While visiting a large family owned dealership recently, I was discussing with the dealer, controller and fixed operations director (FOD) the value of 100 percent service absorption. During the course of the conversation the FOD mentioned that he had never seen a financial statement for his service, parts and body shop. He had no idea what his department expenses were. He had no idea what his profit margins were on each category of labor and parts sales (customer pay, warranty and internal). This man has been in the business for over 20 years, worked for this dealer for 10 years and has NEVER seen any financial data on his three departments. This is not an uncommon occurrence.
Of course this FOD, Dealer and Controller had no idea how many dollars they needed per month to achieve 100 percent service absorption. It should come as no surprise that this dealer lost over $500,000 last year in fixed operations.
Now, I understand you might not want to share your balance sheet with your managers, but how do you expect them to manage a department profitably if they don’t know what their profit and loss statements look like? If you are going to hold your managers accountable for their respective department’s expenses, then they should know what those expenses are.
Additionally, if your manager is responsible for producing a net profit in their department, they should know where they stand. Their department’s profit and loss statement is their REPORT CARD.
Once you and your management team have good financials to measure progress towards your BHAG, then you must give each manager their own individual BHAG. Your managers must then give each employee under their control, their own individual BHAG.
When setting goals, you must be specific. You must put goals in writing. The goal must be a stretch to reach it but it must be attainable. In one of my workshops, I asked everyone if they had set goals for their Service Advisors. A couple of dealers raised their hands. I asked them what the goals were. One said “I want them to increase their Hours Per Repair Order (HPRO) by .2”. I asked what they were currently averaging in HPRO and the response was “1.0”. Well, increasing HPRO by .2 is certainly attainable but it is not a stretch by any means so it is not a valid goal. Remember what BHAG stands for “Big Hairy Audacious Goal!”
Setting goals and measuring everyone’s performance daily is crucial to achieving 100 percent service absorption. Your technicians must be given daily goals for productivity. These include all technicians-flat rate, hourly and lube techs. Their daily results should be posted on a performance board daily for their review.
Your service advisors must be given daily goals for sales. This includes the number of repair orders written, the customer pay hours per repair order, profit margins on labor and parts, as well as maintenance up-sells. These goals must be measured and shared daily with the advisors by using a Daily Advisors Performance Report. These processes should be presented to all fixed operations personnel (service, parts and body) in the form of a group meeting so everyone understands why their BHAG is necessary. Also why their efforts are important in producing the results that will enable achievement of the dealership BHAG. The dealer needs to attend this meeting. It must be positive, informative and interactive. Employees must appreciate how the BHAG will benefit them all. Every employee can benefit from 100 percent service absorption. Would your customers benefit from 100 percent service absorption? Absolutely!
Now that you have established goals, go back to what I asked you to calculate earlier: “How many dollars in gross profit do you need to achieve 100 percent service absorption?” Once you determine this number, you need to understand that the only reasonable way to achieve that additional gross profit is by increasing your customer pay parts and labor gross profit in your service department. You can increase your parts counter retail sales but that opportunity pales in comparison to the huge opportunity in repair order sales. You are not NAPA or PEP BOYS.
Now we are in agreement that we are going to focus our efforts on customer pay repair order sales and gross profits in order to work toward our BHAG of 100 percent service absorption. There are three ways to increase customer pay parts and labor gross profit:
Increase your profit margins on parts and labor sales
Increase your sales per repair order
Increase the number of repair orders
We will cover each of these in a future article.
In the meantime, think about your BHAG. Get focused on it and use our formula for establishing the “BIG HAIRY AUDACIOUS GOAL- BHAG. It must be specific, it must be in writing, it must be a stretch to reach and it must be attainable. I strongly recommend you read Jim Collins’ book “Good to Great.”
Vol 3, Issue 6