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Do You Have a PIP?

This Profit Plan Gets Results

By: Don Reed

I’m guessing you may have no idea what a PIP really is so before I get into the details, let’s answer a few questions:

  1. Are your Service Operations Net Profits increasing over last year’s?
  2. Is your Service Absorption improving year over year?
  3. Is your CSI Ranking in the Top 10% of your franchise?
  4. Does Customer Pay Owner Retention really matter?
  5. Do you have an on-going training process for growing Top Performers?
  6. Are your Managers Leaders or Administrators?

There is a lot to talk about when answering those six questions. The first five call for a simple “Yes” or “No” so obviously if you answered “No” to any of the five then you most definitely need a PIP. I’m going to go out on a limb here and answer question number six for you and say “Administrators.” My reason for this answer is really simple logic. Your managers are the ones responsible for creating the results that produce the answers to questions 1-5.

The Problem is Leadership

If your Service Operations’ Net Profits are not increasing over last year and Service Absorption is stagnant with your CSI hovering around “Group Average” then I can only assume Customer Pay Owner Retention really doesn’t matter that much and there is no on-going training process for your Service and Parts Team due to a lack of leadership! This does not mean you have bad or incompetent employees and managers but what it does mean is you need a PIP—NOW! Yes a PIP can cure all of the above so what the heck is a PIP?

A PIP is a PROFIT IMPROVEMENT PLAN. So, whether you are a Dealer, a General Manager, a Fixed Operations Director or a Service Manager you have to have a PLAN! This plan must be in writing. It must be specific. It must be attainable and it must have accountability for completion. Sounds simple enough. So how do you build a PIP specifically for your service and parts operations?

Let’s begin with your most recent financial statement along with the same statement for last year and compare the two in order to answer questions 1 and 2. If your Net is not increasing then compare your year over year Sales—Gross Profits—Expenses and determine if your Sales and Gross Profits are too low. Or are your expenses too high or is it BOTH?

Why Your Gross Profits are Too Low

Here at DealerPro we have analyzed over 1,000 dealership financials and what we find most often is dealers are doing a good job controlling expenses but their gross profits are too low.

If this is the case in your store then here are some Key Performance Indicators for you to use when looking for your opportunities for improvement in your Service Operations Gross Profits: (If you are in a 20 Group then this is already done for you in your composite)

  • Labor Margin @ 75% of CP Sales
  • Parts Margin @ 42-45% of CP Sales
  • HPRO Main Shop @ 2.5 (Yes there are many dealers averaging 2.5)
  • HPRO Quick Lube @ 1.0
  • Policy Adjustment @ 2% of Total Service Gross Profit
  • Service Net Profits @ 20%+ of Gross Profit
  • Parts Net Profit @ 30%+ of Gross Profit
  • Service Absorption @ 100%

Ok, so there are some key financial metrics so here are some Key Performance Metrics for your fixed operations management Team to use in building your PIP:

  • # of Customer Pay and Warranty repair orders per day per Advisor @ 12-15
  • Total Shop Productivity @ 120% (# of flat rate hours produced divided by # of clock hours worked)
  • Parts & Labor Gross Profit produced per main shop Technician per month @ $17,500
  • One-item RO’s @ 15% or less
  • Service Advisor’s Closing Ratio @ 50%
  • Multi-point Inspection Completion Rate @ 95%
  • Maintenance Menu Presentation Rate @ 80%

It’s Time For Change

Once you have gathered all the information outlined above and determined where your opportunities are for profit improvement you can then move to the next phase of your PIP. CHANGE. I’m guessing you’ve heard the saying “If you want something you’ve never had you have to do something you’ve never done.” Sounds like change is not optional!

Ok, if you are all in on making some changes you must identify what needs to change and more importantly how you’re going to implement those changes to get the results you deserve. These changes will obviously have to address what you plan to do to have a positive impact on your out of line conditions as determined with the above exercise. Here is an example:

  • Your three Service Advisors are each servicing 18 customers a day for a total of 54 customers
  • Your KPI is 12-15 so do the math and you actually need 4 Service Advisors
  • Plan of Action: Hire one Service Advisor and now your 4 Service Advisors are averaging 14 customers a day

Some of you may be hesitant to do this because your perception is hiring that advisor will simply increase your personnel expenses. Instead you should calculate how much that extra advisor will increase your gross profits on labor and parts through the following benefits:

  1. All four advisors now have more time to spend with each customer both on the phone and in person
  2. More time spent means better feature/benefit presentations to the customer
  3. Better presentations by your Advisors means a higher closing ratio on upsells
  4. A higher closing ratio means increased labor and parts sales and higher gross profits
  5. Increased labor and parts sales creates a higher HPRO
  6. Increased HPRO results in higher Technician productivity
  7. Higher gross profits increases Service Absorption
  8. More time spent per customer results in a higher CSI and Owner Retention

Is It Time To Hire Another?

As a result of all the above you can easily see how adding one more advisor creates a very small increase in payroll expense while producing a very high ROI with new found gross profits. So I ask you: “Is hiring another advisor an expense or an investment?” By the way, make sure you compensate to motivate all of your advisors by using a pay plan that is based on individual performance for sales or gross profit plus CSI. This should equate to either 5 percent of parts and labor sales or about 10 percent of parts and labor gross profit.

If you need any help with designing a performance based pay plan send me an email, dreed@dealerprotraining.com  and I will be glad to send you some examples of pay plans that produce Top Performers while protecting the Dealer from paying too much and insures the Advisor is paid fairly.

Once you have completed all the above you will have an action plan before you identifying all of your opportunities for improving your service and parts retail operations for years to come. Get ready for change and prepare yourself to get committed to following your plan for a record year in Net Profit.

Don Reed
Don Reed
After 26 years in the automobile business as a dealer, GM, sales manager, service manager, service advisor and salesperson, Don began a new career as a consultant and trainer. As CEO of DealerPro Training and founder of The Don Reed PRO Training Network, he has worked with hundreds of dealerships and major dealer groups across the U.S., Canada and the U.K. to increase profits in their fixed operations. He was rated a Top 10 Speaker at the NADA convention for four consecutive years. Visit the firm’s website at DealerProTraining.com.

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