By Sam Yelverton
Use of the financial statement is essential in measuring or tracking your expenses. You also need to know what makes up each expense account. The account total in relation to total income, measured against proper guides, will enable you to assess performance.
Service managers are most concerned with sales or income, and must be trained to control expenses.
Ideally, a service department financial statement or performance evaluation would show that for every $1.00 of labor sales, the technician would be paid $.35. Another $.25 would be paid to non-productive service department personnel. Then $.20 is paid for service department overhead expense. This leaves $.20 of every labor dollar sold as net profit, a figure very difficult to attain.
Simply stated, expense and profit objectives for a service department are listed below:
The best way to reach a 20% net profit is to examine the statement carefully and review the details of any out-of-line expense. Every entry into an expense account needs to be reviewed.
Some common discoveries (as a result of this kind of review) are improper distribution of an account, i.e., someone made a mistake. Many times salary expense of another department has been charged to the service account.
Utility bills need to be reviewed to show excessive use or even waste. Your heat systems may be inefficient, making your bills out-of-line. Telephone expenses need to be reviewed to determine the needs for WATS lines or other more reasonable alternatives.
Your dealership accountant is also eager to analyze and offer suggestions in controlling your expenses.
Each dealership is unique and expenses must be examined with the level of customer satisfaction you are seeking. Dealers today, by choice, may have more non-productive personnel on the payroll than our guidelines allow for. Productive people should cost no more than 35% of labor sales accounts. The balance should cost no more than 25% of sales totals.
Sometimes in order to solve a CSI problem, an extra clerk, van driver or customer relations position is needed. In these instances, expect to be over the guide. You can offset these extra expenses by better service merchandising, internal organization, and production methods in your shop. In other words, sell more desirable service business, be more productive and maintain or reduce current expense levels. By doing all of this, you can achieve 20% net profit on labor.
Forecasting and the use of a DOC helps prevent month-end surprises when the statement is produced.
In Alabama, there are areas of cold weather requiring heat. This causes monthly variance in utility expenses. It also seems that winter months are slower service months. A poor business month combined with an increase in utility bills may result in your having to "reach into your pocket for payment." Some dealers have established a level monthly utility billing based on prior year actuals. This aids cash flow and helps to smooth out expenses.
The financial statement is an excellent tool and should be considered as "friendly." Digging at expense accounts and training your managers in controlling expenses can result in an increase in the amount of profit your service department produces. Sales volume of new vehicles for the past few years, along with a decline in the number of independent service facilities, has created (in many markets) a "wait list" for service customers at dealerships. And having to wait several days for needed service has contributed to the decline in customer satisfaction.
The dealership was eager to sell the vehicle, including being open or available in the evening for "shopping convenience." Yet once delivery is made, we say: "Bring it in early and pick it up at 5:30." That may be okay for some owners, but what if we say: "It will be three or four days before we can get to your service job?"
Extending service hours is a good way to get more out of your present facility. Since you pay rent, utilities and property taxes for 24 hours a day, why not increase the efficiency of your service shop?
Are you considering adding to your facility? In comparison, extending your service hours is rather inexpensive. Since a major complaint of customers is the inconvenient hours in service departments, by extending your hours you are not only saving money, but also increasing customer satisfaction.
Extended service hours appeal to all vehicle owners whose need for service extends beyond normal business hours. Fleet accounts like extended hours since their vehicles are income producers. Offering evening or Saturday services is very attractive. A typical schedule is to very the four-day workweek. Let's look at some of the advantages of this schedule for everyone involved.
The Dealer
This can result in as much as a 50% increase in service and parts availability. A key factor is that employees work the same number of hours per week. A change in employee work schedules to four long days allows extended shop hours without additional hires.
The Employee
A four-day schedule also increases productivity and reduces absenteeism. It offers the qualified technician more leisure time for hunting, fishing and the like, and this schedule appeals to them as an added "perk." By working four days rather than five, the employee saves 20% in travel time and expense.
The Customer
Your customers like extended hours. If emergency service is needed, extended hours reduce the likelihood of their vehicle being kept overnight.
Management
Better management is possible with this concept. Small, productive units are formed and are referred to as Groups or Teams. These units are rotated to ensure the maximum number of three-day weekends each month.
Your shop experience determines the initial work schedule. There are now peaks and valleys and you assign and adjust to smooth out the workloads. A typical plan includes three groups or teams of four technicians each. By rotating their work schedules every two weeks, each team has four three-day weekends out of every six.
You are able to typically increase service hours from 40-44 to 70-76 hours. Other benefits include less pressure for service advisors and more selling time with each customer. This results in the customer feeling less rushed when discussing his/her service needs. Customers like the added personal service made possible by these changes.
Keep in mind that any change from the normal work-week, including extended hours, is a very serious step. It should be prefaced by a complete and professional evaluation of your dealership operation. A market study is required, as well as on-site installation by an experienced individual.
There may be some additional effort and added initial expense, but the long-term results will be increased facility utilization, increased sales, increased customer satisfaction, and motivated technicians. It's worth it!
Sam Yelverton is a consultant with Automotive Service Consultants of Birmingham, Alabama.
