CATERPILLAR (UK) LTD

THE BOOK OF MYTHS.

LEICESTER VISITOR CENTRE
PECKLETON LANE, DESFORD
LEICESTERSHIRE LE9 9JT

TELEPHONE: +44 (0)1455 826 736

WWW.CAT.COM
NEW YORK’S SEWER SYSTEM IS INFESTED WITH DEADLY ALLIGATORS.
YOU CAN SEE THE GREAT WALL OF CHINA FROM THE MOON.
YOU CAN’T MAKE MONEY OUT OF BCP MACHINES.
EXPLODING THERE ARE NO DEADLY ALLIGATORS IN NEW YORK’S SEWER SYSTEM.
YOU CAN’T SEE THE GREAT WALL OF CHINA FROM THE MOON.

THE MYTHS. BUT YOU CAN MAKE GOOD MONEY OUT OF BCP MACHINES. THAT’S A FACT!
Here’s another fact: the Holy Grail doesn’t exist (But you just might find it here... so read on!)
Over the past 3 years, we’ve been talking to, working with, and finding out what turns certain The central question we asked was: “What are the key components
Local Contractor (LC) Dealers into truly top performers, year in year out. These are the ones that make you successful in the LC business and how do you measure it?”
we’ve learned from.
Six key answers emerged…
Brad Rinderer General Construction Sales Manager Gregory Poole
Jassen Volk VP of Compact Equipment Division Blanchard Machinery
John Danesi CCE/Agri-Business General Manager Whayne Supply 1 > Executive leadership supports the business. 2 > Defined accountability
Mike Pospischil General Sales Manager Johnson Machinery
Mike Ellis General Construction Division Manager Carter Machinery for the Local Contractor business segment. 3 > Strong rental footprint
Kevin Robbins
Saint Currin
Senior VP, Director of Rental Services
Regional Sales Manager
Ring Power
Ring Power
with allied and aerial product. 4 > Recognize the value of product support
Caterpillar established its first major facility outside the US more than 50 years ago in the United Kingdom. The presence of Caterpillar in the UK has
grown rapidly in recent years, and the company now employs over 10,000 people. The United Kingdom is the largest base for Caterpillar outside the
United States.

Hasting Puckett Senior VP - Sales, Rental, Product Support Puckett Machinery for the Local Contractor. 5 > A commitment to PINS leadership 6 > Active
Not just to explode the myth that there’s no money in BCP machines, but to discover the secrets of their success, to share with all Dealers, everywhere.
Learning from top performing Dealers is key to developing strategies that bring profits to the BCP business. We wanted to use what we discovered to
measurement of Participation and Close.
create a winner’s profile that everyone could learn from, to discover the best practices that help attain higher PINS, and lead to real,
long term profits.
 After talking to the top performers, this one’s definitely not a myth. Successful Dealers use
Multiple Price Options (MPO’s) as a central part of their business strategy. And like all the best

SECRET WEAPON ideas, it’s perfectly simple. If you dispose of Used Equipment through auctions you’re missing a
big money making opportunity.

DISCOVERED Here’s why: by being able to set different price points for your various machines ( i.e. New,
Cat Certified Used low hour machines and regular Used equipment ) you can get a customer

IN DEALERSHIP. into a CAT machine that he could not normally afford by offering a quality Used Machine.
MPO brings you into contact with new customers, allows you to sell them parts – and hopefully
convert them to being a new machine customer in the future. And there are more secret
weapons to more business in the following pages…
 The first part is an executive summary of the common Dealer practices that are an essential
part of a successful Dealer’s market strategy – the ones that need to be in place to succeed
in the LC business.
The second part summarises the Dealer’s organisational structures. This is intended to show that different organisational structures can bring success -

LET’S GET STARTED.

providing the common Dealer practices are in place, and put to good use.

