Small Business Success | Small Business Mentoring

By Ray Branch, President and CEO, The KEEPS Corporation

Imagine if your service advisors asked every customer that came to your service department to do regular, needed maintenance on their vehicles. In numerous studies, more than half of the customers said, “Yes!”

How much potential gross profit is available? $20-$30 per repair order is conservative. What would this mean in a year? For example, monthly customer repair orders: 800 x $20 = $16,000 x 12months = $192,000 per year.

Measuring for Increased Sales

Compare sales department measurements with service department measurements and notice the differences. In sales, most dealerships carefully measure every customer contact from the moment the customer arrives through the entire selling process. Qualifying, information gathering, presentations, demonstration rides, write-ups, turnovers…the list goes on. After the deal is closed, additional items such as aftermarket sales, finance reserve, credit insurance and others are also closely measured for the results attained and how to motivate each employee to achieve the best possible result. Untold hours are spent analyzing this data to develop action plans to improve the weak areas. At the heart of all of this information is a comprehensive, multilevel pay program that puts incentives on all key areas of performance.

In service, we have access to volumes of information, but does this information really report on the “sales process?” Hours sold per repair order, effective labor rate, gross profit percentages are all closely monitored. But does this tell what level of sales effort is being performed? Is there a “closing percentage” on services sold? The relationship of actual vs. the “opportunity” to sell maintenance and needed repairs is seldom, if ever measured. Over the years, I have heard from many dealers who told me that if their people could just sell more than two hours per repair order, they would be satisfied. Unfortunately, I must argue that if those two hours sold were heavy repairs without any maintenance, a large opportunity would still be missed. In fact, many dealerships have high sales per repair order due to a low maintenance to repair mix.

Dramatically increased profits can be found by implementing the measuring processes below:

1. Measure the “Ups” to sell maintenance. The KEEPS proprietary web-based program Repair Order Analysis and Management System (ROAMS), tells you how many customers had a mileage level close to each major service interval, then evaluates how many services were sold by each service consultant versus how many opportunities there were to sell. Coach each employee based upon their individual “closing” percentage and you will see dramatic results.

2. Measure maintenance to repair ratios closely. If service consultant (A) sells regular, needed maintenance to most of his/her customers and is at 1.9 hours sold per repair order and service consultant (B) sells only heavy repairs with little maintenance but has a 2.5 hours per repair order average, who does a better job? If hours sold/RO is the only measurement, (B) is better. If you want your customers to return to the dealership on a regular basis and possibly have less major failures, (A) is better. Note that the technicians that work for (A) are probably more productive and efficient as maintenance work is always done in less time than the flat rate time allowed. In many cases, service consultant (A) will also have more total sales than (B). ROAMS shows how many labor operations were maintenance related and compare this with the repair operations. Compare this ratio among each service consultant. In many cases, what you thought was your best service consultant could be missing a lot of opportunities. Use this information to pinpoint the areas where items are not being presented, and or sold.

Paying for Performance

Many successful sales operations use a comprehensive commission plan that pays for selling the vehicle but also pays for selling related products associated with purchasing a vehicle. Similar to sales department pay plans, service consultant plans should be based upon minimum sales objectives for many items. Major services sold, flat rate hours sold, upsold items, and a significant dollar amount for CSI attainment is just a starting point.

To create the plan, establish a percentage of last year’s total income that you will allocate to each of the above components. Divide the anticipated “units” sold or attained into the component dollars to create individual dollars per unit (see example in item (c) below.)

Be sure your pay plans include at least the following:

a. Eliminate or limit salary. Most powerful and effective compensation plans include the need to accomplish a minimum standard. If there is a salary involved your sales efforts and motivation will be limited by the income level desired above the salary level. While full commission plans can initially be intimidating to employees, incorporating a small dollar amount for flat rate hours turned by the shop will help with the anxiety.

b. Pay weekly. If you pay a draw or salary and then settle up at the end of a month, the motivation to do something this week is limited. With a weekly plan, there is more motivation to limit the nagging, end of month, “work in process” or “open repair orders.

c. Pay strongly for major services sold. Determine how much money should be devoted to this portion of the plan (example: $40,000 annual income x 20% for menu component = $8,000 annually for menus sold. If there are 21 working days each month and the standard is one major service sold per day, this would result in 21 services sold per month x12 months = 252 services sold divided into $8000 = $31.74 per major service sold.)

If you are looking to improve your service department profits, carefully measuring the sales processes and emphasizing the maintenance portion of the work mix will dramatically increase sales and gross profits. If the pay structure is directly related to maintenance items, the rate of improvement will accelerate.

For other free tools to find and keep hidden profits in your service department visit www.keepscorp.com. To discuss how these and other profit enhancing tools can greatly impact your dealership’s performance, contact your Auto Driving Force Consulting Group member today. We will be happy to discuss your unique situation and introduce you to The KEEPS Corporation.