Developing an expense map can help you get a handle on where your money is being spent.

By Denise L. Rondini, Executive Editor

Every year when you set your budget you are making conscious decisions about how you are going to spend your money: where you are going to increase spending; where it will remain flat; and where you will spend less.

Think of how much more efficient this system would be if you first looked in detail at all the places you were spending money. Doug Austin, founder and president of Performance Marketing Group, a division of Strategic Source Inc., thinks that each year a dealer needs to look back over his spending for the previous 12 months and evaluate exactly how much was spent on indirect categories. This includes things like phones, insurance, uniforms and office supplies.

“Anything that does not go into the final product you sell is an indirect cost,” he says.

This information can be garnered via your dealership management system. Most truck dealers have 70 to 75 categories of indirect expense, Austin says. “By pulling these reports, you will see exactly how much you spent with each supplier over the last 12 months.”

He adds, “This usually is a pretty eye-opening experience. Folks don’t realize how much they are spending and they don’t realize how many suppliers they have.”

Once the list has been generated, each item needs to be categorized using a common code. For example if you see bills from Office Depot, Office Max and Staples, those all should be coded the same, perhaps as office supplies.

“If he sees he is using four or five office supply companies he is not utilizing his leverage with one vendor to get the best prices,” Austin explains.

He advises dealers to set up a strategy for each of these non-direct expense categories. “The idea is to maximize leverage, to use the fewest suppliers you can, drive as much of the spending to those suppliers so you can maximize your discounts. Like it or not, vendors will discount based on volume.”

Austin suggests setting up an Excel chart to help you keep track of not only what you are spending but your strategy for each category.

The far left column would have the category name, for example office supplier or uniforms. Next to that would be a cell that lists how much you spent in that category during the previous 12 months.

Next to that would be the number of suppliers you had for that expense category. Next to that you could create a cell that says “we want to shave 10 percent” or whatever your goal is. The next column is a formula that includes what you had spent times your goal, which will equal your savings.

The final two columns should include the time frame in which this reduction will occur and who is going to responsible for seeing that the goal is accomplished.

“Now you have a document or a process that says, ‘Here is the category, here is what I spend, here are how many suppliers I have, here is my target for reductions, here is my strategy, here is the person assigned to it and here is when I am going to work on it,’” Austin says.

“It is a comprehensive tool and if you follow it to the bottom you can sum up quickly what your opportunity (savings) will be,” he adds.

Another benefit of doing this expense mapping is that it will allow you to see which of your contracts have automatic renewals associated with them.

“If the dealer is not proactive and does not terminate that automatic renewal the contract will automatically renew and typically will do so with a cost increase,” Austin says.

The information from the expense mapping can be used with those same vendors to renegotiate contracts. A dealer can go to a supplier with a request for a quote.

“If he goes in asking for the best price he will get one answer, but if he goes in and provides information that he spent $100,000 on office supplies last year, now suddenly the suppliers are going to get a little more aggressive,” Austin says.

The bottom line to expense mapping is that it starts to raise the visibility of all dealership expenses and allows dealers to become more strategic in their expense planning.