DEALERSHIP
Best Practices
Vol. 2 • No. 3
Fall 2010
A Quarterly Information Service
Gross Profit Opportunities In Service
Are your service advisors order takers or confident
sales people with excellent communication skills?
If they are merely order takers, your dealership
is losing out on a tremendous opportunity to
significantly impact your bottom line today.
One area that needs to be stressed to your
service department personnel is management
of their labor productivity and efficiency. With
customer labor rates already in excess of $100 per
hour, it will be difficult to raise rates further to
overcome increasing cost of sales and expenses.
Increasing your shop’s efficiencies will enable
them to bill out more hours per technician without
increasing the time they spend on the job.
As an example, instead of billing out 6 hours
in an 8 hour day, increased efficiencies should
allow for at least 8 hours to be billed out; with a
goal of 10-12 hours being billed in an 8 hour day.
The following (see chart at right) is an example
of the significant impact increasing productivity
and efficiency has on the effective labor rate. By
billing four more hours in a day, the effective labor
rate goes from $75 per hour to $125 per hour; an
increase of 67%.
Effective Labor Rate Calculations
Technician producing only 6 hours:
Hourly Labor
Rate
$
Hours Billed
100.00
x
Sales
$
6.00
Sales
=
$
Effective
Labor Rate
Hours/Day
600.00
÷
8.00
600.00
=
$
75.00
Technician producing 10 hours:
Hourly Labor
Rate
$
Hours Billed
100.00
x
Sales
$
Here are nine factors taken from Motor.com that can decrease
your effective labor rate:
1. Technicians working longer on the job than the
hours quoted, and the customer not being charged
for all of the time invested. Causes may include
the advisor inaccurately quoting the proper time
for the job, the technician may have run into some
10.00
Sales
=
$
Effective
Labor Rate
Hours/Day
1,000.00
÷
8.00
1,000.00
=
$
125.00
nonroutine tasks, such as rusted or broken bolts,
or the technician may have lost track of the elapsed
time.
2. Labor discounts offered, such as dollars or a
percentage off full price, when the same number
(Continued on Back Cover)
The following is an example of the potential on gross profit of increasing productivity and
efficiencies in service. As you can see from the analysis, average hours per repair order (RO) is 1.84.
The average effective labor rate is $72.79, while the average monthly customer pay RO’s are 801.
XYZ
Dealership
XYZ
Dealership
XYZ Dealership
Advisor
Performance
Report
Comparison
Advisor
Performance
Advisor
Report
Performance
ComparisonReport Comparison
1/1/10
- 8/31/10
1/1/10
- 8/31/10
Avg.
Hours
Avg.
Hours
Advisor
Advisor
RORO
Advisor PerPer
1/1/10 - 8/31/10
Effective
Avg.
Effective
Hours
Total
C/PC/P
Effective
Total
C/PTotal
Labor
C/P
Labor
C/P$ $
Parts
Dollars
C/P
Parts
Labor
Dollars
$
Total
C/PC/P
Parts
Total
Dollars
Total
C/P
$ $
Total
Total
C/P
C/P
Total
C/P
&$ &
Total
Total
C/P
C/P
Total
Total
TotalC/P &C/PC/P Total
C/P
Labor
Rate
Per
Labor
RORate
Labor
Sales
Labor
Labor
Rate
Sales
PerPer
RO
Labor
Sales
RO
PerPer
C/PC/P
RORO
Per
RO
Parts
Sales
Per
Parts
C/P
Sales
RO
PerPer
RO
Parts
Sales
RO
Warr.
Warr.
PerSales
RO
Sales
RO's
Warr.
RO'sSalesRO's
RO's RO's
RO's
1,773
1,481
1,773
232,558
1,481 1,773
1,481
Advisor
#1 #1
Advisor
Advisor #1
1.81
1.81
73.23
1.81
73.23
176,945
176,945
73.23
119119
176,945
105.97
105.97
119
156,947
105.97
156,947
228228
156,947
232,558
232,558
228
Advisor
#2 #2
Advisor
Advisor #2
1.98
1.98
71.91
1.98
71.91
105,801
105,801
71.91
125125
105,801
106.12
106.12
125
89,675
106.12
89,675
234234
89,675
130,672
130,672
234
Advisor
#3 #3
Advisor
Advisor #3
1.79
1.79
74.02
1.79
74.02
220,025
220,025
74.02
124124
220,025
106.99
106.99
124
189,802
106.99
189,802
234234
189,802
Advisor
#4 #4
Advisor
Advisor #4
1.70
1.70
71.10
1.70
71.10
92,727
71.10
92,727
109109
92,727
107.76
107.76
109
91,708
107.76
91,708
Advisor
#5 #5
Advisor
Advisor #5
1.91
1.91
73.71
1.91
73.71
118,432
118,432
73.71
122122
118,432
105.30
105.30
122
Totals/Averages
Totals/Averages
Totals/Averages
1.84
1.84
72.79
1.84
72.79
713,930
713,930
72.79
713,930
106106
Others
Others
Others
Total
Total
Total
950950
130,672845845
950
845
298,630
298,630
234
2,285
1,774
2,285
298,630
1,774 2,285
1,774
219219
91,708
122,282
122,282
219
1,023
1,023
122,282851851 1,023
851
102,566
105.30
102,566
230230
102,566
156,063
156,063
230
1,121
1,121
156,063974974 1,121
974
630,698
630,698
106
630,698
940,205
940,205
7,152
5,925
7,152
940,205
5,925 7,152
5,925
480480
480
6,405
6,405
6,405
801801
801
Average
Monthly
C/PC/P
RO's
Average
Monthly
Average
RO's Monthly C/P RO's
AA
Column A represents a
scenario whereby the average
hours per RO goal becomes
2.00 instead of 1.84. This
slight increase (.16) results in
additional monthly gross profit
of $6,455 or $77,462 on an
annualized basis.
