Do you plan on hiring additional fixed operations personnel this year or possibly replacing someone who currently isn’t getting the job done? I’m talking specifically about technicians, service advisors, parts managers and service managers. If so, do you have a well-thought-out strategy for recruiting top performers?
What is a top performer? It is simply someone who can perform above the industry’s performance guides for the position you wish to fill. These people thrive on performance-based compensation and are looking for more than just a weekly paycheck. They expect to be well-compensated for the above-average efforts that produce above-average results, which usually means more profit for their dealer. To put it another way: you get what you pay for! That being said, how do you find and recruit these top performers? You can be sure they’re not standing in line at the unemployment office or sitting at home waiting for the phone to ring. They are most likely employed by one of your competitors.
The first step in recruiting for any position is to determine the maximum compensation you are willing to pay to a top performer. Secondly, you must prepare a list of the benefits you can offer this person. Thirdly, you must decide how you are going to search for this person. Let’s look at technicians, for example.
To begin with, determine the W-2 earnings last year for your highest-paid technician. This is probably a technician who has a productivity level of 140 percent or higher. Let’s assume he earned $70,000 for the year. This now becomes the benchmark for the new hire’s compensation.
Next you must define your benefits. Remember that you want to recruit from not only your aftermarket competitors but from other dealers as well, so you must list the benefits of working at your dealership. (See the sample ad below for examples.)
Lastly, you must decide how and where you intend to advertise for this position, which for most of you will be your local newspaper. When advertising in the newspaper, do not buy a 3- or 4-line ad in the help-wanted section. Instead, spend the money to buy a display ad, maybe two columns by five inches.
I know it will cost a lot more than the liner ad, but here again, you get what you pay for. A liner ad will probably produce two or three applicants, whereas a display ad will bring in closer to 10, which of course gives you a lot more candidates from which to choose. Keep in mind that it doesn’t matter whether you want to recruit an A-, B- or C-level technician; an effective ad will attract all of them.
To see what the ad content will look like, see the sample ad below:
WANTED
Automotive Technicians
ALL skill levels Needed
Earn Up to
$70,000
PAID Health Insurance No Sundays
401K Plan Paid for Training Programs
Professional Work
Environment Full Appreciation for Work
Done
Terrific Bonus Program Ohio's Top Pay Plan
No Nights (Apply In Person)
Obviously, C- and B-level technicians will respond to this ad, and so will A-level technicians who aren’t currently earning $70K a year or who don’t have health insurance or a 401K. Aftermarket technicians will respond as well, attracted by the promise of no nights or Sundays and looking for additional training to increase their skill level.
As you can see, the ad was effective because it was able to attract a wide range of applicants. If you need help designing your recruiting ads, just send me an e-mail (Don@AutoDealerMonthly.com) and I’d be glad to send you some samples.
Everywhere I go, I hear dealers and service managers utter these same words: “Don, you don’t understand; technicians are hard to find.” Well, I do understand this: there are nearly four times as many aftermarket service facilities (over 80,000) as there are new car dealers (about 22,000). Who do you think employs the majority of the technicians in the work force?
I recommend you strive to recruit aftermarket technicians because most bring some very good work habits with them, such as performing a complete inspection of every vehicle before making repairs. Aftermarket technicians service all makes and models. They are trained on light repairs and maintenance services, which is exactly the kind of work you need in your service department to increase your retail service sales.
Over time, these technicians can become top performers in your dealership. Don’t limit your options when looking for top performers. Be aggressive and open-minded in your recruiting efforts and start growing your service business.
Don’t end up with someone else’s underachiever. Be aggressive, spend a little money and recruit as many applicants as possible, and I’m confident you will be able to hire a top performer.
Don Reed
CEO, Fixed Ops Solutions
DealerPro Training Solutions
The Meaning Behind the Term "Fixed Operations"
Why do we classify half of our dealership as variable and the other half as fixed? What is the difference between the two? Should they operate independently of one another or operate as one? Is one more important than the other? As a dealer or general manager, which one deserves more of your time? These are interesting questions that are worthy of much discussion for the dealer who wants to survive and thrive in today’s marketplace.
Why do we call one variable and the other fixed? Let’s start with customer traffic. Variable operations calls them ups. Would you say you have the same approximate number of ups coming into your showroom each day of the week and each month, or does the number vary depending on factors such as weather, inventory levels, product, location, market conditions and advertising? My guess is the number of ups varies a great deal from day to day and month to month, as well as year to year. The expenses associated with these factors vary as well and go up and down based upon managements’ decisions. The more units you sell, the more commissions paid, the higher the inventory, the higher the floor plan interest--and of course there’s advertising, which is all over the spectrum.
Fixed operations calls traffic customers. Would you say you have about the same number of customers coming into your service department each day of the week and each month? Probably so, because you don’t have as many variable conditions in service and parts as you do in sales. Additionally, the expenses in service and parts tend to be more stable or fixed than they are in sales, right? Of course, this is not news to most of you reading this article and you might be wondering what my point is.
