided by Work Truck Solutions showed dumps were the third most searched body type on their site. They went ahead and stocked a dump and sold it. They stocked another, sold it, and in December, they sold six. Now they always keep one in stock and often see a $10,000 return on each.
A new salesperson was using “Two-Minute Prospecting” to attempt to sell the truck that had been on the lot the longest, a chipper truck. He researched a list of most likely buyers online (he found 20) and sent the truck with a motivating message. The results? He not only sold the truck on their lot, he sold an additional one he acquired through a dealer trade.
A dealer had invested in an expensive mechanics truck and was having trouble selling it in his market. Because it was so unique, he could use the specific URL for that VIN in a Google AdWords campaign and not only sold one outside of his market (for a $15,000 profit), he sold a second one!