Increasing the goals in
column B to 2.20 hours per
RO and increasing the effective
labor rate from $72.79 to
$85.00, results in additional
monthly gross profit of $16,850
or $202,206 on an annualized
basis.
Average
Average
BAB
B
CC
C
Goal
ELR
& &
Goal
ELR
Goal ELR &
Increase
RO's
Increase
RO's
Current
Pace
Increase
Current
RO's
Pace
Additional
Current
Additional
Pace
Additional
Avg.
Hours/RO
Avg.
Average
Hours/RO
Avg. Hours/RO
With
Goals
With
Goals
Through
8/10
With
Through
Goals
8/10
Opportunity
Through
Opportunity
8/10
Opportunity
Average
Hours
PerPer
RO
Goal
Average
Hours
Average
RO
GoalHours Per RO Goal
2.00
2.00
2.20
2.00
2.20
2.20
Variance
to Goal
Variance
to Goal Variance to Goal
0.16
0.16
0.36
0.16
0.36
0.36
Avg.
Monthly
Customer
PayMonthly
RO's
Avg.
Monthly
Customer
Avg.
Pay
RO's
Customer Pay RO's801801
801
801
801
Potential
Additional
Hours/Month
Potential
Additional
Potential
Hours/Month
Additional Hours/Month 130130
Average
Hours
PerPer
RO
Goal
Average
Hours
Average
RO
GoalHours Per RO Goal
2.20
2.20
2.20
801
Goal
Monthly
Customer
PayMonthly
RO's
850850
Goal
Monthly
Customer
Goal
Pay
RO's
Customer Pay RO's
850
290
130
290
290
Total
Hours
PerPer
Month
Total
Hours
Month
Total Hours Per Month
1,870
1,870
1,870
Effective
Labor
Rate
Effective
Labor
Rate
Effective Labor Rate
72.79
72.79
85.00
72.79
85.00
85.00
Effective
Labor
Rate
Effective
Labor
Rate
Effective Labor Rate
85.00
85.00
85.00
Additional
C/PC/P
Sales/Month
Additional
Sales/Month
Additional C/P Sales/Month
9,441
9,441
24,635
9,441
24,635
24,635
C/PC/P
Sales
PerPer
Month
Sales
Month
C/P Sales Per Month
158,950
158,950
158,950
Gross
Profit
%age
Gross
Profit
%age Gross Profit %age
68.4%
68.4%
Additional
Monthly
Gross
Additional
Monthly
Additional
Gross
Monthly Gross
6,455
6,455
16,850
6,455
16,850
16,850
Additional
Gross
Annualized
Additional
Gross
Annualized
Additional Gross Annualized 77,462
77,462
202,206
77,462
202,206
202,206
F/SF/S
YTD)
Profit
%age
68.4%
(From
YTD) Gross
(From
Gross
F/SProfit
YTD)
%age Gross Profit %age
68.4%
68.4% (From
68.4%
Average
Monthly
Gross
Average
Monthly
Gross
Average Monthly Gross
68.4%
68.4%
68.4%
108,722
108,722
64,889
108,722
64,889
43,833
64,889
43,833
43,833
Average
Gross
Annualized
Average
Gross
Annualized
Average Gross Annualized1,304,662
1,304,662
778,662
1,304,662
778,662
526,000
778,662
526,000
526,000
For more information on performing this analysis for your
service department, contact Gary Pomykala at 630-920-9290.
Finally in Column C, let’s look
at the total impact on this service
department using the 2.20
hours per RO goal, an effective
labor rate goal of $85.00, and
increasing the average monthly
customer pay ROs from 801 to
850 (approximately 2.5 per day).
Achieving these small goals
results in a stunning additional
monthly gross of $43,833, or
$526,000 on an annualized basis.
These customer pay results don’t
even consider the additional
gross profit from related parts
sales.
Gross Profit Opportunities In Service
3. Advisors underselling
the labor times so the
technicians can barely
meet, let alone beat, those times.
4. Menu-priced items where the technician will put in
more time than the menu price has allowed.
5. Freebies, if they consume a significant amount of a
technician’s time.
7. Technician inefficiency by his not performing tasks
in the most efficient order.
8. Having technicians doing other things like ordering
parts, shuttling customers, filling in for the advisor,
etc., instead of performing only vehicle repair and
maintenance work.
9. Waiting for customer authorization, parts delivery,
or an answer to a question from an advisor.
If you have any questions or need assistance regarding
our services and facilities, please contact Gary Pomykala at
630/920-9290 or email [email protected].
Disclaimer—To ensure compliance with IRS requirements, any
advice in this communication to you was not intended or written to
be used, and cannot be used, to avoid any government penalties
that may be imposed on a taxpayer.
15 Salt Creek Lane, Suite 309, Hinsdale, IL 60521-2962
of hours is allocated
to sold time. An
example may be a job
that normally prices
out for 10 hours of
labor at the shop’s
labor rate, but when
the customer presents
a discount coupon,
there is no adjustment
to sold hours.
6. Lack of work due to insufficient car count or
insufficient hours per repair order.
osed
tion Encl ney !
o
t Informa
Importan ave You Time & M
S
That Can
(Continued from Front Cover)