The best is last. We’ve identified key Dealer metrics and best practices for the total LC business and each functional area. This checklist is not
exhaustive. In fact, certain metrics being used by Dealers may not appear here. That’s why, in the tables that follow, a blank column has also
been added, so that you can insert your own values for comparison.

The CAT and Dealer team believe strongly, however, that the ones shown here
are the critical metrics that really have proved to make the difference between
success and failure in the LC business.
 NEW SALES RENTAL/USED MARKETING PARTS/SERVICE

Common Practices:
The majority of the
participating Dealers Standardized PDI & Committed to the Marketing critical CCE Managers for sale,
had the practices
listed in this table
machine configuration Rental Business to success service, used & rental
BENCHMARK METRICS Each Dealer provided input on identifying the key performance metrics
which we (and they)
consider essential in Dedicated CCE Rental Fleet available Seasonal Events ISR for smaller
along with their results to establish a Dealer average. The Cat Dealer Average was calculated by
Sales Force for sale at all times customers
order to succeed in
the LC business.
averaging available data from 2007, 2008, and 2009 from a number of Dealers. All agree that the
Motivating Sales
Compensation Plan
BCP Rental & Sales
combined
Telemarketing/website
promotions
Dedicated CCE service
bays and techs
benchmarks are: reasonable, attainable and arrived at from Dealer data.
Competitive labour,
Committed to PINS
leadership
MPO strategy
in place
Demos/customer days Standard jobs & flat rates Total business in each functional area is separated into primary and secondary metrics as
identified by the Dealer team. A list of individual Dealer best practices follows each section,
Actively measure Strong Allied/Aerial Target Trade Shows PM Strategy in place
participation presence to provide greater detail on how these performance standards can be attained.
Training Program Used Market Strategy Retail Parts Strategy
(soft skills & product) well developed

TOTAL BUSINESS ACCOUNTABILITY - ONE STOP SHOP...

