…or are your gross profits just too low?

This time of year is the perfect time to sit back and reflect on your year-to-date performance by your fixed operations team. As a dealer, general manager or fixed operations director you might want to start with the “operating profit” line of your financial statement.

 

Time to Take Stock

Use these industry benchmarks to measure your team’s performance:

• Service department operating profit @ 20 percent of gross profit
• Parts department operating profit @ 30 percent of gross profit

If you are exceeding these benchmarks, then congratulate your team for a job well done. If, however, you are falling below those benchmarks, then you obviously have some work to do, so let’s see if your expenses are too high or your gross profits too low.

After working with hundreds of dealers I have found that in most cases the fixed operations team is doing a good job in controlling expenses but is missing out on huge opportunities to increase their gross profits. Wouldn’t you agree that you can’t “save your way into increased profitability”? If so, then why are so many dealers missing out on the level of gross profits that they deserve? The answer is people.

• Do you have the right people in the right position?
• Do you have the right people properly trained to become top performers?
• Do you have the right number of people to exceed your customers’ expectations?
• Do you have compensation plans that reward individual performance?
• Do you hold your people accountable for their performance?

 

Get Out Your Microscope

Take a look at the individual performance of your fixed operations team — technicians, service advisors, service managers, parts managers and warranty administrators and then ask yourself this question: “If I knew then what I know now would I have hired this person?” Remember there are only two reasons why any employee is not a top performer: they don’t know how to become a top performer or they don’t want to.

The first scenario can be cured with training each employee how to perform at a higher level and the latter can be cured with an aggressive recruiting campaign that will attract those who want to do what you hire them to do. If you answered the above question honestly, my guess is many of you will be in the recruiting mode for new hires, so I want to give you some ideas for recruiting the right people.

A key position for building gross profits is that of the service advisor, who speaks with more customers on the phone than any other employee in your dealership, other than the phone receptionist. Your service advisors speak with more customers face to face than anyone else in your dealership.

So, who do you think has the most impact, good and bad, on a dealership’s customer retention? Who do you think has the potential to produce $500,000-plus in gross profit per year? The answer on both counts is the advisor.

 

Advisors Are Your VIPs

Service advisor is a very important position and requires a definitive plan for recruiting qualified candidates to achieve top performer status. Here are some simple rules to follow:

• Do not hire an experienced service advisor who has not exceeded 1.5 HPRO —
  you don’t need to hire someone else’s problems.
• Recruit aftermarket advisors and managers — they all have some degree of training
  and understand accountability for performance.
• Recruit aggressively for women — at least half of your customers are women
• Advertise “no experience necessary” — no bad habits to break
• Do not advertise for service advisors — use titles that will appeal to higher number
  of applicants, i.e. customer service representative, customer service associate,
  service secretary, administrative assistant-customer service, etc.

Your goal is to interview as many applicants as possible. I actually got the idea of advertising for a “service secretary” from one of our dealers who ran this in an ad and had over 50 applicants show up —mostly women.

We interviewed and profiled the applicants, then hired a young lady, gave her five days of training, compensated her on a performance-based pay plan and watched her finish her first month at 1.8 HPRO followed by her second month at 2.1 HPRO! She has no technical skills and no bad habits to overcome. Her customers love doing business with her, she loves her new job and, as you can imagine, the dealer is thrilled. Sounds like she got a pay raise.

 

Evaluating Potential

What should you look for when interviewing these applicants?

• Are they dressed appropriately for the interview?
• Did they give you a firm and friendly handshake?
• Are they smiling throughout the interview?
• Do they make eye contact with you throughout the interview?
• Ask what they liked best about their last job
• Ask what they liked least about their last job
• “Why should I hire you over any of the other applicants?”
• Utilize a personality profile to determine if they are decisive, outgoing,
  self-motivated and able to handle stress, etc.
• Review the job description and ask if they are comfortable with those
  responsibilities (watch for negative body language)

Okay. . . so how many customer service representatives do you need to employ?

 

Strengthening Your Team

We use a guide of 12 repair orders per day per representative — customer pay and warranty, not including internal. If your advisors are working with more than 12 customers a day and you want to grow your gross profits, then you will need to start planning on hiring another — now.

If you are successful in growing your traffic count and you keep the same number of advisors, your sales per RO will decline starting immediately, resulting in a decreasing gross profit even with more customers. Each advisor should have time to spend 15 minutes with each customer at the time of write up and another 15 minutes at the time of delivery so hire that additional advisor once your traffic begins to increase.

Traffic increases are commonplace when OEM recalls are announced, and the phones light up with an ever-increasing volume of incoming service calls from customers wanting to schedule appointments. If your advisors are currently working with about 12 customers a day and suddenly the recall traffic starts calling, we find in most cases the retail customer is no longer a priority. When this happens, the result is declining retail traffic.

A successful dealer must be able to accommodate all service customers in a timely manner, so you must plan for growth and recruit advisors now because these recall customers are a great opportunity to recapture lost souls who have not been in your dealership in over a year.

Your service advisors are the key to making that happen so prepare your recruiting plan, avoid hiring someone else’s underachiever, recruit non-automotive with no bad habits, invest in their training and watch your net profits soar to record levels.