It’s certainly no industry secret that dealerships generate a healthy amount of profit from their brick-and-motor parts department, where margins are fatter. But what about when it comes to their auto parts eCommerce sales?
We live in a world where just about every bit of information is made perfectly available at your fingertips. Price-conscious customers are able to shop online and compare prices for auto parts across multiple platforms like Amazon, eBay, Google Shopping, and shops that parts sellers put up directly themselves. As a result, when selling parts online you can’t just toss up some common, everyday parts at the MSRP. Nor can you put the parts online for the same price that they are sold for at the dealership and expect sales to just start rolling in from all over.
Is it possible to be highly competitive yet still profitable despite the growing competition and cost of effective online auto parts advertising? With an effective pricing structure and a solid auto parts marketing strategy, it certainly is possible by taking advantage of the potentially huge volume of sales available online in the ever-growing industry of auto parts eCommerce. Below we are going to focus on some key factors that have helped our past parts managers achieve success online.
(You could always skip the hands-on approach and let an auto parts marketing agency take care of this for you.)
Margins & More
Volume Sales + Lower Profit Margins = Higher Overall Gross Profit!
When dealing with a majority of your customers face-to-face, it is much easier to focus on a set markup or profit margin. This is not the case when selling online. In order to remain competitive, you will likely have to decrease your profit margins. This does not mean you will make less money, though. Any number of sales at a 15% markup is more profitable than 0 sales at an 35% markup.
An advantage that dealerships have over a typical parts retailer is that their online sales can still generate revenue towards OEM bonuses and help them get closer to a 100% absorption rate. Again, volume is key to making this happen. Selling online gives you the potential to make sales and ship parts and accessories out in huge numbers. Moving out parts in such high numbers while focusing more on gross profit and absorption rates and less on the actual profit margin opens you up to incentives and benefits that may not be possible from the dealership’s parts counter alone.
A cost-based pricing model is essential for just about any online shop, regardless of the industry, and the world of selling auto parts online is certainly no exception. There is no magical markup that will ensure success. Pricing should be based on a number of factors. For instance, the more expensive items should have a lower markup in order to remain competitive. Because of the larger potential profit margins with the more expensive items, you are afforded a bit more room to be flexible and competitive with pricing. These factors should be in place regardless of whether or not you’re selling on eBay, Amazon, or your own online shop.
Is it really worth it to sell parts online at a much lower profit margin than you would with at-the-counter sales? The answer is a simple yet resounding YES! The key to success is in the numbers, and driving as many sales as possible across as many outlets as possible will ensure much more substantial profits over time.
The Pricing Matrix
A common concern for parts managers is that with smaller markups they may lose money for the lesser-priced items. However, staying competitive for the higher-priced items is also a concern. This can best be solved with a pricing matrix, or a sliding markup scale. A simplified example can be found below showing an item’s cost and the suggested markup:
- $0-$10 | Cost + 20%
- $10-$50 | Cost + 18%
- $50-$100 | Cost + 17%
- $100+ | Cost + 16%
These markups can get as low as 2%-5% — but that’s okay! With a proper auto parts marketing strategy and the right style of auto parts advertising, the sheer volume of sales will help you stay profitable. Some parts managers even list some of their parts as loss leaders in order to attract customers and make up that margin with up-sells and cross sells. It can be daunting to comp through a large inventory and manually setting prices specifically for online sales, luckily agencies with auto parts marketing experts can help automate this process.
The Cost of Shipping Matters
The auto parts eCommerce market-share value is expected to reach $12 billion in 2019, with Amazon sales accounting for nearly 2/3rds of that figure. Because of this, in order to be successful, you need to understand that the cost of shipping parts is inevitable and equally as competitive. If you have items that are priced higher than competitors, you should consider offering discounted, or even free shipping.
There is a psychology behind shipping costs that all successful online retailers understand. To the average consumer, a $65 part with $10 shipping is a lot less attractive than a $75 part with free shipping. Online shoppers love a good deal and love getting free stuff. The words Free Shipping will act as a catalyst to many buyers that are on the edge about making their next purchase.
Sales & Promos Lead to Paying Customers
To play more on the psychological aspect of online shopping, nearly all shoppers love a good sale (in addition to free stuff like mentioned above). You will not only gain more new, paying customers but you will also increase the overall lifetime value of your current customers. It is also a great method to snag customers away from other dealerships’ parts departments. A growing trend shows consumers growing more and more frustrated with their local options.
Since volume is the key to success here, you can afford to give your customers a discount here and there if it means that the volume of your sales stays at or above where it needs to be. A simple trick is to bundle together items with a high-profit margin into just one sale with slightly lower prices. Another practice that is gaining popularity is to offer your customers loyalty points or frequent shopping rewards. This helps to ensure recurring business.
- Seasonal Sales: 15% Off Freon & Engine Coolant In The Winter
- Bundle Sales: Free Wiper Fluid With Purchase Of RainX Windshield Wipers
- Loyalty Sales: Spend $100 & Get $5 Off Of Your Next Purchase
- BOGO Sales: Buy One Osram HID Dual Hi/Lo Headlight Bulb & Get The Other 50% Off!
Many eCommerce shops and platforms make it fairly easy to handle any of the options, the same is true for both eBay and Amazon as well.
OEM Interactive can help grow your auto parts eCommerce sales with our comprehensive auto parts marketing programs. Our services help you keep a more hands-off approach so you can instead put more effort into growing your bottom line. Contact Us today to see how we can help you increase profits!