Our changing service industry

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ALTHOUGH MANY STORES NOW HAVE FEWER SERVICE CUSTOMERS, THERE ARE STILL SMART WAYS TO BOOST THE BOTTOM LINE

Jim-Bell-serviceFor certain, vehicles still break down and have to be repaired, but not as often as they used to. According to J.D. Power’s’ most recent vehicle dependability study, which was based on a failure rate per 100 vehicles over a four year period — the failure rate decreased from 171 per 100 down to 132 per 100 (a 29 per cent decrease). And it appears this downward trend is set to continue.

The customer appointment lead time in many stores is down from 7-8 days to 1-3 days. Some service departments have seen the average customer paid hours per repair order drop from 1.8 hours per order down to 1.2 hours per order. To sell 70 hours per day, that means instead of 39 customers you now require 58 customers. That’s a 49 per cent increase in customers just to sell the same hours — have you worked out where those customers are going to come from?

Wowing your customers and increasing retention will certainly help, but a 49 per cent increase in customers just to stay even is going to take some radical thinking and changes in the way we do business.

THE ESSENTIALS
Some things we have either no or little control over, so it might be a good idea to review a few of the basics that we can have a positive impact on.

Take a look at your service department at 7.30 a.m.

in the morning, sometimes it reminds me of a bank, customers lined up outside peering in through a locked door wondering if you really want their business. OK, so now it is 8.00 a.m. in the morning, the question is how many technicians do you have in coveralls, looking for their first job and ready to start work? And don’t take the common excuse they come in late, but don’t mind staying late to finish a job!

Back to the math, look what 15 minutes per technician per day can cost you? 12 technicians X .25 hours per day = 3 hours. Now take 3 hours X 241 working days per year = 723 lost hours X a modest effective door rate of $85.00 = $61,455 in lost labour sales. So if the parts to labour sales is .8 that = $49,164 in lost parts sales. Now we have lost total parts and labour of $110,619 X 55 per cent gross = Total lost profit of $60,840!

Now let’s review what happens when we lose two customers per day, because we did not follow up and re-book them! Instead we assumed that they would re-book, but in fact they probably finished up going to an independent. By not following up on the no shows the customer in turn puts little value on our appointment system — try not turning up at the dentist and see what happens!

Two appointments missed per day X 21 working days X 12 months = 504 per year X 1.8 hours per repair order = 907 lost hours X $85.00 effective door rate = $77,095 in lost labour sales. With a parts to labour ratio of 80 per cent that works out to $61,676 in lost parts sales. Total parts and labour lost sales = $138,771 X 55 per cent gross = Total lost profit $76,324!

CHANGE IS NEEDED
Last but by no means least we are going to take a look at the impact of hours per work order, which is getting harder to maintain as vehicle technology changes and we continue to under train service advisors, implement an effective customer handling process and try running the business the same way we did 10 years ago even though the financial statements tell us it is not working. Einstein’s definition of insanity: “Doing the same thing over and over again and expecting different results.”

In this example, we are going to use 50 customer paid orders per day X 21 working days = 1,050 orders per month X 12 months = 12,600 per year. Now X that by .4 hours = 5,040 hours X $85.00 effective door rate = $428,400 in increased labour sales. If your parts to labour ratio is say .80 this would = $342,720 in parts sales. The total parts to labour gained would be $771,120 on 55 per cent gross, which works out to be $424,116 in profit!

Look at it this way $424,116 gross profit divided by $1,500 new vehicle average gross = 282 new cars sold!

For sure the bad news is it now takes more customers just to stay even. The good news is that most stores can make a significant increase in the bottom line just by working smarter and implementing an effective process for running their business.

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