For the past three months we have been reviewing how to put together a “business plan” to achieve 100 percent service absorption. As I stated in my first article on Rule #1, we begin by determining how many dollars in additional customer pay parts and labor gross profit is needed monthly in order to reach our goal of 100 percent service absorption. We called this the “shortage.” To begin your business plan, I supplied three rules to follow that would provide the basis for generating additional retail gross profit in your service and parts departments.
RULE #1: Maintain your profit margins at 45 percent on C/P parts and 75 percent on C/P labor.
RULE #2: Maintain your hours per C/P RO at a minimum of 2.5.
RULE #3: Maintain a six to one ratio of C/P RO count to total vehicle sales.
Remember, RULE #1 is simply a matter of discipline and accountability, whereas RULE #2 requires you to do a lot of things differently and/or do different things. To begin, I explained how we need to compete on the same playing field as our aftermarket competitors, and in doing so we must offer the same services and value they offer. This process in your quick lube operations will produce about $210,000 in additional gross profit annually for every 500 customer pay repair orders written per month.
Next, we covered the inspection process that must take place on every customer pay repair order. I suggested that you survey at least 50 internal used vehicle reconditioning repair orders and determine the hours per RO. It is very likely that you found the number to be between 2.5 and 3.0 hours. Implement this same inspection process on 100 percent of your customer pay ROs, and I assure you the results will be a minimum increase of .5 in hours per RO.
With our calculations from last month, we came up with additional customer pay gross profit of about $249,000 annually for every 500 repair orders written monthly. Add this to the quick lube increase of $210,000, and we are now at $459,000 in additional retail gross profit that we can apply towards the shortage. For some of you, 100 percent service absorption just became reality. However, we are not yet done with RULE #2. There is more money to be made!
Have you ever been to a restaurant? Olive Garden? Red Lobster? Outback? Better yet, how about Ruth’s Chris Steakhouse? When you were seated by your hostess or host were you presented a menu? Of course you were! Did you have to ask for one? Of course NOT; it is NOT an option whether you receive a menu. EVERY CUSTOMER gets a menu at these restaurants. Not only do they get a menu, but they always get multiple menus.
Let me explain. Already on your table is a drink menu; you will also be offered the special of the day menu. Next, comes the main entrée menu. After you have finished your meal, you are then presented the dessert menu (many times they will show you the actual dessert). Oh, I almost forgot my favorite – the wine menu – which was probably presented when you first sat down. The point I’m making is that 100 percent of their customers are presented multiple menus 100 percent of the time. This process is not an option, it is a rule. Why?
Their RULE simply means that every customer is given the opportunity to make choices. That’s plural not singular. Choices are made based on the customer’s perception of likes and dislikes, value, price and benefits. Are the food servers high pressure forceful salespeople? Do they offend you by offering you multiple menus that allow you to make choices based on your individual wants and needs? Do they refuse to offer you a wine menu because they don’t think you can afford a $50 bottle of wine? Do they ignore the dessert menu presentation because they think you look fat? The answer is obviously “NO”, for the food servers, but it is “YES”, for the average service advisor.
Ask yourself these two questions:
If my service advisors presented a maintenance menu to 100 percent of my customers on each and every visit to my service department, would my sales go up, go down or remain consistent?
If my service advisors allowed my customers to make individual choices for maintaining their vehicles based on their individual wants and needs, would my CSI, owner retention, and retail sales go up, go down or remain the same?
Hopefully, I don’t need to answer those questions. This process will increase your hours per customer pay RO by another .5, which (based on our math from last month) will produce an additional $249,000 in retail gross profit. Now, add that to what we already have from the improved profit margins, additional quick lube sales and the .5 from the inspection process, and our total gross profit improvement stands at $669,000 annually for every 500 RO’s written per month. This total goes towards our shortage; thereby brining us much closer to achieving 100 percent service absorption. Some of you, of course, just “hit the ball out of the park” and reached 100 percent service absorption!
The only way that this works is this menu process must become part of RULE #2. That means it is not an option. One hundred percent of your customers will receive a menu presentation each and every visit to your dealership. It does not matter how old they are, what their income level is, what church they attend, how old their vehicle is or what color their skin is.
The only criteria that matters is that they are a customer, and as such, they will all be treated the same. They will all be given the opportunity to say “YES” to any and all of the services you provide. It’s NOT the service advisor’s option to choose for your customers. It is your customer’s vehicle, and it is your customer’s money to spend how they see fit. It is your customer’s decision to make! Do I have your attention yet?
In closing, I must now ask you a couple of questions.
What is it about making an additional $669,000 in gross profit per year, or more, that you don’t like?
Are you serious about achieving 100 percent service absorption and making your dealership recession proof?
If you are indeed committed to this goal, then get ready for the finale because we ain’t done yet! (Have I told you I’m from Arkansas?) Next month we will start on RULE #3.
Vol 3, Issue 10
vAuto’s new used-car reconditioning platform was designed to automate the recon process for improved efficiency and speed.