|Income statements measure a dealership’s performance over the course of a period of time…a calendar year, sometimes a quarter, usually we think of it in terms of a month. These statements are generally prepared within five to fifteen business days following the close of the previous month. From them we measure, we analyze, we manage, always looking for ways to maximize profit opportunities.|
Months, weeks, and days are all measurements of time. Certainly important elements of time that you dare not waste, especially when trying to maximize net profits. When analyzing a service department they are important elements of time, but far too long of a period of time to focus on. Let’s try focusing on just six minutes, the precious tenth of an hour.
So why make such a big deal about three hundred-sixty seconds? Are six little minutes such an important increment of time? Ask any technician paid on flagged hours to tell you just how important they are.
Consider an average service department housing eight technicians, with the typical one writer to four technicians ratio. These service writers do a good job, each writing 20 repair orders per day. When analyzing the repair orders, we find that the average hours per repair order is 1.5 billed at the dealerships target labor rate of $80 per hour.
What does that really mean to the department? It means that the eight technicians average billing a total of 60 hours per work day, or 7.5 hours per technician. 60 hours, when multiplied by the dealership’s target labor rate of $80 per hour, yields $4800 dollars of labor sales per day.
So again, why do we make such a big deal about one-tenth of an hour? Let’s do the math. What happens if a dealership was to increase their average hours per repair order by six minutes per ticket? Multiplying one-tenth of an hour times 40 repair orders per day, times the same labor rate, times the number of working days in a month, and you get a significant amount of money. $320 per day, to be exact, or an additional $7,040 per month…or an $84,480 per year. All for just 360 seconds per repair order!
When factoring in the typical one-to-one parts sales to labor sales ratio, a simple increase of one tenth-hour per repair order would net a dealer nearly $170,000 in sales per year. At benchmark gross profit percentages, that yields over $100,000 in additional gross profit per year – all for averaging an additional 360 seconds per repair order.
The benchmark for most service (non-highline or exotic) departments is 2.5 labor hours sold per repair order. As you look at your financial statements and compare your numbers to the benchmark, it is very easy to become complacent. After all, 2.2 or 2.3 hours is near the benchmark. 2.3 hours is only 10% less than the benchmark for goodness sake.
Dealers averaging something north of 2.0 labor hours per repair order often don’t take particular notice. Again, the number (or calculation) begins with a “2”, so what is a half of an hour per repair order?
Indeed, many dealers average 1.5 hours or less per repair order. The numbers just get glossed over since they are so small. They seem insignificant. At least until you do the arithmetic. A dealership like the example above running at 1.5 hours per repair order is potentially leaving $1 million dollars of gross profit on the table per year. How many more vehicles must your dealership sell in order to gross an additional $1 million?
So how do you get the extra tenth, two-tenths, or hour per repair order? You simply ask for it. Sure, it is not that simple – it requires training your service writer or manager. It requires assistance on the part of the technician to look for maintenance work that is needed or due to be performed. It requires efficiency and organization to move more work through the same department with the same personnel. But most importantly it takes the desire, and resolve, to make it happen.
A dealer I have worked with serves as a good example. He is an independent dealer with a relatively small service department – a service manager/writer/parts manager combo, and three techs. By focusing on his hours per repair order he raised his average per repair order from 1.37 hours to 2.27, an increase of nearly an hour per repair order. Not coincidentally, his service department’s net profit went up over $32,000 in just five months.
Before going to far, it is important to point out one caveat. If some is good, more is not always better. Yes, there are many service departments averaging well over 3.0 hours per repair order, and doing it with good customer satisfaction. It is more common however, to find departments performing well above the benchmark plagued with sagging CSI. The old adage that you can sheer a sheep many times, but you can only kill it once applies here. It certainly is possible for overzealous writers and technicians to cause long term damage by being too pushy, or “creative”.
It all boils down to measuring and managing…especially the numbers that seem so insignificant. Three hundred-sixty seconds. What a difference they can make!
Vol 3, Issue 7
Stacey White has been named senior vice president of PAR North America’s remarketing services division.