 DEALE RS PROFILE
RAGE

ENTRY DATA
MARK
TOP TIER METRICS

R AVE
TOTAL BUSINESS

R
E
BENCH

DEALE
WINN
GROSS PROFIT MARGIN % 30% 28%

DIRECT EXPENSES % 20% 20%

PRIMARY PROFIT AFTER DIRECT % 10% 8%

INDIRECT EXPENSES % 5% 4%

OPERATING PROFIT MARGIN % 5% 4%

OPERATIONAL ABSORPTION RATIO % 35% 35%

% NEW CUSTOMERS ANNUALLY 25% 8%

SECONDARY
INDIVIDUAL DEALER BEST PRACTICES
> Executive support to rental/LC segments is critical to success. The approach for the
local contractor business is significantly different to traditional business. Change management,
financial resources and time commitment is crucial to success. Success inevitably involves
cultural shifts and lean cost structures.
> Defined accountability at a leadership level for the LC business. Accountability and
taking responsibility are necessary to execute successful change.
> Different distribution strategy to focus on the LC vs. the traditional business. Critical
customer requirements are identical (Value, Responsiveness, etc), but the definition of the
‘responsiveness’ requirements is considerably different between a residential customer
(hours) and a heavy construction customer (days). LC requires a different business model to
meet expectations.
> Clear understanding of the LC opportunity for the Dealership. Understand the rental,
used, work tool, and product support contribution. The local contractor market segment is
typically in the first three for industry opportunity.
> Separate financial statement including all business functions (new, used, rental,
product support). Accountability for a business requires a comprehensive income
statement. Managers need visibility to the entire revenue stream that customers and BCP
models contribute.
> Defined accountability for Marketing to support the LC business. It’s impossible to
justify the cost of calling on local contractor business face to face. Marketing efforts are
critical to pull customers to the Dealership in cost effective and targeted ways. Marketing
must generate leads, qualify leads, and distribute leads to improve participation and closure
of a deal.
> Diversified product offerings to support the LC – machines, rental, consumables,
and product support. The local contractor represents ‘non-traditional’ customers. In a
business based more on cash flow, purchase convenience is a real advantage. The ability
to rent, purchase, and finance all products will pull a customer to a Dealer.
> Vision of what success looks like along with an execution plan. To implement a
business model change (drastic or minor), the plan needs to define how success is measured.
Success includes but is not limited to: revenue, profit, coverage, market share, participation,
close, % new customers each year.
> Dedicated, retail facilities to support LC for all business needs. Local contractors
are prone to do business where they are comfortable. The appeal of our BCP and rental
competitors is their welcoming, retail environment. Most local contractors feel that they
are unimportant in traditional main stores... that the Dealer doesn’t want his business.
Creating a welcoming environment is challenging in large facilities, but it can be done!
> Partner with reputable industry leading companies (e.g.,landscape company) to
gain access to unique customer base.To build awareness in a specific industry,
Dealers learn where retail activity occurs and build a brand presence. These can be cost
effective touches in untapped markets.
> Salesmen need to be an indispensable resource to customers. Therefore, they
must be an indispensable resource to the Dealer. Decisions need to balance the tangible
and intangible cost of developing a salesman (training expense, learning Dealer culture,
experience, customer relationships). Because salesmen are revenue generators, some
Dealers are willing to operate at a loss in a functional area during a downturn... because
they know when things turn around they retained the sales force that will maximize the upturn.
> 70% of advertising and promotion mailers are product support focused. Marketing
departments frequently focus the majority of their attention on new machine sales when rental,
product support, and used drive more profit to the bottom line.
> Recognize Rental is a critical piece to the success of the CCE/BCP business.
Successful rent-to-rent Dealers remark that rental and the local contractor customers overlap
80%+. Rental provides: 1) new customers, 2) quality used equipment, 3) product support, 4)
PINS, and 5) sizeable profit to a Dealership.
> Understand the importance of increasing machine population to generate product
support opportunity. Dealers are reaching this critical mass by repairing non-Cat machines,
pulling local authority work into workshops, or centralising rental/machine prep/branch repairs
at limited locations. To justify dedicated bays and technicians, a Dealer needs to consider that
generating the same revenue as a traditional Core Machine Industries (CMI) shop requires a
magnitude of 4 to 9 times the volume of equivalent CCE invoices.
 DEALE RS PROFILE
RAGE

ENTRY DATA
MARK

R AVE
NEW MACHINE SALES INDIVIDUAL DEALER BEST PRACTICES

R
E
BENCH

DEALE
WINN
> Defined accountability to sales reps through scorecards drives visibility and > Lead Management System in place and being utilised to monitor existing and new
REVENUE MIX % 25% 25% execution on key performance metrics. Individual salesmen’s product knowledge (Cat business. Many Dealers have the software in place, but most critical to success of any CRM
& competitive) and sales performance are scrutinised and compared to those of their peers. system is the process and training that encourages salesmen to use it.
GROSS PROFIT MARGIN % 14% 14% Sales reps know exactly what their targets are and they are updated quarterly on results.
> Actively use participation and closure rates to manage the retail business. Track
PRIMARY DIRECT EXPENSES (NEW & USED COMBINED) % 10% 15.9% > Soft skill and product training is not an option. An ever increasing competitive sales
environment coupled with diminishing product differentiation demands a well educated
participation to drive coverage or business changes. Drive business decisions by managing to
a forward-looking forecast rather than from a historical perspective.
FINANCIAL INVENTORY $ TURNOVER 4.0% 2.3% sales team. Financial incentives are in place to drive engagement. Competitive trade-ins are
also used as opportunities for product training. > Execute work tool sales strategies. Open doors to new customers. CCE salesmen actively
TOTAL BCP/CCE PINS % 29% 29% promote used work tools with new machine sales to improve competitive price position. Work
> Updating inventory on a monthly basis. The local contractor customer can be an impulsive tools RPOs are also used to provide a customer solution.
CLOSE RATE (RETAIL ONLY - SALES TYPE 1,2,3,4)% 70% 68% buyer. Having product pricing (new, used, rental conversions) and inventory on the ground at
all times is critical. > Promote CCE sales as a lucrative career position. CCE is not treated as training ground
PARTICIPATION (RETAIL ONLY - SALES TYPE 1,2,3,4) % 50% 52% for CMI reps.
> RPO strategy in place. RPO strategies to provide multiple price points for customers.
80% conversion from RPO to outright sale.
WARRANTY % 2.5% 9% > Share commissions between CCE reps and heavy reps for both CCE & major Core
Machine Industries (CMI) products. Promotes teamwork and removes hesitation of sharing
INSIDE SALES REP $ $ 1,000,000 $ 3,404,309 customers. Encourages what is in the best interest of the customer and the Dealership.
SECONDARY MIX PINS RATIO (AVG AREA DN) 1.2 1.2 > Dedicated CCE Reps/Combo Reps. Focused reps have grown the Local Contractor/Rental
business and created better support for the smaller customer.
ANNUAL NEW UNITS PER DEDICATED CCE SALES REP 40 30.32
 DEALE RS PROFILE
RAGE

