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3 Key Processes To Avoid Bankruptcy – Like Marcus

CarCash has become one of the most successful businesses selling used cars in the USA. So successful that they now have expanded to 100 locations across the country. A few years ago, the most driven man, the father of the business passed away. The two mourning brothers struggled to keep the business afloat. Andrew (Marketing) and Jon (General manager) run the company now.

 

With over 200 million dollars in debt and dropping sales, CarCash could only survive for a few more weeks I hear you think: how did CarCash turn into a successful business then? They overcame their struggles by taking a closer look at 3 key work processes.

 

  1. Know your numbers

 

CarCash’s profit is determined by two things:

  • How much they buy the car for.
  • How much they sell the car for.

 

Marcus took a look at these processes and saw how to gain more revenue from them. During the process of buying a car the customers wait in an uninviting office. Jon walks around the car looking for dents and imperfections. He’ll look up the model in a database to find what he could sell it for and makes an estimate.

 

Let’s say he thinks the car is worth 8500 dollars and then decides he wants to make 500 dollar on it so he offers 9000 dollars. By focussing on this 500 dollar average margin, Jon limits his potential to make a profit. Also, while the customer is waiting in the room, their level of anxiety rises. The customer doesn’t get involved in the process.

The process of buying a car improves by involving the customer. The key here is to make it logical and transparent for the customer.  

 

First off, he will take the customer with him to inspect the car. It is important for the customer to know that the price he is about hear will be fair. By seeing the dents and imperfections the customer, will adjust their expectations. This makes the customer more prone to trust and afterwards they will accept the offer.

 

 

The second thing Marcus did was to calculate the cost and revenue per month. The cost are 152 thousand dollars per month. Jon’s closing ratio is around 80%. This means he’ll sell between 4 to 8 cars a day. With an average of 80 cars a month, this seems like a solid business. In spite of that, the margins are around 500 dollar per car.

 

Their revenues are only 50 to a 100 thousand dollars per month. This means they are short 52 thousand dollar a month. This means the company is losing money every single month.

 

“If you don't know your numbers, you don't know your business.”

 

Marcus Lemonis

 

 

Marcus discovers another margin-eater: the wholesalers. They buy the cars from Jon and then sell them to a dealer. For a typical car they pay CarCash 8 thousand dollar. The wholesaler pays only 8500 dollar (500 dollar margin). But the car will retail at 13 thousand dollar, which means a 5 thousand dollar difference between Jon and the final customer.

 

If they start selling directly to dealers, they will be able to make at least twice as much (1000 dollar per car). With 80 cars a month, that means 80 thousand dollars per month or 960 thousand dollar per year. They are doubling their revenues without even selling one more car than they do today.

 

 

  1. Investigate the roles  

The marketing for CarCash is radio and web advertising. Andrew is in charge of marketing. Jon does the radio marketing because he doesn’t trust Andrew with this.

 

Good communications are lacking. While Andrew is full of good ideas, Jon has little time to consider them.  The biggest challenge is to get customers to visit the store and  to start making enough money. The place looks a bit run down.

 

Andrew is an equal owner. Yet, all his ideas get killed. Jon is a big demotivator. Marcus is not convinced that Jon is a good manager. Marcus decides to record a radio commercial to show that Jon got the marketing part covered. This works out and Jon learns to trust his brother.

 

 

 

“Nothing shuts people up like performance.”

 

Marcus Lemonis

 

 

  1. Scale like a pro

Marcus’ idea is to franchise CarCash by licensing the concept throughout the entire USA. He believes that per location it is possible to sell 50 cars per month. The margin will be 1000 dollar, making 50 thousand dollar a month in revenues. Profiting after expenses will be a profit of 25 thousand dollar a month. If you open a 100 locations you will make 2,5 million dollars a month!

 

The deal Marcus gives them is 200 thousand dollars upfront and a share for the licensee deals. But Jon asks for more. He asks for a line of credit of yet another extra 300 thousand dollars, to buy more cars. Marcus and Jon start negotiating for the interest rate that Marcus will get. Jon pushes back and he negotiates the rate from 10 percent to 7,5 percent .

 

Marcus sees this as a bold move; the type of move he expects to see from his business partners. Once Marcus makes a deal he doesn’t waste any time. HE IS 100 PROCENT IN CHARGE!

 

The ideas of Marcus is that 1-800-CarCash is going to become a national brand. It also needs to get rid of the wholesalers and get more revenue of selling and buying cars.

 

640 percent increase of margin

In 2012 CarCash made about 13 million dollars in revenue. Since they bought and sold 960 cars that would make about 13,5 thousand dollar per car. By taking the customers through the appraisal process, CarCash would be able to buy cars for 5 percent to 10 percent lower than they do right now. That is around a 1000 dollars a car (or 960 thousand dollar a year).

 

The 350 thousand dollar was invested in the rebranding of the company. Even the employees have new outfits. The lighting is more inviting. A lot of glass gives the feeling of openness and trust.

 

Marcus stops the bankruptcy. By modifying the numbers, changing the roles and scaling up. 3 months later, the car sales went from 500 dollar to 3200 dollar, which led to a  640 percent increase in margin and 30 percent more transactions.

 

This business is still open and has expanded to over 100 locations in the US! Now they provide a lot of cars to Automatch USA. They’ve added a call centre and mobile marketing verticals.

 

Self-made millionaire and serial entrepreneur, Marcus Lemonis has his own tv-show: ‘The profit’. He has invested more than 35 million dollars of his own money in the companies featured on the series. In the series, Marcus looks for companies that will go bankrupt if nothing changes. In exchange for a share in these companies, he helps them. Watch all ‘The profit’ episodes here.

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