How does your net profit look so far this year? Are you making all of the money you deserve? If you answered “yes” then I congratulate you for a job well done. However, if you answered “no” then I must ask you: What are you going to do about it?
Cutting Expenses Is Not the Answer
If you are like many other dealers/managers, you might be focusing all of your efforts on cutting expenses as opposed to increasing revenues. Do you really believe you can save your way to a profit?
Oftentimes, when the front end starts selling fewer new and used vehicles and the “red ink” starts to flow to the bottom line of those departments, the dealer will approach his/her fixed operations team, the ones making a net profit (black ink), and instruct them to start cutting costs.
Here is an example: I recently received several emails from service managers asking for advice on how to handle their dealer who has instructed them to layoff a service advisor to help cut costs. The dealer stated that the manager could then fill in for the missing advisor, who by the way was writing 18 repair orders a day. Do you see a problem here with this logic? The front end is losing money so let’s go to the back end, which is making money and cut back on their ability to remain profitable by eliminating a “revenue producer.” Smart move, huh?
Service Is Your Revenue & CSI Generator
Let’s get serious about service and analyze what the real consequences are of this action. First of all, do you really believe your service manager will be able to spend the time needed to properly service 18 customers a day? After all, the advisor spent the entire workday with 18 customers. Now you’re asking the manager to do that job plus be a manager. Something’s got to give!
Usually, managers can’t just stop managing, so most of these 18 customers are going to be dispersed to the remaining advisors who were already working with 18 customers a day themselves, which means that if you have two remaining advisors, they are each now working with about 27 customers a day.
That results in about 50% more time on the phone taking incoming calls and making outgoing calls. Probably 50% more time with the dispatch process and twice as much time delivering vehicles back to the customer when completed. The problem with this scenario is that the remaining advisors do not have 50% more time available on the clock. Now your remaining “revenue producers” will produce less revenue because they don’t have the time to sell.
• They don’t have time to conduct a walk-around at the vehicle with their customers.
• They don’t have time to make the proper phone calls to make an up-sell presentation to the customer.
• Follow up calls become neglected.
• Maintenance menus are not presented to every customer.
Result: Now your CSI is headed south along with things like service absorption and service net profit.
You Wouldn’t Cut Sales, Would You?
Let’s compare this scenario to the sales department. Since the front-end sales are slowing down, do these dealers then layoff their salespeople and instruct the new car sales manager to start taking ups and stop managing? Do they inform the used car manager to stop wholesaling, stop appraising trades, stop working the auction and start taking ups?
How about the finance director? Do they tell them to stop working the banks for approvals and stop making menu presentations to buyers, so they can take ups? What about advertising? Do these dealers cut their variable advertising by 50% or do they increase advertising? Do they stop conducting “event sales” or do they schedule another one? Speaking of advertising, what do you think happens to the fixed operations advertising budget (assuming they have one)? You’re right, it just got cut! If you’re one of these dealers or general managers, I ask you, “What is it about making more money that you don’t like?”
Now Is the Time
You need to get serious about service and examine the opportunities for profit improvement that abound.
For example, how many sales opportunities do you have per day in your service drive? In my example, the three service advisors averaged 18 repair orders per day for a total of 54. Let’s say that 20% (11) are internals, that leaves about 43 customers (opportunities) to work with.
How does that number compare to your showroom floor? Let’s assume there are 10 salespeople in this dealership and they each average three ups per day for a total of 30. Many dealers have at least 50% more sales opportunities per day in service versus sales, just like my example.
Why would you want to cut costs in servicing your loyal customers while increasing your costs to bring in new ones? Research shows that over 70% of service customers who bring their vehicle back to their new car dealer for all of their service and maintenance needs will buy their next vehicle from that dealer.
Service Is Your Sales & Profits Gold Mine
Do you have a process in place to identify who these customers are? Are you maintaining regular contact with them? Does your sales department monitor the mileage on these customers’ vehicles and advise those customers on special financing, rebates, etc.? How about sending the loyal customers a letter or email advising them of your need for high-quality used vehicles, like theirs, and you have buyers waiting.
I’m sure we all could come up with a good list of the many reasons why we want these vehicles as trade-ins and would certainly like to deal with a repeat customer versus a new one.
It’s time for you to take a closer look at service. Is your service department getting the resources you need to increase your profits…even in slower times?
In comparing the salesperson to the service advisor, who has the most sales opportunities per day? Who gets the most phone calls per day? Who gets the most sales training? Who gets the most marketing support? Don’t you think it is time to get serious about service? It will do your dealership good.
Click here to view more solutions from Don Reed and DealerPro Training.