Initial research reveals that there is generally little attention paid by dealer principals to the prime activity of service department labour sales turnover and that they tend just to go with the flow.
It would appear that most service departments consider the prime objective is to find a days work for each technician who is in attendance and therefore that is what the job becomes – just a days work. Therefore if the average hours per job are 2 then we need four jobs per man per day and maybe squeeze the odd walk in .
To be fair we have become conditioned to relating everything we do to hours clocked, hours sold, looking for technicians to attend 8 hours, and for us to sell 10. Therefore it is natural for us to focus on return per man hour employed instead of return on the total investment, such as land, buildings, heat, light, rent, rates, interest charges, computers in fact all the direct expenses held on the back page of the accounts. THESE HAVE TO BE PAID FOR.
We prepare our budgets based on the number of men X 40 hours X 52 weeks less diverse
time for holidays sick and training X 125% efficiency this gives us our hours to sell. We
have always done it that way.
Then what do we do, we ring round all the other dealers in our area and see what they are going to charge per hour, or we add 10% on last years, or we just leave it up to the service manager to get what he can.
This is the way we arrive at what our labour sales are going to be weekly, monthly and for the year. Can you imagine a Renault dealer ringing the Ford Dealer to see what he was going to sell the new Fiesta for, then pricing up the Clio the same, because if our product is dearer than anyone else’s, customers will not come to us. It does not stack up.
The national average labour sales produced by each technician each month is around £5309 which is only the difference between the worst and the best. Some are doing £6720 and some are only doing £4480 that £2240 difference per technician per month is a huge gap, surely the service we give is just as good as the others.
With six men it amounts to £13440 of turnover per month or an unbelievable £161280 a year. Times that by 75% and the gross profit is £120960.
It goes without saying that for the life of me I can not understand why we do not get our acts together and look at this side of our business which produces the highest gross profit within our companies operations.
On average only 12% to 14% of our turnover is produced by the aftersales side of the business, just think for every extra £100,000 we make in this area we would make around £47000. For every £100,000 in cars sales we are lucky to make £6000.
The first thing we must ask ourselves is, does the workshop have space for 7 ramps but only operates with 6 men. Because on a return per square foot basis if we have seven bays but only six men we can not even start to get an adequate return per workshop bay.
The average cost per workshop bay per month is around £3900 whether you have a man in it or not. You would need at least a 30% mark up for a realistic return, therefore our aim is to achieve a turnover of £5070 per bay X 7 bays = £35490 per month. Now if you only have 6 technicians and even if they never had a day off they would need to produce at least £5915 in labour sales each per month.
That is not too much of a problem, have them all 100% productive, 160 hours each gives us a recovery rate of £36.96, At two hours per job on average would mean we would need 80 jobs per month per man. Mind you at £40.00 per month we would only need 74 jobs, think about it.!!!
But what if, we now brought in an extra man. To fill that bay, and to back up on holidays, sick and training lost time, his cost to us would be around £1400 per month, if we divide that by £36.96 all we would need to sell is 38 hours of his time per month to breakeven, everything else would go to the bottom line.
“But no we would not do that, it is increasing the head count, we will not have enough work for him, he will not get his hours in”.
Ask your accountant about “marginal costing” it assumes that all direct expenses and general overheads of the business have been covered by existing activities and all we need to consider are the marginal (or incremental) sales and direct cost of sales.
So now you say but we have only 6 bays and six technicians so how do we increase the turnover per bay?. Other than reviewing your charge out rates to reflect your true costs per bay, there is another way of doing it. On average, in 8 hour day each ramp is only being worked in for around 5.5 hours, the rest of the time is spent waiting for the job card, locating and moving cars, waiting at parts back counter, going on road test, waiting for authorisation, looking for keys, looking for special tools.
The strategy is to look at the utilisation of a ramp, if with six ramps they were not being worked in or on for 2.2 hours each day then the potential is 13.2 hours lost.
If we brought in a semi skilled technician, could be a 50 year old or even a 19 year old, and all they had to do was to eliminate some of those 13.2 hours a day being lost on a twenty day working month that is 264 hours all our man needs to do is to sell 39 of those hours and he has covered his direct costs.
First thing in a morning if we had a £4.00 per hour man who, came in early, located the first jobs onto the ramps, put seat covers in, collected the parts (which should have been pre picked the night before) you would have saved at least 15 minutes per technician X 6 techs that is an hour an half on the first six jobs. If by being controlled by the foreman he then perpetually lined up the next jobs for each technician together with the parts, having first checked the electrics, tyre pressures, water levels, oiled door hinges, maybe even dropped the oil and filter, and taken the wheels off, while the technician was out on test we have now saved a further one and half hours plus with some fine tuning leaves the skilled technician doing the skilled part of the job.
This when it is run well enables reception to offer two hour services done in an hour, on a while you wait basis, this reduces car park congestion, reduces the need for extra loan cars, and most importantly increases turnover per bay as you are now only looking to recover the direct costs of the semi skilled man. ( But you will need a comfortable waiting area with coffee extra).
It is not rocket science, but if the reception team were measured on turnover per bay, it becomes more meaningful to them than hours sold.
There is an old saying, you can bank turnover, you can not bank hours.
You can pay wages out of turnover, you can’t pay wages out of hours.
Over twelve months:
There is a big difference between one reception team selling 1800 hours per technician at £33.00 per hour = £59400 and one team selling £70980 labour sales per bay, like £11580 X six bays = £69480 extra. How much was that semi skilled man going to cost us?.
Remember our true cost per bay is around £46000.
Innovate do not Liquidate, the time has come to manage change away from the carved in stone practices. While you may think I am off the wall, many dealerships are making 4% plus, net profit on turnover compared to national average of 1.5%.
Three men in two bays is an extract from Bill’s new book
“Company Doctors Magazine” is prepared by Bill Naylor F.I.M.I of Bill Naylor Associates, Consultants to the Motor Industry.
Bill Naylor has spent 9 years studying dealers who make in excess of 5% net on turnover, visiting dealers in the Middle East, Spain, Europe, and America. He is the author of “Customer Service in the Motor Industry” and the “Retail Motor Industry Tool Kit” which has been sold world wide. He also operates from his leaning centre in Cumbria, United Kingdom a three day residential workshop covering “Sales & Marketing” and ” Profit improvement from after sales”. He also operates one day dealer visits with his road show “Innovate or Liquidate – its your move”. Contact Bill – email email@example.com, tel +44 (0) 1900 881409 or fax +44 (0) 1900 881140