Editor's Note: This blog originally appeared on HarvestPotential.com on Dec. 18, 2024. 

Market fluctuations are inevitable in our industry, and downturns bring unique challenges. When the industry contracts, sometimes by as much as 30%, dealerships must ‘rightsize’ their operations to match the market realities.

To stay profitable and efficient in times of reduced demand, you must adapt to necessary operational adjustments. This requires timely, strategic decisions to streamline operations and maintain cash flow. Here’s how your dealership can navigate these challenging times effectively:

1. Avoid Growing Administrative Burden

A significant percentage of dealership expenses are tied to personnel. Dealerships are sized for the business they historically operate it. Be sure your staffing is aligned with market realities. Adding new hires without eliminating underperformers can inflate costs, especially during a slow market. Each new addition brings overhead costs, including salaries and training. Without eliminating inefficiencies, these expenses can erode already thin profit margins.

Action Steps:

• Conduct a Team Audit: Identify underperforming roles and potential opportunities.
• Focus on Revenue Generators: Aim for at least 75% of your total staff to directly generate revenue through sales, parts, or service. Assess your current ratio and adjust accordingly.
• Streamline Roles: Address underperformance and reassign responsibilities to improve functionality.
• Cross-Train Employees: Develop a flexible workforce capable of handling multiple roles. This ensures coverage while keeping headcount manageable.
• Reward Performance: Retain your most productive and versatile employees by establishing performance-based incentives.

2. Prioritize Quality Over Quantity

In a downturn, focus on depth rather than breadth. Avoid adding new products, services or initiatives without simultaneously removing these elements somewhere else. This “one in, one out” strategy keeps operations lean and adaptable. Many dealers I speak with feel like they don’t have time to do things. Don’t compound the issue by adding responsibilities without making room for them.

Instead of adding more products or services in hopes of attracting new customers, zero in on what your dealership already does well.

Action Steps:

• Consolidate Vendor Relationships: Reduce complexity by focusing on fast-moving or high-demand products. Eliminate low-volume, unreliable or time-consuming vendors.
• Strengthen Core Offerings: Enhance the quality and efficiency of existing products and services to maximize value for your customers.

3. Preserve Cashflow by Rightsizing Inventory

Dealers often sell down their equipment as fast as they can to right-size their inventory which is admirable.  But unless you’re eliminating slower-moving items to make room for new equipment, you’re at risk of bloating your inventory, which can tie up crucial cash flow.  What normally happens is we focus our equipment sales teams on equipment that customers want to buy, versus what we need to sell. Meaning that our harder-to-sell inventory gets older and older, and sucks more and more interest and curtailments out of our business. 

The goal must be to sell the “inventory we need to sell, so we can replace with inventory customers want to buy.”  Streamlining your inventory and focusing on faster-turning, higher-margin items will free up cash flow and improve profitability however that is often painful. 

Action Steps:

• Implement a Dead Stock Policy: Set strict timelines for how long equipment can sit in inventory before its discounted or removed.
• Increase Visibility: Share the true costs of carrying inventory with your team to emphasize the urgency of selling hard-to-move items.
• Leverage Data for Ordering: Stock high-demand, fast-turning items and special-order outliers to minimize inefficiencies.
• Get Creative: Use creative strategies to reduce inventory.

4. Streamline Operational Processes

Often, dealerships try to address process problems by adding more staff, but this approach can be costly and inefficient. Instead, focus on doing more with less by identifying and addressing inefficiencies while fully utilizing existing staff and resources.

Action Steps:

• Engage Your Team: Involve frontline employees in identifying bottlenecks. Ask each department to pinpoint their three most labor-intensive tasks and brainstorm practical solutions for improvement. Their insights are invaluable for uncovering hidden inefficiencies.
• Outsource Non-Core Functions: Reduce the burden on your team by outsourcing tasks such as marketing, IT support, HR functions, and warranty administration. This allows your core staff to focus on revenue-generating activities.
• Optimize Current Software Systems: Audit the systems you already use to ensure your team is leveraging all the available features. This could reveal overlooked tools that enhance efficiency without additional costs.
• Automate Where Possible: Invest in technology to automate repetitive and time-consuming tasks.

5. Avoid Decision Paralysis

One of the biggest risks in a down market is decision paralysis. Dealers often delay decisions, hoping for improvement in the next month or quarter. You may hesitate to make necessary cuts, worrying about their impact on morale or potential service disruptions. While these concerns are valid, setting a clear deadline for making critical decisions can prevent delays that might jeopardize your business. Without a defined timeline, you risk waiting too long for a revenue recovery that may not materialize soon. Remember, No decision is a decision—it’s a decision to stay on the same path.

Action Steps:

• Set Decision Targets: Establish monthly or quarterly goals for key decisions on tasks, products, or staff adjustments.

Key Takeaways

Navigating a down market requires disciplined streamlining and strong leadership. By adopting a “one in, one out” approach, you can maintain balance, ensure steady cash flow, and keep your dealership agile. Focus on eliminating inefficiencies, enhancing your core strengths, and aligning resources with market realities.

Though the farm equipment market will recover, survival during a downturn depends on data-driven decisions, disciplined execution, and proactive planning. Implementing these strategies will position your dealership to emerge stronger and more competitive when the market rebounds.