ENTRY DATA
MARK

R AVE
USED MACHINE SALES INDIVIDUAL DEALER BEST PRACTICES

R
E
BENCH

DEALE
WINN
> Certified Used Fleet. Dealers create an additional market price point for used machines with > Used customer recognised as unique opportunity. The Used customers have different
REVENUE MIX % 20% 25% warranty and minimum condition requirements, similar to automotive. Actively promoted on buying behaviour but demand the same focus and effort as a new machine buyer. Execute
websites, target mailers and salesmen hot sheets. exclusive used customer “red tag” events with Cat & allied products to draw in new customers
GROSS PROFIT MARGIN % 20% 23% and maximise revenue by avoiding auctions. Used events have shown the importance of
> Inventory for sales at all times. Dealer does not make rental conversions dependent on having small allied CCE and BCP products to attract customers.
PRIMARY USED & NEW UNIT RATIO% 300% 217% time, but on ROI of the machine. Washout analyses are completed to determine how rental
fleet mix needs to change – Cat Allied, New and Used. > Used is a key component to increase field population and to generate more product
support opportunity. Rental rollouts and used trades are at a point in their life cycle when
> Used equipment inventory and prices in front of the salesmen weekly. “Hot Lists” they are starting to consume parts and service. It is critical to make a concerted effort to keep
provided regularly (e.g. weekly to monthly) to all customer-facing reps (new, used, rental, these customers in channel.
product support) to actively sell used.
> Actively promote customer consignments. The advantages are two fold: 1) It provides
> Inside sales reps (ISRs) cost effectively improve coverage. Dealer uses this position a value to customer by placing the machine in a retail environment 2) It expands the Dealer’s
AGED INVENTORY (TRADE - IN ONLY - AVERAGE DAYS) 90 206.8 to generate product support and machine sales business with customers that cannot be available price points and on-the-ground fleet inventory with minimal financial exposure.
reached by traditional methods. Variety of role responsibilities from: information, awareness,
% TOTAL CAT AND ALLIED TO AUCTION 10% 6% quote to close, and customer assignment. > Maximize Cat Finance Repossessed offerings for additional customer price points.
SECONDARY GROSS MARGIN % (TRADES) 10% 7% > Additional compensation is given to Product Support Sales Reps (PSSRs) if they
Actively include Cat finance inventory in customer search for used equipment.

complete the Cat and competitive trade inspections. PSSR’s completing the inspection > Incentives for sales reps to pre-sell trade-ins. Reduces costs associated with used
improves the speed of inspection and causes the product support rep and machine rep to work trade-ins (carrying costs, shipping, merchandising, prep).
collectively. This provides a potential product support lead should the unit stay in channel.
When completing a trade-in evaluation, turn-around time cannot exceed 24 - 48 hours.
 DEALE RS PROFILE
RAGE