My point is: fixed operations can move up or down just as variable operations do. Here’s an example of the opportunity I want to share with you. Get your hands on your last 12 monthly financial statements. On a sheet of paper, make three columns, one for the month of the year, one for new and used vehicle sales and the other for customer pay repair orders,. Next to each month, enter the number of vehicle sales and the number of customer pay repair orders. In a perfect world, your customer pay repair orders should increase by the number of vehicles you’re selling, starting with the customers’ first scheduled maintenance which, let’s say, is at three months. In my perfect world, your columns should look like this:
Month New & Used
Vehicle Sales Customer Pay
Repair Order
Jan. 100 500
Feb. 80 475
Mar. 110 600
Simply put, if you continue to service the customers you already have and you then sell 100 units in January and they all return for their first scheduled maintenance in March, then you would see an increase of 100 repair orders, which brings your total to 600. This represents an increase of 20 percent. The same would then apply for each consecutive month following March. As you can see, fixed operations business now grows and grows! As fixed operations becomes bigger from increased traffic, it of course generates more gross profit, which in turn increases service absorption. That means your dealership has less dependency on vehicle sales to be profitable.
As this cycle progresses, at some point most dealerships will reach a point called 100 percent service absorption, and those dealers can then weather any economic condition because their dealership has now become recession proof. Now, regardless of factory sales incentives, inventory levels of hot products, turnover of salespeople, the price of gasoline/diesel, interest rates and so on, you can still survive and thrive.
Chances are, by now, reality has set in and you notice that this phenomenon outlined above is not reflected on your sheet of paper. Most likely, March does not reflect that 20 percent increase in RO count, nor do any of the following months. Why? The next step is to compare March 2008 to March 2007. What did you find? Is your customer pay RO count higher this year over last, about the same or lower? In far too many dealerships across our country the answer, sadly, is lower. Why?
I can answer both of the “why” questions. You may not like the answer, but here it is: Your customers don’t like doing business with you. When I say “you,” I don’t necessarily mean you, personally; I mean your dealership. You see, you have not given them enough benefits to return to your dealership for service. Your fixed operations are now shrinking instead of expanding. So, what are you going to do about it--buy a different franchise that’s exploding at the seams in service? Good luck with that deal!
The problem here is that the average new car dealer is losing customers in fixed operations at about the same rate as they’re adding new ones in variable operations. The result is stagnation in service, and it really does become fixed. This has got to stop for the dealers who want to be around for the long term. You must start growing fixed by making it variable. Give your customers reasons to come back, keep your name in front of them every month, make sure you have convenient hours, train your service and parts team on how to effectively communicate with your customers by offering benefits, always exceed the customer’s expectations, and remember: if you don’t care, they won’t either.
Don Reed
CEO, Fixed Ops Solutions
DealerPro Training Solutions
Why do we call one variable and the other fixed? Let’s start with customer traffic. Variable operations calls them ups. Would you say you have the same approximate number of ups coming into your showroom each day of the week and each month, or does the number vary depending on factors such as weather, inventory levels, product, location, market conditions and advertising? My guess is the number of ups varies a great deal from day to day and month to month, as well as year to year. The expenses associated with these factors vary as well and go up and down based upon managements’ decisions. The more units you sell, the more commissions paid, the higher the inventory, the higher the floor plan interest--and of course there’s advertising, which is all over the spectrum.
Fixed operations calls traffic customers. Would you say you have about the same number of customers coming into your service department each day of the week and each month? Probably so, because you don’t have as many variable conditions in service and parts as you do in sales. Additionally, the expenses in service and parts tend to be more stable or fixed than they are in sales, right? Of course, this is not news to most of you reading this article and you might be wondering what my point is.
My point is: fixed operations can move up or down just as variable operations do. Here’s an example of the opportunity I want to share with you. Get your hands on your last 12 monthly financial statements. On a sheet of paper, make three columns, one for the month of the year, one for new and used vehicle sales and the other for customer pay repair orders,. Next to each month, enter the number of vehicle sales and the number of customer pay repair orders. In a perfect world, your customer pay repair orders should increase by the number of vehicles you’re selling, starting with the customers’ first scheduled maintenance which, let’s say, is at three months. In my perfect world, your columns should look like this:
Month New & Used
Vehicle Sales Customer Pay
Repair Order
Jan. 100 500
Feb. 80 475
Mar. 110 600
Simply put, if you continue to service the customers you already have and you then sell 100 units in January and they all return for their first scheduled maintenance in March, then you would see an increase of 100 repair orders, which brings your total to 600. This represents an increase of 20 percent. The same would then apply for each consecutive month following March. As you can see, fixed operations business now grows and grows! As fixed operations becomes bigger from increased traffic, it of course generates more gross profit, which in turn increases service absorption. That means your dealership has less dependency on vehicle sales to be profitable.
