Do you find it interesting that there are so many similarities in their respective positions? As a dealer or general manager, do you spend about the same amount of your time working with these people? You should. Do you allocate about the same dollars in marketing and advertising support for each of these managers? I already know the answer to that one. Maybe you should consider re-allocating some of your advertising and marketing dollars spent on the front-end to the back-end. Why, you ask? Well, let’s do the math and see why.
As I’m writing this article, I’m looking at a financial statement from a very profitable dealer who “gets it” when it comes to focusing on service absorption and holding his service team accountable for their performance, just like he does with his sales team. Here are the results: He is averaging 115 retail units per month (new and used) at an average gross profit PRU of $2,058, which equals $235,660 in total departmental gross profit for the sales team.
His service and parts team produce an average of $246,721 per month in total departmental gross profit which, based on his average PRU of $2,058, is the equivalent of selling 120 units per month. I did not include the additional $85,000 in gross profit per month from his body shop, which is the equivalent of an additional 41 units per month.
I mentioned marketing and advertising earlier, so let’s look at this dealer’s advertising allocation. He’s not that good of an example for making my point because he spends 80 percent of his ad budget (about $25,000 a month) in sales advertising, and only about 20 percent in fixed operations. But wait, he redeemed himself a bit by spending 90 percent of his training budget (about $23,000 a month) in fixed operations training, and only 10 percent in the sales department.
You’re probably thinking “this guy is nuts.” He’s spending almost as much on training, as he is on advertising—how does that make any sense? In my world, it’s called 106 percent service absorption, and making a net profit of about $2 million a year, plus a nice salary and a dynamite boat. I wonder what would happen if he would just allocate another 10 percent of his advertising budget on fixed operations? I’ll let you do the math.
Now, you can see what my point is, right? Give your service director the support and attention that he or she needs (including training) to become a top performer. Measure their performance and hold them accountable for it daily, just like you would the general sales manager. You just might see your service absorption start to climb towards 100 percent.
This strategy will aid in making your dealership recession-proof. It doesn’t matter what the price of gasoline is or what the interest rates are because there will always be opportunities for improvement in dealing with the retail service customer. Your service director must be the leader for your service team. Starting today, you might want to get serious about service.
Vol 4, Issue 11