The recent introduction of the
Carrying Cost feature in Tractor Zoom Pro Inventory aims to help dealerships monitor this major detractor from profitability. Carrying costs, also referred to as holding costs, are the expenses related to keeping used equipment in inventory – primarily the cost of financing the equipment, as well as storage, insurance, and depreciation.
While holding cost has been less of an issue the last couple of years, today the cost of aging inventory is becoming increasingly important to track in order to remain profitable in this slower ag market.
Informed inventory management decisions
Tracking the carrying cost of inventory is crucial for dealers for several important reasons:
Inventory Turn: The carrying cost for each piece of equipment is directly related to the time that inventory spends on the lot. By tracking these costs in real-time, dealers can gain insights into how their inventory turnover rate is affecting their costs. Faster turnover will result in lower carrying cost per lot and likely better overall profitability.
Pricing Strategy: If monthly individual carrying costs are high, dealers can price aggressively, proactively wholesale or liquidate machines at auction in order to free up capital and cut losses. Knowing your carrying costs in real time, both individually and as an equipment category can allow for more strategic pricing, potentially increasing sales velocity and influencing your inventory trade-in strategy.
Profitability Analysis: Dealerships strive to have net profit generated from selling equipment exceeds costs, but carrying costs stake a larger claim to those overall costs as demand drops and interest rates rise. By tracking carrying costs in real time, dealers can assess the profitability of their inventory and make informed decisions about pricing and sales strategies.
Inventory Management: Understanding carrying costs helps in optimizing inventory levels. Monitoring data such as days listed, likelihood to age, and carrying costs – all available in Tractor Zoom Pro Inventory – are helping dealers easily identify at-risk inventory items that are incurring higher carrying costs, enabling the dealer to take steps to address those high-cost units. At a higher, strategic level, having real-time visibility into the holding cost by category can help directors and owners influence what type of inventory they choose to carry.
Cash Flow Management: Carrying costs eat into pool funds that could be used elsewhere in the business. Tracking these costs can help dealers better manage their resources and make fast and informed decisions about when to discount, wholesale or liquidate slow-moving equipment and how to prioritize the marketing and sales efforts of all equipment on the lot.
Actionable steps to manage your inventory
Andy Campbell, Director of Insights at Tractor Zoom, discusses the best approach to utilizing likelihood to age and carrying cost data to make actionable decisions about your inventory management and repricing strategies.
Step 1: Identify at-risk units
Using the likelihood to age predictive analytics alert feature within Tractor Zoom Inventory, sort inventory to identify those lots that are likely to age past 180 days. This is now your hot list of equipment to manage.
Step 2: Understand the opportunity cost of not turning equipment
Analyze those individual units on your hot list to discover their monthly holding costs. You can act to move those lots at the time, or take corrective price or marketing action. Using the note feature will remind you later what your action or rationale was at that point in time for that particular piece of equipment.
Step 3: Make a plan to adjust, monitor or move units
Now that you’re equipped with the cost of holding these individual units for another month, you can make a plan of attack.
Based on the likelihood to age insights, are there variables that you can influence to increase the likelihood of turning the unit without adjusting price? For example, can the potential to turn be increased by adding more quality pictures?
Is the existing list price in-line with where you want your equipment to be in the market? You can quickly see this by clicking on Compare to Market Average in Inventory to see how far above, or below the market average your list price is based on the 10 most comparable currently listed items.
If all factors are where you would like them, investing marketing resources or sales incentives for a period of time can help. A big challenge here is that it is challenging to remember what you did for each lot, and how to check their effectiveness. That is why Tractor Zoom Pro has built in the notes and notification within Inventory. Add a note about your action and set a 30, 60, or 90 day reminder to be alerted to check on the result of your marketing or sales changes.
Cutting bait. Immediately seeing the monthly holding cost can make the decision of wholesale or liquidation a simpler equation. Cutting a slow moving piece can free up the necessary capital to attempt to turn a more profitable piece and stop the bleeding from a lot weighing down your profitability.
When it comes to moving inventory, there are a variety of levers you can pull including repricing, incentivizing sales, wholesaling or even sending units to auction. Getting to the most profitable decision for your dealership can be helped with more knowledge, which the Inventory and Carrying Cost feature provides.