Many years ago … okay, it was decades ago, I read over and over that the service department should produce enough revenue to look after the fixed costs (rent or mortgage, utilities, etc.) of a dealership. I don’t hear that type of statement anymore. I hear and read more about how profitability is a challenge for the service dept. For a department expected to make a 70 percent margin, is it not possible to generate enough revenue to cover fixed costs?
Perhaps this isn’t possible. I have visited hundreds of dealerships during my career in this industry and I don’t recall dealers telling me their service department makes enough money to cover the fixed costs of the business. I do recall some frustrated dealers telling me they aren’t making any money in their service department … period. I’m not saying that there aren’t any dealerships that can do this, but I am saying that in my experience, it isn’t consistently normal within the powersports industry. How is your service department doing?
Before you can answer that question, there are certain truths that a business owner or general manager must acknowledge. First, your service department is about selling time, not service. I know that sounds a little whacky but your business measures and gauges the profitability of the service department based on available time and how much is done during that time and how quickly. Second, the profitability of the service department is based on productivity, efficiency and accuracy. Let me explain a little further.
For an example of the first truth regarding the selling of time, think about when you buy advertising on your local radio station. You aren’t paying for the people who write the ads or for the person who voices the ad. You’re paying for the 30 seconds of time people who are listening to that station, are listening to. You are paying for an end result. Your customers are paying for an end result and like the radio station, the more “time” you sell, the more revenue you will generate. Remember that you have a finite amount to work with. You have to make the most of it.
The second truth doesn’t require an example but a realization. Productivity and efficiency are measurements of how you measure that time you sell customers and determines how profitable you will be. There are distinct differences between productivity and efficiency and it is very important to know the difference between the two. Measured productivity will tell you how much work is being generated in a specific period of time. This is determined by your tech’s billed hours divided by available hours. Measured efficiency will tell you how quickly work is being performed. This is determined by your tech’s billed hours divided by actual hours worked.
Many industry people will state that a good measure of productivity is 75-80 percent. While that is an admirable goal to shoot for, I found many dealers struggled to achieve that level of productivity. There are too many daily variables that prohibit that strong a level and those would include; units not being readily available and accessible; customers or staff wandering into the shop and talking to techs; parts required for repair not being readily available; open RO’s waiting to be closed, etc.
With regards to measuring efficiency, a level of 100 percent is desired and can be obtained by seasoned journeymen techs and this level is assisted by taking on a healthy number of quick turning jobs such as oil changes and tire changes. Warranty claims and work orders waiting to be closed will affect that efficiency but an experienced tech should still be able to achieve this level.
Last but not least, accuracy plays a major role in getting the right numbers to know what you’re dealing with. I realize that most industry service specialists include proficiency when talking about productivity and efficiency, but I believe that accuracy is very important. Proficiency tracks closely with productivity but accuracy with input will set you free in gaining an understanding what is going on in your service department. Without the right input, you can’t measure the output.
With accuracy, you ensure that all your tech’s are clocking in and out of every RO. You are checking to see if your department is charging industry flat rate time for jobs completed instead of charging what they think the time should be for the job. Overcharging sure helps efficiency but it can turn off customers. Never forget to inspect what you expect so work with your service manager to see where they are at and what can be done to maximize all the time they have to sell.
Bruce Marcia is the director of Bruce Marcia and Associates, a retail management consulting firm that specializes in assisting and supporting dealerships in the RV/marine and powersports industries. As a recognized troubleshooter with over 30 years of experience in inventory finance, dealership general management and as a district manager for a major OEM, Bruce has had the unique opportunity to understand and learn from all three important fields that make these industries function.