As we move into a new season, it’s a perfect time to begin to assess what changes you are going to make in your dealership and how those actions will impact your bottom line at the end of 2012.
Just as many people step on the scale on January 1 and resolve to make changes in their lives that will reduce their weight and improve their health, it’s a perfect time to place your dealership on the scales. Take stock of the past year and make a resolution to make the changes necessary to get your dealership fit and healthy as you move toward the 2012 season.
The numbers on a scale can provide you with the metrics you need to make changes in your life choices. Similarly, the numbers from last year’s business provide the metrics to evaluate each department of your business, allowing you to create a plan before the season starts to set you up for a strong and profitable year.
One area of the dealership that typically gets little focus is that of the service manager or service writer. I want to share with you a couple of the metrics I measure with the dealers we work with and encourage you to consider running the numbers for your dealership.
In most dealerships that we consult with, the service department consists of a service manager or service writer, service techs and a person who does set-up. Each of these people have specific measurements that we use as baselines to determine the effectiveness of each individual and for the department as a whole.
With the service manager/service writer we are looking at two key measurements – recovery rate (total billable hours per day/total tech hours purchased per day) and segments/value per work order.
With recovery rate you are looking to measure how good your manager is at turning the hours you are buying into hours you are billing an internal or external customer. If you have two techs you are paying 8 hours a day and the techs are each billing out 5 hours a day, the recovery rate for your service department would be 62.5% (10/16 hours). Your goal is to be at least at 90%. Once you determine your recovery rate, your service manager can work to improve it one of three ways:
1. Finding ways to improve the flow of work through the shop so the techs spend more time billing and less time waiting.
2. Looking for more equipment to service so that the techs don’t run out of work to do.
3. Reducing the number of techs to match the service work available.
Any one of those three steps will improve the recovery rate and make the service department more profitable.
The second measurement we encourage is the segments/value to work order ratio. If you are using business management software, you should have the ability to create segments on your work orders. Each segment represents a repair on the equipment being serviced by the tech.
Let’s say that a mower came in needing the carburetor cleaned and a new deck belt installed. Each of those would represent a segment on the work order and would have their own billable time assigned, say an hour for the carburetor cleaning and 30 minutes for the belt. If you divide the total number of segments for a given period of time by the total number of work orders, you will find your ratio.
If you had 40 work orders with 60 segments for a one-week period of time, your ratio would be 1.5 to 1 (60 segments/40 work orders). If you divide the total labor dollars sold on those 60 segments, you now have your average dollar value per segment.
So if the 60 segments represented $2,700 in labor sales, it would mean that the average value of each segment was $45 ($2,700/60). With this number you can now calculate the impact on your bottom line if the service manager or service writer can either increase the value of each segment, increase the segment-to-work-order ratio or do both. Let’s look at a couple of ways to do each.
1. The best way to increase the value of each segment is to make sure you are charging the right amount for the work you are doing. The first thing I always do when I am working with a new dealer is encourage them to increase their posted labor rate. Even if it’s just a few dollars per hour, it automatically increases the value per segment and adds immediate profit to the bottom line.
I also encourage dealers to focus on flat rating more of the work they are doing. By moving more work away from actual time to flat rate time you can very easily increase the value of each segment by 25% or more. If you don’t have a flat rate system, create your own. Charge 30 minutes to install a new carburetor and one hour to rebuild one. Charge 30 minutes to install a deck belt and an hour to install a wheel motor. The more you flat rate, the more value each segment has and the more money you put toward the bottom line.
2. You can also get the service manager or service writer to focus on increasing the segment-to-work-order ratio by simply looking for additional opportunities to do service when equipment is in to be repaired.
Too often, the only work that is done on equipment is the work the customer requested. I encourage the service manager and service writers I work with to look for other things that might need to be serviced or repaired on equipment.
If a customer brings equipment in for repair, always ask them if they would like to have it serviced while it is in the shop. About 50% will say yes. You just added another segment to the work order.
If over the course of the season you move your segment ratio from 1.5 to 2.0 and you do 2,000 work orders, you will have added 1,000 segments with a value of $45 each for a total of new labor sales of $45,000. Not bad for a little extra effort.
Just as it is a little uncomfortable when you step on the scale at the beginning of a new year, it is also a little uncomfortable to pull the scales out for your business. If you are willing to take the measurements and resolve to make improvements, the payoff will put real dollars in your pocket.
Bob Clements is the president of Bob Clements International, a consulting firm that specializes in the development of high-performance dealerships. His organization works hands on with dealerships throughout North America, helping them attain the personal freedom and financial wealth all entrepreneurs strive to achieve. For more information, visit www.bobclements.com. Bob Clements is the president of Bob Clements International, a consulting firm that specializes in the development of high-performance dealerships. His organization works hands on with dealerships throughout North America, helping them attain the personal freedom and financial wealth all entrepreneurs strive to achieve. For more information, visit www.bobclements.com.