Postseason Guide to Evaluating Your Departments

Reviewing Dealership Performance

​Once your busy season winds down and you find a little time to breathe, it’s time to start reviewing several key metrics and processes in your dealership.

​With the help of dealership expert Bob Clements, we’ve come up with an effective plan to evaluate your departments during your postseason.

​A good dealer management system can be your best employee when it comes to this aspect of your business.

​Some software systems will even have dashboards set up so you can see a snapshot of your business process at any given time. Everything you need to measure in parts, service and sales can typically be found in a dashboard, or by running some key reports.

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Overall Profitability

When it comes to reporting and metrics, you are going to want to see a snapshot of your business and review your overall financial numbers.

The key areas to focus on are:

  • Amount of Revenue you generate daily
  • Gross Profit per day
  • Gross Profit Percentage per day

Once you’ve reviewed those numbers, you can start breaking metrics and processes down by your service, parts, and sales departments.

Evaluating Service Department

There are several metrics you’ll want to review in your service department to help shed some light on your performance. The best way to have true visibility of your service department is to make sure your techs are clocking in and clocking out and tying that information into your dealer management system.

​The service metrics you’ll want to review from data collected in your dealer management system are:

  • Service Revenue per day
  • Average Service Revenue per Invoice
  • Effective Labor Rate per day
  • Labor Hours Billed per day
  • Labor Hours Clocked on Work Orders per day

Measuring Technician Performance

It doesn’t matter what your industry is, Recovery Rate and Tech Efficiency are key indicators when reviewing your technicians performance.

​Recovery rate can be measured in two different ways:

1. Billable time The time you are buying vs. what you are billing.

2. Turning wrenches – The time you are buying vs. the time the technician is turning the wrench.

 

​Your recovery rate reveals:

  • What your staffing needs are for the service department.
  • How effective your manager is at using flat rates.
  • The placement of work by technicians’ qualifications.

Recovery Rate

​Bob suggests that you need to be looking at your recovery measurements for each individual technician on a daily basis and use those numbers to review their overall performance.

TIP: At minimum, you should be billing out 85% of the hours you buy. If your tech works 8 hours, you must be billing out at least 6.8 hours.

​There should never be a time where your tech isn’t clocked into something. Every minute of their time should be measured. If you find there are 2 hours of a day that are lost, determine where those 2 hours went.

​How important is this measurement? To put it in perspective, let’s say your labor rate is $70 per hour. If your tech isn’t working 2 hours out of their 8 hour day, you’re losing $140 from them each day. ​If you have 2 techs with 2 hours each of non-billable time, it’s $280 dollars a day. Multiply it out by 5 work days and round up. That’s roughly $1,500 per week, and $6,000 a month.

​Let’s say you can only keep your shop busy for 10 months out of your year. That’s roughly $60,000 of net revenue you missed out on because you didn’t keep track of time. ​Simply put, if you aren’t managing your recovery rate, you need to change your process.

Tech Efficiency

Tech efficiency is how many hours you are turning wrenches vs. how many hours you billed out. Bob Clements recommends that your techs should be operating at a minimum of 85% efficiency, but that number can easily be over 120% if you are flat rating your labor rates properly. It’s not uncommon for an A-level technician to be billing out 10-11 hours each day.

If anything is off with your department meeting their expected numbers, make sure your techs are going to schools and getting more training so you can meet those goals for next year.

Streamline Your Service Operation

While reviewing your service performance in your dealer management system, now is also a good time to streamline some of your service operations based off of the most common requests you’ve received while you were busy. Many systems will allow you to set up labor codes, symptom codes, request items, and tasks being performed.

The person behind the counter will typically hear customers come in asking for the same type of service 15 or more times per day. By having standard service items in your software, you can remain consistent and anyone in your dealership will be able to communicate the same type of service to your customer. In addition to adding these items in your system, you should also work on putting together packaged services.

Being able to order a standard service and a premium service can easily help you upsell and add more to your bottom line.

Need more help creating metrics for your Service Department?

Download the guide >>

Evaluating Parts Department

The postseason metrics you’ll want to review in your software to analyze your parts department’s profitability include:

  • Parts Revenue
  • Gross Profit parts per dollar
  • Parts revenue per Manufacturer

Once you’ve pulled those numbers, you can dig deeper and further evaluate your parts department.

Adjust Your Inventory Levels

When the peak season dies down, Bob Clements recommends that you want to set your inventory levels down by 40% during your slow season so you can use the extra money for cash flow.

​For example, if your parts inventory is at $100,000 during your peak season, start working it down to $60,000.

A dealer management system will have minimum and maximum stocking levels which are typically used for peak and postseason. The system also provides you with the ability to evaluate what your sales history is and makes suggestions on what the stocking levels can be for a given period. From there, you can make tweaks and update the levels.

Always keep re-evaluating! The better you are at seasonal parts management, the more accurate your order recommendations and purchase orders will be.

Boosting Profitability in Parts

Bob has another trick you can implement in your parts department to boost profitability.

​Bump up any parts you sell to your service department by 5%.

It takes you more time and money to sell a part to service than your counter, so your dealership should be compensated for it. Some dealer management systems will have this feature implemented into their system, specifically for this purpose.

You also need to come up with a pricing strategy in your parts department. ​Run reports in your dealer management system on fast moving parts in order to create velocity pricing, which is a strategy used by large retail stores including Wal-Mart.

By creating velocity pricing, you can afford to sell your fastest moving parts a little below cost to show that you have the most competitive prices in town. To compensate for the low cost on your fastest moving parts, you can increase the price on some of your slower moving parts.

Parts Inventory Strategy

Another decision you’ll need to make is when to stock a part or remove it from your inventory.

Bob’s rule is to add a new part ONLY if you’ve had 3 unique demands in 90 days at peak season.

An easy way to track this information is by tracking lost sales in your dealer management system. If you find that you have parts that aren’t selling, see if there is a way you can sell them on a site such as Ebay, or even another dealership.

Want to learn more about boosting your parts profitability?

Download the guide >>

Evaluating Sales Department

People think sales are so complex, but Bob believes it’s easy if you have a sales target in place.

​If your dealership did $2 million in sales last year, set a target for $2.5 million.

Your goal is to have a target that is realistic, but takes some work. In order to determine your sales target, you need to figure out how many sales you need to make which can be done by determining your average transaction value.

If you sold $2 million at an average of $5,000 per sales, then you need 400 sales to achieve that goal. If 40% of the people coming through your door end up buying from you that means 4 out of every 10 people lead to a sales. In order to achieve your goal of 400 sales, you need roughly 4,000 touches.

By using this system, you can easily work on tweaking your numbers up in the next year to achieve a higher level of profitability.

Decide Your New Direction

​Take advantage of the time you have now and begin the process of evaluating your dealership while the busy season is fresh in your mind. Start the purging process of anything you don’t want to carry through your slow season, plan how you are going to protect your cash flow, and put together the direction of where you want to go next year.

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