Service revenue has its ebbs and flows just like any other department, but it’s typically less exaggerated. The lows don’t swing quite so low and the highs are modest gains. But in the modern dealership era, fixed operations departments like the service department are heavily relied on to keep the store profitable. Ideally, service absorption is 100 percent or higher.
Assessing each facet of the service department will aid you in discovering lost opportunities. What’s more, you’ll find areas where expenses can be trimmed to keep more of the service department’s net profit.
At the end of every month, the shop supplies line on the DOC could cause a heart attack. Thousands of dollars are spent to keep the shop well-stocked and running smoothly. Towels, lubricants, nuts and bolts, and other minute items cost your store money, but is the pricing fair?
Regardless which suppliers you use currently, perform an audit of the invoice. Request your suppliers do the same and seek out a comparable quotes from a second and third suppliers too. The objective is simple: give your current provider an opportunity to lower their pricing while dutifully seeing if their price is competitive.
The other side of the coin has to do with invoicing. Are shop supplies and environmental levies assessed on each and every invoice? If not, they should be – it offsets your costs, so any money collected goes directly to the bottom line. Perhaps think about bumping your shop supplies percentage by a point or two, or raise the invoice cap on shop supplies.
If you’re seeking to cut costs because the service department isn’t as busy as it could be, declined services is an area to tap into to drum up business. All it requires is to follow up with current customers regarding services they already know they need and setting an appointment.
It involves pro-active setup. Repair orders, no matter which DMS, can be enabled to track declined services. If it isn’t already enabled, do so. Then, train your team how to use declined services to maximize service revenue.
In the short term, following up on declined services has a stop-gap effect. It can buoy your service department through a slow period, but the long-term effects are even better. When customers are trained to know they’ll receive a follow-up call to set up an appointment for declined services, you’ll notice fewer decline them up front, resulting in higher dollars per RO down the road.
Labor costs are a touchy subject, especially for team members who rely on overtime for their income. However, the service department is a business unto itself, and labor costs must be justifiable. Overtime is not – it indicates you aren’t properly staffed.
If you find you’re paying out large amounts of overtime in your service department, find out to whom and why. Chances are that you need to add to your team.
In the short term, it appears labor costs are going up, even though overtime costs are going down. But when the new team member becomes productive, the uptick in revenue will outweigh the overtime, and added wages.
Car wash soap, clean cotton cloths, a pricey pressure washer, and a low-cost laborer seem like reasonable expenses for the service department. Customer satisfaction is higher when customers receive a clean car back from their service appointment. But those detail department costs don’t have to be only an expense.
Like fuel stations, consider turning a car wash into a low-cost add-on for work orders. Offer your standard oil change but also include an oil change and car wash for only a few dollars more. You’ll quickly find that almost everyone opts to pay the extra five or six dollars to get a clean car back.
Track detail department revenue separately on your reports so you can identify the return on your detailing investments. Its earnings should break even with its costs, or even become profitable. What’s more, it turns an expense line into a profit line.
Used Vehicle Reconditioning
Nationwide, there are service departments who try to make a significant part of their earnings from the used sales department through reconditioning. Unfortunately, high-priced used vehicle reconditioning does two major things: it results in many good used vehicles going to auction instead of the used car lot, or the customer ends up paying a higher price.
Instead of swinging for the fences with every used vehicle reconditioning, consider what’s going to be approved. If the costs look outrageous, offer alternative repairs such as using aftermarket parts. Some dealership service departments already do this, which is great.
You’ll notice a dip in the short-term revenue from used car reconditioning. But when there’s an influx of used cars flowing through the sales department – lower costs to customers, remember – you’ll make up the short-term effects plus much more. Not only will there be more used vehicle reconditioning opportunities but there will also be more sales customers coming in for maintenance and repairs.
These are just five areas where you can look to cut costs and maximize profits. Assess every area for opportunities to make the most out of every dollar the service department takes in. It’s good business.