ENTRY DATA
MARK

R AVE
RENTAL INDIVIDUAL DEALER BEST PRACTICES

R
E
BENCH

DEALE
WINN
> Allied products are a key contributor to profitability and expanding the > Support MPO Fleet. Adopt a rent to sell strategy to meet market price point requirements
REVENUE MIX % 25% 33% rental customer base. Allied product increases foot traffic and opens the door to while maintaining rental viability from a fleet and profit standpoint.
non-traditional customers.
GROSS PROFIT MARGIN (STRAIGHT LINE DEPRECIATION) % 50% > Strong rental footprint covering most of the rental opportunity with dedicated
> Attachments /Work Tools are rented to customers without a machine. Work tools facilities and/or co-locates with main branches. To meet rental customers expectations,
PRIMARY GROSS PROFIT MARGIN (ACTIVITY DEPRECIATION)% 20% are independently tracked and rented to provide customers with more valuable offerings. rental equipment needs to be within a reasonable proximity to the job site. Without a stand
alone store, a Dealer needs to create a retail environment inside their facilities for consumables
EBITA AS % OF REVENUE 40% 31% > Used work tools are part of the Multiple Price Options (MPO) strategy with new and allied products to generate incremental business and attract new customers.
& used equipment. In addition to rental rollout work tools, used work tools are purchased
FINANCIAL UTILIZATION 35% 30% as part of a price point strategy. > Part of the Local Contractor value equation is providing a rental solution. Rental is
the lynch pin, it generates PINS, used equipment, additional profits, and most importantly
MAINTENANCE EXPENSES AS % OF RENTAL REVENUE 15% 22% > Utilise rental counter as complimentary coverage for rental and local contractor new customers.
customers. Provide incentives for Rental Sales Coordinators to update customer lists.
ALLIED ACQUISITION % OF TOTAL FLEET ACQUISITION ($) 30% 36% A gift card was provided as an incentive to Rental Sales Coordinators, which resulted in a > Rental salesman need to be viewed as an added value resource. Machine salesmen
surge in eNewsletter addresses. who are responsible for rental revenue with their assigned accounts utilise rental salesmen to
FLEET AGE (MONTHS) 30 24
provide customer solutions.
> Majority of the rental store customers do not overlap with traditional customers.
TIME UTILIZATION % 65% 52%
Rental customers represent an untapped market for machine and product support services.

> Merchandise and consumables in the local contractor/rental store is profitable.

WARRANTY % $ 400,000 $ 576,742 Beyond an incremental revenue stream, it opens the door to non-traditional customers.

