As we approach the mid-year point, it’s the perfect time to evaluate your service and parts team’s performance and determine where improvements can be made.
As a dealer, GM or fixed ops director you might want to start with the “operating profit” line of your financial statement and measure your team’s performance with the following industry benchmarks:
• Service department operating profit at 20 percent of gross profit
• Parts department operating profit at 30 percent of gross profit
If you are exceeding those benchmarks, congratulate your team for a job well done! If you are falling below those benchmarks, however, then you have some work to do. Let’s begin by asking a simple question: “Are your expenses too high or are your gross profits too low?”
In working with hundreds of dealers, I have found that in most cases the fixed operations team is doing a good job controlling expenses but is missing out on huge opportunities to increase departmental gross profits. You can’t save your way to increased profitability. Why, then, are so many dealers still missing out on earning the gross profits they deserve? The answer is people.
• Do you have the right people in the right position?
• Do you have the right people professionally trained to become top performers?
• Do you hold your people accountable for their performance?
• Do you have the right number of people to exceed your customers’ expectations?
• Do you have compensation plans that reward individual performance?
Take a look at the individual performance of your fixed operations team — technicians, service advisors, service managers, parts managers, warranty administrators, etc. — and ask yourself this question: “If I knew then what I know now, would I hire this person?” Remember, there are only two reasons that keep employees from becoming top performers: They don’t know how to or they don’t want to. The first scenario can be cured with professional training that gives them the tools to succeed and perform at a higher level; the second scenario requires an aggressive recruiting campaign that attracts those who want to do what you hire them to do. If you answered the above question honestly, my guess is you may be in the recruiting mode for new hires, so I want to give you some ideas for recruiting the right people.
The Right Advisor
A key position for building gross profits is that of the service advisor. These employees speak with more customers on the phone and face to face than any other employee in your dealership, with the possible exception of a phone receptionist. Who do you think has the most impact — good or bad — on your customer retention? And who has the potential to produce $500,000 or more in gross profit per year? The answer on both counts is the service advisor. This is a critical position and requires a definitive plan for recruiting qualified candidates to achieve top performer status. Here are some simple rules to follow:
1. Do not hire an experienced service advisor who has not exceeded 2.0 HPRO — you don’t need to hire someone else’s underachiever.
2. Recruit aftermarket advisors and managers — they all have had proper training and understand accountability for performance.
3. Recruit aggressively for women — at least half of your customers are women.
4. Advertise “No experience necessary” — no bad habits to break.
5. Do not advertise for service advisors — use titles that will appeal to a higher number of applicants, particularly with younger job seekers: customer service representative, customer service associate, service consultant, administrative assistant-customer service, service secretary, etc.
Your goal is to interview as many applicants as possible. I got the idea of advertising for a “service secretary” from one of our dealers who ran this ad and had more than 50 applicants show up — mostly women. We interviewed and profiled the applicants and 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 in a GM store. She had 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 a pay raise for the dealer!
So, how many service advisors do you need to employ? We use a guide of 12 to 15 customer repair orders per day, per advisor — customer pay and warranty, not including internal. If your advisors are working with more than 15 customers a day and you want to grow your gross profits, you’ll 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 immediately, resulting in decreasing gross profits — even with more customers. Each advisor should have time to spend 15 minutes with each customer at the time of write up and another five to 10 minutes at the time of delivery. So, hire that additional advisor once your traffic begins to increase.
Tracking Productivity
Next, take a look at your shop productivity. The industry benchmark is 120 percent, meaning that your technicians produced 48 flat-rate hours for every 40 clock hours worked. If your productivity is at 100 percent or above, you need to start recruiting additional technicians. Why? Because advisors typically stop selling once they believe the techs can’t get the work completed — and that negatively impacts your sales per RO. Do not wait until you reach 120 percent to start recruiting techs. Since the majority of your sales growth opportunities are with “C” level tech jobs, you’ll want to focus your recruiting on “C” level techs. Vehicle maintenance and light mechanical repairs make up a large part of your sales and, of course, the aftermarket captures about 80 percent of this market share. So, why not strive to get some of that business back? Every dealer has the opportunity to compete with the aftermarket and win. Hiring aftermarket technicians means a lower cost of “C” level sales and employees who are accustomed to inspecting every vehicle for additional repairs and/or maintenance needs.
On the other hand, if your shop productivity is below 100 percent, you have to ask yourself why that is. Begin by having your service director prepare a 24-month trend analysis of your customer pay RO count month by month. Is your traffic going up, down or remaining stagnant? The only acceptable answer is “up.” If your traffic is going down, you can assume your customers aren’t particularly excited to do business with your fixed operations team and prefer to go elsewhere. Study your CSI reports carefully and evaluate what your customers are telling you. Plant your management team in the service drive during the morning rush hour to observe how your customers are being received. Observe the process of delivering the vehicle back to your customers: Are customers given a clear and precise presentation on the repairs or services performed?
Low shop productivity is a direct result of lackluster performance by your advisors as well as your techs. Advisors who are not professionally trained in effective communication with their customers, through feature/benefit presentations on vehicle maintenance and repairs, will not sell enough hours to maximize technician productivity. Technicians will not inspect 100 percent of vehicles serviced when they believe their advisors won’t sell the work. This, of course, is another reason your advisors should not be servicing more than 15 customers per day. Keep in mind that all of your technicians have the ability to produce more hours and will do so when they have confidence in their advisors’ ability to sell the work.
As you prepare for the second half of this year, make sure you have the right number of employees, in the right positions, to support your plans for growth in your operating income. Focus on building gross profit by utilizing customer-driven processes that exceed expectations on each and every visit to your service department. Also, make sure everyone is trained on doing things right, as well as doing the right things. Give your fixed operations team the professional skills to achieve 20 percent net to gross in service and 30 percent net to gross in parts to finish the second half of this year strong.
Click here to view more solutions from Don Reed and DealerPRO Training.
