Most Service Managers are "under-appreciated".

What is wrong with Service Management at most dealerships?

Too many times I have heard senior managers who work for an equipment dealerships say that "the Service Department is a necessary evil.

They exist to take care of warranty issues and nothing more".  

I find that to be a wrong-headed way of thinking. Fortunately the dealerships where I have worked had much higher expectations.

They expected me to produce 25% net operating profit year after year.

I used the Key Financial Standards below as a guide to achieve the net operating profit.

Key Financial Standards

Service Department Financial Standards

Let's Do A Brief Review Of The Financial Standards
That The Top-Tier Dealerships Use.

Sales/Employee: Range from $84,000 to $100,000 per employee.

How do we get there?

  • Identify where your Service business is coming from today.

    Create a simple Excel spreadsheet that shows the top 20% of customers who generate most of your Service department revenue.

  • Set a schedule to visit customer to ask for more business. Give the customer the reasons why this is an advantage for them.
  • Increase Customer Support Agreements by selling them at point-of-purchase;train your sales force how to sell Customer Support Agreements.
  • Selling Flat Rate repairs (70% of all repair work in the shop; 50% of all repair work done in the field)>/li>

  • Perform a walk-around inspections on every customer job brought into the shop (pre and post repair with a written report).
  • Sell “resident technicians” time at a reduced rate to remote customers.
  • Use “Shop-Cost-Analysis” to sell against customer’s use of own mechanics. Over 50% of Service department competition is from the customer doing Service work that belongs to YOU!

  • Gross Margin Must be 65% or greater

    How do we get there?

  • DO NOT “flat rate” price a job when you need to reduce billing; this is a price adjustment not a flat rate.

    Charge the hours worked to the correct category. If there is unapplied time, on-the-job-training, shop clean up, etc. charge the hours to the correct expense category.

  • Schedule the correct technician to do the job whenever possible. Create a mentoring program to allow a senior (competent) technician to train, coach and guide a less experienced technician

  • Work in Process (WIP) must be less than 25% of current month billing

    How do we get there?

  • Reduce the number of steps to open and close work orders. Complete a process review to find wasted time.
  • Close work orders daily versus waiting for the last week of the month.
  • Simplify the sublet process; get bills for sub-contract work with in 10 days
  • Establish a 30 day cutoff on disputed invoices; problems work orders “never get better with age”

  • Establish Selling Price of Labor Per Hour

  • This is a simple calculation: Use a Wage Multiple of 3.5 times the average labor rate for all technicians.
  • Establish the selling rate for mileage and travel time
  • Increase the number of flat rate price repair jobs.
  • Establish correct labor selling rate; remain competitive however, do not fear being the price-leader

    Billing Efficiency must be greater than 90%

    How do we get there?

  • Assign the correct technician for the job
  • Provide clear, concise instructions prior to the repair being performed (use the 3-C’s method: Complaint, Cause, Correction)
  • Assign work to technician for no more than 8 hours.

    Follow up with technician to determine progress on the job prior to the 8 hour limit established above

  • Arrange for the proper tooling and technical information to be available prior to assigning work
  • Review parts deliveries for repairs with Parts Managers on a daily basis.

  • In This Section We Will Discuss All Service Department Expenses.

    These Expense Include Operating,Personnel, and Fixed Expenses.

    Personnel Expense must be less than 20%.

    How do we get there?

  • Use clearly defined position descriptions for all personnel to drive maximum job efficiency
  • Create a budget for personnel and stick to it
  • Operating Expenses<15%

    How do we get there?

  • Set realistic expectations based on current activity levels not just historical information.
  • Create a budget plan and stick to it.
  • Fixed Expenses<5%

    How do we get there?

  • Review all capital expense items every six months with senior management.
  • Create a replacement schedule based on depreciation (book value) and current condition of asset,

  • Rework Rate must be less than 1%

    How do we get there?

  • Assign the correct technician to the job. Establish a "technical-competence" rating system to know at what level a technician is at the time.
  • Provide clear, concise, written instructions a the beginning of every job (AVO – Avoid Verbal Orders)
  • Follow up daily on the progress of the job.
  • Create a mentoring program for less experienced technicians

  • Review the reasons for the re-work with the technician (document the discussion)

  • Policy Settlements/Commercial Settlements
    must be less than 1% of Sales Revenue.

    How do we get there?

  • Get maximum recovery on warranty/policy settlements – use the 3-C’s to support your case
  • Take a customer’s point-of-view. Ask yourself if you would feel as though you have been treated fairly before you reach a settlement with the customer.
  • Settle policy adjustments with the customer and then do battle with the manufacturer for support. The customer is “your-customer” not the manufacturers.

  • What Should The Service Department Contribute To Overall Sales Revenue for the dealership.

    The "Top-Tier" Dealers have the following breakdown of Sales contribution for each department:

  • Service Revenue should be 15% or greater of total sales revenue for the dealership.
  • Parts Revenue should be 15% or greater of total sales revenue for the dealership.
  • Machine Sales Revenue should be 15% or greater of total sales revenue for the dealership.

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