June 2018, Auto Dealer Today - WebXclusive
Parts discounts are a common and easily redressed source of lost revenue for dealership service departments. Photo by pixel2013 via Pixabay
Focusing on everything will result in nothing. It’s impossible to fix all the problems in your service department at once. Better to break this complex enterprise into smaller tasks you can knock off one at a time.
To that end, let’s dig into seven dealership profit areas you can maximize in short order.
1. Repair order count: You can’t increase profits unless you can increase the number of customers coming in. You need to fill your pipeline with customers who are willing to have service and repairs performed at your dealership.
This is where professional advisors and training for performance starts. Bringing people into your service drive and then not meeting their needs and expectations is a recipe for fixed ops disaster. At minimum, you need a phone sales process, a service drive sales process, a scheduling process, and a delivery process.
You can’t increase RO count if your team is not ready for the increased traffic. Your success begins and ends with a trained, professional team of advisors and service personnel.
2. Service sales process: You need a solid process to increase the sales per repair order. Why bring in more customers if you can’t increase sales? What’s the point?
Sales per repair order (HPRO) is increased through training, monitoring, and coaching on the service sales process. Imagine your service department functioning as professional service sales team and not as individuals each acting according to their own level of competency and limiting beliefs.
What would that do for your bottom line?
3. Discounts: You can increase your margins on each transaction in labor and parts. It’s easier than you think if you have the will to make it happen.
Limit or remove the ability of the service and parts team to discount repairs and parts. Make them accountable to you for each discount by monitoring them daily. Once they get the message you are serious about limiting the discounts, the profit bleed will stop.
Make sure they sell the value of the services provided and not the price of the services provided. That’s where a service sales training program can make a difference.
4. Effective labor rate: ELR is very sensitive to changes in the billable labor rate (like having a variable labor rate). Most of this is discrepancy is from the aforementioned discounts. Sometimes it’s from labor charge manipulation by the advisor. The key is to monitor the advisor’s report daily and dig in when things seem out of line. Of course, the standard has been 90% of door rate.
5. Gross profit per transaction: Are you holding the gross on your sales? This metric is determined by many factors, including service drive sales, discounts, RO count, multipoint sales, parts sales, GOG sales, tire sales … You get the picture.
The better you are at increasing sales, the more gross you get. Simple.
6. Net per transaction: This is a reflection of how well you manage expenses. Everything from employee wages to how many cans of brake cleaner your tech uses per brake job affects net per transaction. Of course, some of the biggest factors affecting net are policy, adjustments, and advertising.
You must get policy under control (2% of gross is standard) and advertising needs to generate a measurable ROI.
7. Fixed absorption: This is the final key profit performance indicator in fixed ops. How effective is the service department in paying the dealership’s bills?
Fixed absorption seems to have lost its luster over the past few years. Some will say that 75% is pretty good these days.
Phooey! The closer you can get to 100%, the better dealership life becomes — for everybody. You can afford better pay and perks like premium benefits and upgraded tools and equipment. Better yet, the more customers you keep in your dealership family, the more cars you will sell.
Leonard Buchholz is the founder of CarBizCoach. He helps dealers meet performance objectives in service sales, CSI, and profitability, and has extensive experience in evaluating fixed operations and providing corrective training and guidance. Contact him at email@example.com.