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Dealer Insights - September/October 2011 - Dos and Don’ts For Boosting Service Department Profits

Are the profits in your service department lackluster? Have you benchmarked those figures against similar dealerships in your area and come up short?

Revenue from maintenance and repairs combined with income from vehicle sales makes the world go round for auto dealerships. And when car and truck sales are down, service department profits can be a bread-and-butter source. Here are some dos and don’ts to consider as you manage this golden egg.

Metrics 

DO design and implement a business plan to increase your service department profits under good, so-so and bad economic conditions. Include both short- and long-term goals for each plan.

DO keep your eye on net profits. Set a challenging goal — a gross profit ratio of 70% to 73%.

DO obtain service department benchmarks to see how you compare in the industry and implement changes to move closer to them.

DON’T develop budget figures based on your intuition alone or use a blanket approach, such as increasing all figures by 7%.

DON’T review your budgets annually. Review them weekly and monthly. Compare actual figures to budget projections so you can head off any issues that might damage your bottom line.

Staffing 

DO hire the right service advisors (or service consultants). Make sure that these ambassadors have excellent public relations skills. Their job is to tell customers what they need and don’t need in persuasive and understandable terms.

DO keep tabs on the closing percentages of your service advisors, and offer incentives to perform well.

DO encourage technician productivity by developing a bonus system. This often helps reduce turnover as well.

DO compensate the staff for what’s in their control. If service department expenses aren’t under the service manager’s control, for example, then the service department manager and staff should be paid on gross, rather than net, profit.

DON’T keep the wrong service department manager. Is the department operating as efficiently and productively as it should be? Is the person meeting profit targets while keeping customers satisfied and coming back?

DON’T forget to train your service advisors in the art of the close. Questions such as “Would you like us to change your wiper blades today?” should be automatic. Think of other income-producing jobs that cost your shop little or nothing.

Pricing 

DO think about your customers’ pocketbooks by reviewing your service recommendations. Are your service advisors suggesting expensive jobs far more often than the owner’s manual recommends?

DO adjust the flat rate paid to technicians when you lower your pricing to compete with other service shops.

DO review your door rate and warranty rate annually to ensure that you’re competitive with other dealers in your market.

DON’T accept expired coupons. This can reduce profits by 10% or more.

DON’T let your technicians or service advisors regularly discount charges when repair estimates are off-base. Encourage your service advisors to call customers before additional work is done to provide a revised estimate.

Operations 

DO keep an eye on appointments. Send out e-confirmations, appointment reminders and rescheduling opportunities. If you don’t want to do it all manually or by yourself, buy a software package that will do it for you or contract for the services of a marketer.

DO implement a full-day Saturday service and a second shift, if demand supports it, to maximize the number of cars you can service.

DON’T hand your customers dirty, wrinkled or illegible inspection reports and repair estimates. Instead, give them computer-generated reports when possible.

DON’T assume all of your inspection and repair processes are being followed. Spot-check vehicle walk-arounds, for instance, to ensure they’re being done.

Customer service 

DO provide quality service. Have a process in place that ensures that the job is done right the first time.  

DO set yourself apart from your competition. Whether it’s by offering a complimentary inspection, a free loaner, complimentary Internet service, courtesy-van transport — or something else — give your customers a reason to choose your shop.

DON’T underestimate the time it will take to do the repair or maintenance work. Little annoys a customer more than delays.

DON’T guess about your customers’ level of satisfaction with repairs or maintenance. Follow up with an e-survey or a phone call. Satisfied customers will bring in their vehicles more often, buy more products and refer your shop to others more frequently.

Dealer Insights - September/October 2011  

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