Recently a relatively new Dealership Manager asked me a simple question.
“What are three things I can do to improve the profitability of my service department?”
This young man did not have a background in the Service Workshop so it all seemed mysterious to him.
Well, it got me thinking, although his question was straightforward, I was struggling to give a simple and concise answer. The reason for this is purely that Service Departments are very complex beasts and I could easily fill a whole series of blogs just on this one area of a Dealership.
But, I have to give a quality answer to his question. So I am going to try and avoid all the myriad of fine details and nuances we could talk about and see if I can give some value in just three things to consider.
So I am going to start by focusing on what it is that we do in Service Departments that creates profit. For now let us put aside all the details around customer service, preparation of new units, warranty support and the like.
What is that we do to create value and can charge our customers for?
It really is simple.
We buy time from our technicians and then we sell it. Sounds simple, and yes it is, but let’s focus on the things that STOP us from selling that time, because this is where I believe most Dealerships lose their profit potential for the Service Departments.
Quality Input creates Quality output
Are you buying well? What do I mean by that? Well, just like a good restaurant, if you want a quality output that will make your customers happy to pay, you need quality input. In this example, a skilled Chef, well equipped kitchen and fresh produce.
The same goes for a Service Department. Are your technicians trained and capable? Do you have a clean and well equipped workshop, and are you feeding the right type of work to them? My experience has led me to believe most Dealers do not pay enough attention to this.
If you don’t believe me, go and do a “secret shopper” exercise with one of your competitors who has an excellent service department reputation. Just look at their mode of operation and professionalism. If you can’t match them, then you are behind the eight ball.
Ratio of your productive to unproductive staff in the service department
What are a couple of simple measures to check whether you are in a position to be profitable? The first is a ratio of your productive to unproductive staff in the service department. The productive measure is easy, that is the people working on the machines. But, I would suggest most Dealers are not honest with themselves when measuring the unproductive.
If you have a young kid who washes the machines and runs for parts, they must count. If a business owner spends 25% of their time dealing with service customers, then that must count.
The problem with metrics or KPIs are that they are only a guide, but generally if you have a productive to unproductive ratio that is less than three (1 unproductive to 3 productive) then you will require a very high efficiency rate from your technicians or a high hourly charge rate to be profitable.
On the other hand, a ratio higher than five is very hard to sustain and be efficient. Usually the lack of admin or management support for the technicians creates a lot of “lost time” or mistakes that really eat at your profit.
Walking Talking profit leak
The third point is the one I believe is most overlooked.
I call it the “walking, talking” profit leak. This one is so insidious because it hides beneath the surface unless you really look hard. I go as far as to say it is like a cancer eating away at your prosperity without you realizing it.
Let’s circle back to the beginning of this piece. Remember what I said is the simple essence of how we generate profit. We buy TIME and then sell it.
So to make a simple argument, it would be fair to say we can only SELL the time if we are actually getting something in return. The technician is SELLING you their time as soon as they clock in, but you can only SELL it to a customer if they achieve something with that time you bought.
Ask yourself these questions to determine the walking talking profit leak:
- How often do technicians leave the machine they are working on to get something?
- How far do they have to travel?
- Who do they stop and chat with on that journey?
- Are their instructions good enough that they don’t have to go and ask questions of the Service Advisor regularly?
- How far do they have to walk to get that information?
- Are they spending time on a task that an unskilled person could do for them? washing the machine, fetching tools or parts. (this is a big one)
I have not met a Dealer yet who complains they have too many trained technicians. We have to make sure we use their time wisely. So the task for managers is to ensure the technician’s environment and the business mode of operation minimises time waste.
An interesting exercise for dealers is to just observe their workshop and do a simple time and motion study. You will be surprised by how much of that time you bought is wasted.
The final thought for your consideration is how to quickly measure which of your technicians is performing well, and which do not.
This is an easy one if you keep it simple. One part of our industry where we have over measured is definitely workshop labor data, productivity, efficiency, charging efficiency, effective labour rate. It goes on and on. Sometimes our industry over analyses, and this is definitely one of those occasions.
I suggest you focus on just one simple point: What is the ratio of your technician prime labour cost (direct hourly rate with no on costs) to the charge out value? If you are recovering 325-350% then you are in good shape. If a technician is paid $1000 per week, then you need at least $3000 per week of labour sales to have a balanced operation.
My suggestion is to get the above fundamentals in place, then we can talk about the list of other details to fine tune your service department.
Get to know Marc!
Hello, my name is Marc Storey and I have been working with the Blackpurl team for a couple of years now. It has been an incredible journey.
To give a quick rundown of myself, I started my work career as a heavy equipment mechanic. In my early 20’s I started my own earthmoving equipment repair business. The business grew into a parts and service enterprise and eventually an Earthmoving Equipment Dealership. Several years later my wife and I started another business which was a Heavy Truck Dealership.
Over the following decades, our lifelong passion for motorcycling led us to a unique journey – we bought and developed a poor-performing Truck Dealership, which we sold after turning the performance around. Our last Dealership adventure was a greenfield business that has grown into a multi-franchise motorcycle business operating in three separate locations.
After exiting the business to allow our son to take over the management of the business, I found an opportunity to work with a Dealership Software development team at Blackpurl to help them create a new product. This experience has been invaluable in improving my understanding of how dealership software systems work and how problems for Dealers can be solved.
My interest in creating dealer management systems that ensure a smooth-running Dealership was an important ingredient in my business career success. Those skills are now helping me to mentor other Dealers and their staff on how to improve the management systems in their business and create a more valuable enterprise.
