Dealers should be aiming to achieve 20% return on sales in their service departments, according to Chris Downie, from Silver-Bullet Business Advisory, in his session at AADA 2020 Moving Forward.
Mr Downie said it was time for Dealers to undertake a Service Department Profit Exploration & Acceleration approach to business, asking questions such as:
Are your facilities and people working to capacity?
Are you at 20% return on sales in your service department?
If not, how do you get there?
If so, how do you keep growing?
Using hypothetical examples of dealerships, Mr Downie encouraged calculating the number of work hours service staff had the capacity to undertake in a given month and combining it the mix of work to be done and the rate of labour, to find the maximum potential income for that period.
In terms of mix of work, 60% or more of jobs being external fleet or retail jobs was the magic money-making number.
“We need to make sure that our warranty (work) is kept at a minimum, of 10% or less, or loaded accordingly, because this is typically our lower-grossing category of work in our labour lines. Unapplied time needs to be minimised, as low as possible, because we need to target 80 percent as our key figure to achieve on our adjusted labour GP,” he said.
Further to that, Dealers should look at auxiliary products they had in their service departments, of sublet work, and oils and lubricants. The making money KPIs of sublet needed to be no greater than 15% of labour sales and a minimum of a 15 percent GP. For oils and lubricants, the mix of work needed to be around 15 percent of labour sales, but GP needed to be at least 65%, “because overall we’re looking for a 70 to 75 percent GP in our total service sales”.
“To do that, the key focus is our personnel costs, our non-chargeable. And that healthy band is 35 to 45 percent. In most dealerships it’s north of 50 percent, so we have to minimise how much gross is given up to expense,” Mr Downie said.
Dealers should calculate their current return on sales, in both dollar and percentage terms, extrapolate the result to 20%, and annualise it, to compare where they are to where they should be.