Gart Sutton & Associates data shows importance of strong service department
Many dealers struggle to make a profit in the service department, yet it is essential to the overall health of your business. The average powersports customer will purchase between seven and eight units during their lifespan. Surveys show that the overwhelming factor that influences whether they will purchase their next unit from your dealership is their service experience.
We can learn more by looking at the current service department performance statistics from Gart Sutton & Associates’ 20-group data reporting and analysis system. It is important to note that these statistics come from “clean data.” That means that the data entered by the dealers follows specific rules and definitions to ensure that it is consistent and accurate.
Trends and best practices
Department Gross Profit (labor margin) is calculated from total labor revenue less tech compensation and sublet labor costs. The accepted benchmark here is 70 percent. Unless you can approach this figure, it will be very difficult to cover all the expenses for this department (non-tech personnel, admin, facility, supplies, tools, training, etc.). Essentially, this means you have a “bucket” of 30 percent of labor revenue to use for tech compensation.
The Top 5 dealers are controlling their technician compensation very well with an 80 percent margin. It should be noted that these dealers do not have a lot of turnover — in other words, they are not starving their techs. What they are doing is promoting and growing their service business while at the same time hiring top-quality techs as shown by their Efficiency number (billed hours divided by actual hours on the jobs). They also are managing their techs’ time well by minimizing the time they spend doing anything besides cranking labor. You can see that in their productivity figure (actual hours divided by available tech hours).
Notice also that they are hitting more than two hours of billed labor per RO and they are selling a good ratio of parts to labor. The reason they are managing to do this is because they have well-trained service writers with good selling skills. They don’t just write up the RO. They greet the customer properly and build a relationship with them; they probe the customer for their wants and needs; they inspect the unit to see what else needs to be done, and finally, they ask for the business.
To do this, you must have enough service writers. They must have sufficient face-time with your customers to do the service write-up process properly. If your service writers are trying to handle more than 200 ROs a month, they will not have time to do this.
Can you enhance your service department opportunities during unit sales? Absolutely. It is very important that you start a good service relationship with your purchasers early on. The salesperson should mention your quality service department as a part of building value in the dealership. Any add-on accessory sales should be scheduled with service for installation.
Once the unit sale has been closed, each purchaser should be brought back to the service department. They should be introduced to the service manager or a senior service writer. Their job is to try to get a tentative date scheduled for the first service (or next service on a pre-owned unit). They should also discuss the value of F&I products such as extended service contracts and your priority maintenance program.
Above all else, these new customers should feel welcomed by your service department and leave your dealership with service contact information.
As you can see, your service department is an important part of your dealership operation. Let’s put that into tangible terms: Consider that the next six unit sales from any given customer are influenced by his experience with your service department. Multiply that by your average unit price. Add on your averages per unit sold for F&I sales, accessory sales, clothing sales and service sales. Now take that dollar figure to your next manager meeting. Task them with making sure every person on your staff understands the potential value of each new purchaser and tie that to the importance of their service department experience.
Once your staff has an understanding of the real value in dollars, you should expect them to spend more time promoting and supporting your service department. The success of this department affects their success as well.
Steve Jones is senior projects manager at Gart Sutton & Associates, Inc. For more information about management workshops and dealer on-site services, contact him at firstname.lastname@example.org.