Recently I had the good fortune to teach a service and parts workshop in the great Northwest to some excellent dealer people. Most of the 25 participants were managers in profitable import operations with some also managing domestic franchises. While most of the service operations were open regular daytime hours, a couple extended hours into late evening and one very successful dealer was open 24 hours (located near a large plant that operated 24 hours per day).
During the three-day session, we decided to accumulate averages of some of the unusual numbers we were calculating in both service and parts. While most of us are familiar with many popular guides, we studied a somewhat different group of measurements. In the class, we examined profitability issues as an MBA might look at them, with a goal of demonstrating the importance of the service and parts alliance.
One: Service Contribution to Parts Gross Profit - 65%
Not including miscellaneous items like stock order income, we were interested in how much money the service stalls contributed to paying bills for the parts department.
Two: Service Parts Gross Profit as a percent of Service Labor Gross Profit - 39.7%
The bottom line here was that for every dollar of bill-paying money (gross profit) that service produced, it produced a corresponding amount of 39.7 cents for the parts department to pay bills with.
Three: Parts Gross Profit per Service Stall at Service Breakeven - $2445
At the time of the month that service produced enough labor gross to pay the expenses of each stall, the stall had contributed this amount of bill-paying money to the parts department.
Four: Participants covering Total Parts Expense with Gross Profit from Service Stalls - 41%
We were interested to see how many service departments paid all the bills for the parts departments from gross profit generated in the service stalls.
Five: Parts Sales to Labor Sales - $.65 / $1.00
This number was excellent, demonstrating how well this group penetrated the maintenance market. The less profitable stores had a higher ratio of parts sales to labor sales. This measurement is often misunderstood, with some people thinking that higher is better.
Six: Service and Parts Expenses
Per Stall Per Month - $6524
This is the amount of labor and parts gross profit needed to cover both the expenses of the service and parts departments in each service stall, which makes this a minimum goal each month.
Seven: Technician Output - 98.7%
For all of the stall hours available in an average month, the technicians produced paid time at a 98.7% rate. Based on this calculation the actual clock hour income is this percentage times the overall effective labor rate of customer, warranty and internal.
Eight: Percent of Maintenance Labor vs. Repair Labor - 61% / 39%
This calculation included customer pay, warranty and internal labor for the entire group, which included about 600 repair orders. The influence of the import vehicles was obvious here.
Nine: Technician Paid Hours Needed per day to Break Even in Service - 7.8
The amount of paid hours needed per technician per day to pay the bills. This figure is the minimum amount expected and becomes the technician's daily responsibility.
Ten: Technician Hours Needed per day to make 20% more gross or 16.6% Service Net Profit - 9.4
The amount of paid hours needed per technician per day to make some money. Of course, goals can be increased.
By the end of session, both parts and service managers had some very different objectives including some new measurements each day. The parts personnel in particular gained a new understanding of the importance of the activities in service stalls and the need to unequivocally support the technician efforts. Most interestingly, everyone agreed that delivery of parts to the stalls was a profitable option.
A tidbit: While eating out one evening with a couple of workshop participants, we noticed printed business cards at the restaurant cash register advertising for prospective employees. These cards were in a business card holder and contained information about applying for employment at the restaurant. We took enough cards for the class and discussed the possibility of doing the same thing in the dealership at the cashier's window, particularly if the store needed to keep an on-going list of potential employees.
If you are interested in a printed version of these averages complete with each formula to calculate for yourself, just fax your request to Net Profit Inc, Seattle Workshop Numbers, (205) 663-1962, or we will e-mail if you send us a request at npinc.com using the contact button.