SECONDARY
 DEALE RS PROFILE
RAGE

ENTRY DATA
MARK

R AVE
PARTS INDIVIDUAL DEALER BEST PRACTICES

R
E
BENCH

REVENUE MIX %
GROSS PROFIT MARGIN %
PRIMARY DIRECT EXPENSES %
TOTAL SERVICE FILL AT BRANCH %
INSIDE SALES REP $
SECONDARY
DEALE
WINN
> Promotional activities for products and services to the local contractor segment > Ownership of CCE parts sales growth. Growing CCE parts requires parts volume (high
15% 10% are done quarterly. Local contractor machine repairs and purchases occur sporadically turnover) and focus on customer buying preferences. Don’t expect local contractors to give you
in comparison to traditional customers who have almost continuous repair work in Dealer their business… we have to earn it. Ownership of CCE parts and services needs to reside
27% 27% workshops. If a Dealer isn’t “top of mind”, the local contractor can find other suppliers for where demand and customer retail exists.
parts and service.
10% 12%
> Product Support ISRs need to have unique offers that can pull customers into the
> Technician priority – 1 hour or less delivery to service bay. Local contractors expect
Dealers to respond quickly to their service needs – on demand service. CCE technicians
Dealership: Offers to customers need to focus on customer benefits. Does it save him need to receive parts quickly so that repair time meets or exceeds the customer’s repair
money, does it make him money, or does it make his life easier? Offers need to be constantly time expectations.
changing so that they appeal to the customer every time an ISR calls.
> Inside Sales Reps (ISRs) to cost effectively improve coverage. An inside sales rep is
> Dealer promotes CSA/PM to touch customer early in the machine life cycle. an established way for many Dealers to maintain smaller customer relationships. Studies have
If Dealers neglect nurturing the customer relationship in the first three years, they most shown that smaller customers prefer to be contacted by phone, Email and fliers so that they
2.5% 9% likely will not be “top of mind” when the customer needs a repair. Maintenance products can respond when it is most convenient for them.
and/or services provide a viable touch.
$ 700,000 $ 2,815,214 > Promote flat rate specials to generate incremental business. Flat rate pricing is critical
> Retail parts strategy (promo: do-it-yourself and do-it-for-me customers). The local to success. This is the automotive approach, which creates an appealing retail environment.
contractor is more likely to repair CCE equipment than a traditional customer. Dealers will win
over local contractors and become business partners if they provide what the customer wants
when he wants it and how he wants it. (Parts Kits available through Service contracts).
 DEALE RS PROFILE
RAGE

ENTRY DATA
MARK

R AVE
SERVICE INDIVIDUAL DEALER BEST PRACTICES

R
E
BENCH

DEALE
WINN
> Dedicated techs/bays for BCP/CCE equipment. The majority of repairs for CCE equipment > Standard jobs to drive internal efficiency with rental machines and customer
REVENUE MIX % 15% 7% involve a trouble shoot job code and a replacement component. At the same time you need revenue work. To improve rental operations and drive down maintenance expense,
proficient technicians on smaller equipment to reduce cost. Dedicated bays and technicians the service department needs to actively look for opportunities to standardise rental
GROSS PROFIT MARGIN % 65% 69% shows commitment to servicing small equipment in a timely manner. specific work.

PRIMARY DIRECT EXPENSES % 42% 40% > Service mangers share technicians across divisions (traditional shop, local
contractor shop, rental shop) to balance workload and to maintain the service
> Service coordinators/advisors to handle customer calls. Local contractor contact
person that can advise the customer on the most cost effective course of action for their
STANDARD JOB UTILIZATION 35% 10% revenue and expenses. Maintaining a backlog of repair work for CCE equipment is critical machine repair.
to its profitability. Product support represents 30% of the compact equipment store revenue.
FLAT RATE VARIANCE % 10% 3% > Measure their performance with BCP products using KPIs. Service operations
> Flat rate pricing – firm price to customer. The service sales strategy needs to evolve recognise CCE/BCP equipment and the local contractor as unique.
from internal standard jobs to external priced jobs.

> Ownership of CCE service sales & promotion. The value and benefit of Dealer service
department is a marketable product that needs to be defined and communicated to customers
just like machine sales, especially local contractor customers. Promote service capabilities to
both Cat and competitive equipment owners.
Santa Claus was dreamed up by Coca-Cola.
We only use 10% of our brain.
Entering your PIN backwards at any ATM summons the police.
The Titanic was the first ship to send SOS as a distress call.
DON’T BELIEVE
Nero fiddled while Rome burned.
The Loch Ness monster is alive and well.
THE MYTHS.
YOU CAN MAKE What we’ve tried to set down here are the critical financial and operational benchmarks for the
LC business, drawing on the experience and day to day business practices of a number of top
performing Dealers. The fact is, if they can do it, so can you.

GOOD MONEY THESE ARE THE TOOLS THAT CAN BUILD UP YOUR BUSINESS

OUT OF (WITH OUR SUPPORT). NOW PUT THEM TO WORK FOR YOU!
To keep this information fresh, the LC team will be working with these Dealers regularly and updating the metrics twice a year. If there are
any metrics or best practices that are not clear, or you need more description, please contact your Caterpillar Local Contractor Rep.

BCP MACHINES.