The start of a new year is a great time to take inventory of where the service department has succeeded and determine what could have been done better. With some valuable key metrics, you can get a better view of where you have come from and where you are going as a team. Here are five Key Performance Indicators (KPIs) to consider.
Effective Labor Rate
Your posted labor rate means absolutely nothing when it comes to profitability. You need to know the effective labor rate, which is the calculation showing the revenue produced for every billed hour. To determine the effective labor rate, you must divide the total labor sales by the total labor hours billed.
So, even if the posted labor rate is $110, you might only be earning $75 for an effective labor rate. Why is this? Because you need to account for discounts, flat-rate services, warranty rates, service contract rates, and other variables.
If you want more revenue at the end of next year, you must learn how to increase the effective labor rate.
Hours Sold Per Repair Order
For the service department to make money, the time must be sold appropriately. With the Hours Sold Per Repair Order metric, you determine how well the team is making the most from opportunities. This KPI works hand-in-hand with revenue.
You want the service manager to capitalize on every RO, ensuring there’s plenty of work for all of the technicians. Ideally, you would analyze 100 repair orders for each service advisor monthly to see where there’s room for improvement. According to the NADA, you want to minimize the one-line ROs to increase the hours sold.
Gross Profit Percent
Obviously, you can’t overlook the value of knowing the Gross Profit Percent. This is the labor sales revenue for a Repair Order minus what’s spent to pay the technician. As an example, if the repair earns $250 in labor revenue, but you paid the technician $85, the Gross Profit is $165. Now, you take that number and divide it by the original charge to get a Gross Profit Percentage of 66%.
It’s the job of the service manager to ensure that work is equally divided to maximize efficiency and that the ROs are matched to the skill level of each technician. Ideally, the service department would have a Gross Profit percent of 76%, but that can take some work to achieve. It’s a good New Year’s Resolution to strive for.
|Related: Maximize revenue in the collision center with lean production practices|
In times of uncertainty, the service and parts departments need to be able to carry the dealership. This metric that must be evaluated is known as Fixed Coverage. To determine if the fixed ops are able to carry the dealership, you must look at the income of the service center, parts department and body shop, if there is one.
If these departments aren’t capable of carrying the overhead for the dealership, you need to find ways to become more profitable. It’s time to start branching out and trying some new tactics.
Above all, you want happy customers. Satisfied customers continue to return for more maintenance and repair, ensuring the dealership can pay those bills. Every OEM sets the method to measuring retention differently, with some providing incentives on a job well done.
As a service manager, you also want your own system in place to keep track of what’s happening. After all, you need to notice patterns, such as if one team member is doing a better job of retaining customers than another.
Make sure you have regular team meetings that outline the expectations. With everyone on the same page, it becomes easier to please the customers.
The more KPIs you can achieve, the better equipped you are to excel. As the new year approaches, take stock of what’s going on in the fixed ops departments and implement some new strategies to succeed in 2022.
Did you enjoy this article from Brian Jones? Read other articles on CBT News here. Please share your thoughts, comments, or questions regarding this topic by submitting a letter to the editor here, or connect with us at email@example.com.