Time to See How Your Business Measures Up

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.

Recovery Rate

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.

Segments/Value Ratio

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.