– Don Reed, CEO
“The key is Service Absorption. Here at DealerPRO RV we analyze RV dealers fixed operations performance all across the U.S. and Canada and find that most dealers are averaging somewhere around 59% Service Absorption. That’s 41% short of where you should be.
“With that being said I would hope every Dealer and Fixed Ops Manager would make it their mission to put forward a plan to move aggressively toward achieving 100% Absorption.”
The term Service Absorption has been around for a very long time yet there remains some differences in our industry as to how the calculation is made. I prefer to use the formula we used in my 20 Groups which applies to all franchises and is defined as the percentage of a dealership’s Total Expenses less New and Used Variable Selling Expenses that can be paid for by the Total Fixed Operations Gross Profit. (Total Fixed Ops Gross Profit divided by Total Dealership expenses minus Variable Selling Expenses).
If you are at 59%, increasing by 41% won't get you to 100%. You have to increase your productivity by about 70% to get you to 100% Service Absorption. That's a Big Job.
You Can Do It
Let’s look at some strategies that will enable all of you to do just that. Our focus will be on the retail service customer since that is the greatest opportunity for increasing gross profit. It all begins with your perception of how the Service and Parts departments should be structured and managed. Do you have a culture of administration or a culture of sales?
For example, do you employ Service Writers (Administrative Clerks) or Service Advisors (Salespeople)? Do you have a high percentage of 1-Item Repair Orders (Administration) or a low percentage of 15% or less (Sales)? Are you experiencing a declining customer pay repair order count (Administration) or is your customer base expanding (Sales)? Is your CSI rating stagnant (Administration) or improving (Sales)? Is this starting to make any sense yet?
To aggressively work toward that worthy goal of 100% Absorption, a Fixed Operations Director must be a good Sales Manager and employ many of the same management strategies used in the front end by the General Sales Manager. Since one can’t effectively manage what one does not measure, we must identify the performance metrics that guide successful sales operations. Here is a comparison of these metrics for both departments:
General Sales Manager
N & U Gross Per Retail Unit
Salesperson’s Closing Ratio
N & U Inventory Turns
N & U Days Supply
F&I Turnover Ratio
F&I Finance Penetration
F&I Gross Per Retail Unit
F&I ESC Penetration
Fixed Operations Director
Hours per Repair Order
Service Advisor’s Closing Ratio
Parts Inventory Turns
Technician Parts Fill Rate
Technician inspection Ratio
Advisor Menu Penetration
Dollar Sales per Repair Order
Labor & Parts Margin
Every single one of these metrics requires some form of sales management for both managers. Most dealers do a fine job of devoting their time, resources and capital to support and evaluate the performance of their Sales Management Team and hold them accountable for their results; however, far too often when it comes to doing the same for the Fixed Operations Team, there seems to be a different set of standards. So how about you Fixed Ops Directors make the commitment right now to start measuring performance.
Get out of that administrative chair and focus your efforts on managing sales. Take a walk through the shop and observe a Technician performing a 27 point courtesy inspection of your customer’s RV. Show those Technicians that you care and thereby reinforce the notion that the inspection process is important to you and your customers.
Start each day with a brief 15 minutes or less Daily Sales Meeting with your Service Advisors reviewing yesterday’s performance and today’s plan for reaching your goals on HPRO, profit margin on parts and labor, up sell penetrations, closing ratios, etc.
Next, how about observing the customer reception process and maybe shake a few hands with a “Welcome to our dealership—I’m your Service Director—how can I assist you today?”
Coach your Advisors on their walk-arounds, their menu presentations and their customer communication skills.
At the end of the day, how about you spend some time during the Active Delivery to observe your Advisors’ review of the “Three C’s” with each customer and ensure that the customers RV is always brought to them versus just sending them out the door to find it for themselves. Make sure those Advisors are in fact scheduling the customer’s next appointment based on time and or mileage before they leave this one. Maybe shaking a few hands with a “thank you for your business” would be a great way to end your day.
Set the Example
Showing your employees that you are a “proactive leader” will instill a sense of confidence in them as well as a sense of accountability for their individual performance. Each and every day in fixed operations must have focus on managing sales opportunities that increase gross profits and results in more Net Profit. Technicians must always be looking for sales opportunities by performing a complete and thorough unit health check with every RO. Service Advisors must always walk around the customers’ unit looking for sales opportunities and review the unit’s repair and maintenance history as well as appliances and generators for other opportunities. Both of these processes result in recommendations for proper maintenance and/or repairs.
It’s important to note that we never want anyone trying to sell any customer anything that they don’t need. Fixed Operations Directors should however, insure that every customer is properly advised of their unit’s repair and maintenance needs. This has to be your company policy-no exceptions! The same holds true for the Sales Department-right?
Now, I am a firm believer that Fixed Operations Directors, Service Managers, Body Shop Managers and Parts Managers are hard working individuals and face some tough challenges in our very competitive marketplace. So take the time to sit down with your Dealer and review your departments’ needs for the coming year (Working capital, equipment, inventories and personnel).
Establish your sales goals for all departments and outline your plan for implementation. Think BIG-be BOLD and measure everyone’s performance DAILY. You must Lead-Coach-Train your fixed operations Team to remain focused on their goals and processes for achieving them so they can all become Top Performers. Most importantly—do not tolerate Underachievers!
You must replace them now with Salespeople not Administrators. 100% Service Absorption is now coming into view, it might take a year or two or three but you will get there. It all starts by becoming a Fixed Ops Sales Team to insure that every single customer leaves your Service Department driving or towing a safe and reliable RV.
Call Don Reed toll free at 1-888-553-0100
Or email firstname.lastname@example.org.