Hidden Costs in Your Service Department

Determining the profitability of your service department is not as simple as “billed labor minus technician wages.” A plethora of hidden, indirect costs, if left unmanaged, can drain shop profits and leave you seeing red. Below is a summary of the top hidden shop costs as compiled by the “Yard & Garden Service Department Think Tank.”

Vehicle Expenses
Some dealers report that maintenance, repair and supplies for your service vehicle fleet can add upwards of 2.25% to the cost of running the service department.

To help keep a handle on vehicle expenses, coordinate fleet rates to control gas and maintenance costs. Ensure proper use of the fleet to avoid unnecessary wear and tear. And maintain all items on a regular basis to cut down on more costly repairs down the road.

Shop Supplies
Items used on repairs that are not inventoried in the parts system or captured on a repair order can sometimes add as much as 2% to the cost of a repair. These consumables include oil and gas, nuts and bolts, paint, penetrating fluid, cleaning supplies, etc.

Dealers need to ensure that all items are accounted for and listed on the repair ticket in order to bill the proper amount of supplies to the customer. In some circumstances a percentage is used, in which case it’s crucial to make sure that the percentage actually covers the real cost. Some dealers will charge an additional 1.5% or 2% of the work order, but never charge more than $15.

It’s also important to make it clear to shop employees that these supplies add cost to the department. Strongly discourage the wasteful and/or personal use of supplies. Some dealers even go as far as installing a locked cabinet in the shop with a request system for checking out consumable supplies.

Pick-up & Delivery
Pick-up and delivery often adds 2-4% to shop cost. The solution? Charge for it. The cost of performing this service is either rolled up into repair rates or charged individually. An easy system for the customer to understand is best. But performing this service for free is a real profit drain.

Weak Warranty
The time involved in performing warranty service often includes receiving the unit, diagnosis, filling out the customer invoice and warranty claim, ordering parts, storing the unit before and after repair, contacting the customer when the unit is done and returning the unit to the customer.
One dealer says that meeting the expectations of customers—both end-users and mass merchants—while avoiding unpaid labor can be a tough proposition when it comes to certain suppliers.

“One of our commercial mower manufacturers won’t pay any pick-up or delivery charges,” the dealer says. “How can we ask a high-end homeowner customer to pay pick-up and delivery when he paid you $6,000 or $8,000 for a ‘durable’ commercial mower that just broke down in his back yard?” This dealer estimates that circumstances such as this can add up to 5-10% of gross labor.

Low-Profit Equipment, Low-Profit Repairs
Running more inexpensive, “disposable-type” equipment through the shop presents the challenge of 1) recovering all associated costs so the repair is profitable, and 2) keeping the customer happy so he or she comes back.

One dealer estimates that roughly 5% of the jobs running through his service department fall into this category. “We try to train the customer that our time and experience has a value,” the dealer relates. You have to charge your labor rate. In some instances, help the customer understand that he might be better off buying a higher-end product from you than having the current machine repaired.

Benefits & Insurance
The rising cost of insurance, especially employee health insurance, is taking its toll on many small businesses. The service department must pay its fare share of this sizeable dealership expense. Be sure to shop carriers so you can settle on the best plan for your business and employees.