The secret is out – dealers all over the US and Canada are selling OEM parts online. Selling OEM parts online is a great way to dramatically increase department revenue. It also tends to be much more profitable than wholesale business.
If you’re a dealership parts manager ready to start etailing OEM replacement parts, there are some things you need to know.
1. It’s A New Business
Here’s the biggest mistake parts managers (and GMs and dealer principals) make when they launch a parts ecommerce website: they treat it like an extension of the parts department. This is the wrong way to approach ecommerce.
First, everyone should understand that selling OEM parts online is a huge opportunity. Dealers that find success are often doing millions of dollars in parts sales every year. In some situations, the parts department is netting more profit than the rest of the dealership!
Second, selling parts online isn’t the same as day-to-day parts business. While there are some similarities (obviously), the differences are significant:
- Online part sales margins are closer to wholesale than retail yet online consumers are not like your wholesale buyer. Online buyers often need help finding the right part, and they will call and ask questions about fitment.
- Efficient order processing is the difference between earning a profit and breaking even. Mistakes (like putting the wrong part in the box) are extremely expensive. Failing to get an order out on time can result in a canceled sale.
- Failing to verify fitment with the customer before shipping out the part increases returns. Our top performing OEM part retailers are calling to verify orders, and asking for VINs to reduce the odds of a return during phone calls, chats, and checkout.
- If you’re listing parts on Amazon, eBay, or another marketplace, speed is paramount. If your department isn’t able to ship out orders in a day or less, you’ll lose opportunities to sell parts.
Selling OEM parts online isn’t an impossible challenge, but it’s definitely not business as usual.
2. Marketing And Advertising Are Required
Launching a new business without marketing or advertising is unthinkable. However, because many parts managers and GMs don’t regard a parts ecommerce site as a “new business,” this is precisely what happens.
With few exceptions, online demand for OEM parts is brisk and competition is significant. Search for “OEM parts” for any brand name – Ford, Chevy, VW, Honda, Toyota, and so on – and you’ll see dozens of websites that specialize in OEM parts. You’ll see dozens more that offer OEM parts as a third party.
To be clear: All this competition is a good thing. Competition proves that there is money to be made. However, competition also proves that advertising and marketing are required.
3. Patience Is Measured In Months
Another common mistake that parts managers, GMs, and dealers make when it comes to OEM parts ecommerce? Running out of patience.
A brand-new OEM parts website will usually need 12-18 months to become profitable – and that presumes there’s an investment in marketing and/or advertising. During this time period, revenues will be small and losses will be incurred. However, sales will grow steadily between 6 and 18 months.
Depending on how fast sales grow, losses will stop. Parts revenue growth will help the department meet or exceed the manufacturer’s volume goals. Return online business will accelerate growth and increase profitability. Order fulfillment will become more efficient, increasing profits even further.
4. Shipping Is A Profit Center
As order volume increases, shipping will become a key focus of your parts ecommerce operation:
- First, it’s easier to secure discounts on shipping costs from UPS, FedEx, and others as your volume grows.
- Second, your team will get better at packing orders to reduce costs (right-sized boxes, weight reduction, etc.).
- Three, fewer mistakes (as a percentage of all sales) will reduce losses.
Many of our clients find that they make as much profit on the shipping charges for their parts as they do on the parts themselves. Many OEM part etailers will maximize shipping profits by marking up next-day and 2nd day shipping rates, and by pricing low cost parts very aggressively to try and increase order volume.
5. Matrix Pricing Is A Best Practice, And Aggressive Pricing Wins The Day
Last, but not least, it’s important to understand that pricing is vital to the success or failure of any online OEM parts store. If the parts are priced at the same margin as over-the-counter sales, the store is going to fail.
- Generally speaking, dealers are pricing OEM parts at cost plus 10% to cost plus 20%. The mark-up varies from one brand to the next, with most brands being closer to cost plus 10% than cost plus 20%.
- As part pricing increases, margins should decrease. Cost plus 15% might be just fine for smaller items, but when you get to parts that cost several hundred dollars, that’s likely too much markup.
We recommend cutting margins on parts over $400 to cost plus 10%, and going even lower if possible. That’s because selling a part that costs $500 or $1000 at cost plus 10% still earns $50-$100 in profit, not to mention mark-up on shipping. That’s quite a bit of money in a business where the average profit per transaction is $10-$20.
Also, selling a handful of high-priced parts can make a huge difference on the statement at the end of the month.
The trick to selling OEM parts online is to step back and treat online sales like a separate business. Pricing that works over the counter won’t work online, and sales growth requires investment in marketing and advertising. If your dealership is willing to invest for 12-18 months, online sales can be a great way to boost department revenues and hit manufacturer parts sales objectives.
Not to mention, online parts sales are growing steadily year after year. Dealers who don’t start offering parts online might end up wondering where all their sales have gone in another two or three years.