If you are thriving and making money in all departments then congratulations for a job well done; however, don’t set your cruise control just yet because we all know our industry will continue to evolve and change so you must continuously seek better ways to become an even better Dealer or Manager. After all, if you are like most dealers, you are not living up to your true profit potential.
Let’s take a look at the opportunities in your Service Department. There are 4 Essentials to increasing net profits in every dealership’s Service Department:
- Control Expenses
- Improve Profit Margins
- Increase Sales Per Repair Order
- Generate More Repair Orders
When a dealer starts losing money, expenses usually are addressed first because they are the easiest to control. In many cases a Dealer’s strategy becomes: “I’m going to cut expenses everywhere I can and save my way into a profit.”Is it possible to save enough through expense cuts to offset the lost revenue from new and used unit sales? Probably not! There is a limit as to how much you can cut expenses. Think about it. If you cut enough of your expenses you can experience the feeling of going out of business. If that is not your plan, then let’s look at some ways to generate some more revenue. It all starts in the Service Department.
Improving Fixed Ops Profit Margins
Profit margins are by far the easiest to affect immediately. You must first set a goal for your margins which should be no less than 75% on labor sales and 45% on parts sales. To do this, you must either lower the cost of sale (wages to Technicians & cost of parts) or increase your selling price.
To get the labor profit margin in line, for example, you can pay your Technicians an hourly rate based on the number of hours billed out on the repair orders as opposed to a fixed salary or an hourly rate based on clock time. Also, you need to make sure your retail labor rate is at least four times the cost of your Techs (Techs cost $25.00 equals a $100.00 labor rate).To optimize the margin on parts, you must adjust the selling price of your parts and accessories by utilizing a pricing matrix which adjusts the markup of each part based on cost and demand. Most of you are probably doing a good job with margins.
Three Ways to Increase Sales Per Repair Order
This is a missed opportunity in far too many dealerships. The Service Advisor simply determines what the customer’s concern or need is and that’s it! No recommendations for preventative maintenance or additional services. Here are three ways to increase your sales per repair order starting today and you don’t have to spend a dime to get started.
1: Walk Around Inspection
Your Service Advisors should go to the vehicle with the customer and perform a walk-around inspection looking for visible signs of needed repairs or services both on the outside and inside of the vehicle and making recommendations for completing the work during this visit.
2: Printed Maintenance Schedule
Your Service Advisors need a printed maintenance schedule for each type of vehicle you service — the schedule should be based on time and/or usage (mileage-hours). This Maintenance Menu should be presented to every customer on every visit so they can maintain their vehicles in like new condition, maintain their manufacturers’ warranties and enjoy the many benefits of a safe and reliable vehicle.
3: Printed Inspection Report
Every Technician should complete a printed inspection report similar to what you may be using for reconditioning your used vehicles, on every customer’s vehicle on every visit. To prove my point, I want you to review the last 25 used vehicle reconditioning repair orders.
Total up the number of dollars billed out on all 25 ROs and then divide that number by 25 to determine your average sales per Repair Order. This is the amount of additional sales per repair order that is waiting for you in your Service Department each and every day. Multiply this number by your total repair orders written per month and that’s how much additional sales you’re missing by not inspecting each vehicle.
Getting More Customers in the Door
You must start generating more repair orders by bringing in more service customers to your dealership. It all starts with scheduling.
- How long do your customers have to wait to get in for service? (Every day they have to wait lowers your ability to grow.)
- Are your Techs producing at least 40 collectable hours per week?
- Are your Techs paid on performance?
- Are your Service Advisors paid on total labor and parts sales?
- Do you have the capacity to add more Techs?
- Do you provide mechanical repairs and/or services to the chassis and power trains?
- Have you implemented extended hours to become more convenient for your customers?
The answers to these questions are key to getting more customers in the door.