As this cycle progresses, at some point most dealerships will reach a point called 100 percent service absorption, and those dealers can then weather any economic condition because their dealership has now become recession proof. Now, regardless of factory sales incentives, inventory levels of hot products, turnover of salespeople, the price of gasoline/diesel, interest rates and so on, you can still survive and thrive.
Chances are, by now, reality has set in and you notice that this phenomenon outlined above is not reflected on your sheet of paper. Most likely, March does not reflect that 20 percent increase in RO count, nor do any of the following months. Why? The next step is to compare March 2008 to March 2007. What did you find? Is your customer pay RO count higher this year over last, about the same or lower? In far too many dealerships across our country the answer, sadly, is lower. Why?
I can answer both of the “why” questions. You may not like the answer, but here it is: Your customers don’t like doing business with you. When I say “you,” I don’t necessarily mean you, personally; I mean your dealership. You see, you have not given them enough benefits to return to your dealership for service. Your fixed operations are now shrinking instead of expanding. So, what are you going to do about it--buy a different franchise that’s exploding at the seams in service? Good luck with that deal!
The problem here is that the average new car dealer is losing customers in fixed operations at about the same rate as they’re adding new ones in variable operations. The result is stagnation in service, and it really does become fixed. This has got to stop for the dealers who want to be around for the long term. You must start growing fixed by making it variable. Give your customers reasons to come back, keep your name in front of them every month, make sure you have convenient hours, train your service and parts team on how to effectively communicate with your customers by offering benefits, always exceed the customer’s expectations, and remember: if you don’t care, they won’t either.
Don Reed
CEO, Fixed Ops Solutions
DealerPro Training Solutions
Missed Profit Opportunities
In the pursuit of additional profit opportunities in your service department, you must focus on maintenance of your customers’ vehicles. This is a missed opportunity for many dealers who do not perform complete, thorough inspections of their customers’ vehicles and do not make recommendations for preventative maintenance based on time, mileage, local conditions, etc. The value of these missed profit opportunities might surprise you.
To begin with, let me ask you this question: What percentage of your customers take delivery of their new or used vehicle and then, once they get home, remove that maintenance manual so they can review and study their required and recommended maintenance services? I don’t know the exact answer but I’m pretty confident the answer is, not very many. I’m talking about the transmission services, coolant flushes, air filters, pollen filters (which very few customers know they need), alignments, tire rotations, and the list goes on, and on. Everyone knows when to change the engine oil, but how many do you really think know when to perform all of those other maintenance services?
Next question: Are all of your customers mechanically inclined and can they perform all maintenance services on their vehicles themselves? Most customers rely upon someone with knowledge of their vehicle to provide recommendations for the proper maintenance and service on their vehicle.
It’s kind of like going to the dentist; the dentist performs an inspection of your teeth on each and every visit and makes recommendations to you based on the time since your last visit and the condition of your teeth. You know that you have to brush after every meal and floss, but there are other things your teeth need that you may not be aware of.
You rely upon a professional to help you maintain healthy teeth. An automobile customer is no different. They rely upon a professional, your technician or your service advisor, to properly advise them on how to maintain a reliable and safe vehicle which, in the long run, provides a much more enjoyable driving experience. There’s nothing worse than going on a trip with the family and having a problem occur with your vehicle, right?
Okay, so let’s look at the profit potential regarding this process of inspecting every vehicle and making recommendations to your customers for additional maintenance. In working with dealers all over the country, I have found that a complete and thorough inspection will produce, on average, an additional 0.7 hour of labor per retail work order. Let’s use the following assumptions when calculating the profit opportunity in our model dealership/service facility:
•Retail labor rate of $85 per hour
•Retail labor profit margin of 75% (Techs are paid $21.25 per hour)
•Parts-to-labor sales ratio of 0.8-to-1 ($0.80 in parts sales = $1.00 in labor sales)
•Retail parts profit margin of 45%
•Average 500 retail work orders per month
By performing complete and thorough inspections of all 500 vehicles we find, on average, 0.7 additional hours to sell at $85 per hour equals $59.50 in labor sales. At a profit margin of 75 percent, this produces additional gross profit of $44.63. At a 0.8-to-1 ratio our parts sales would be $68 per hour with a profit margin of 45 percent, which produces additional gross profit of $30.60 per repair order. Add the two together, and our total additional gross profit equals $75.23 per work order. Multiply that by our 500 work orders and the result is an additional gross profit of $37,615 per month. That comes to $451,380 for the year, based on 500 work orders each month.
Now ask yourself this question: “How many additional vehicles would I need to sell throughout the year to produce another $451,380 in gross profit?” If your average gross profit per unit is $1,500, this equates to approximately 301 additional vehicles. Does that get your attention? The point is, you need to start looking at your service and parts departments as true profit centers that can not only stand on their own, but also actually generate enough profit to cover all of your dealership’s fixed expenses. That’s service absorption! This means you have less dependency on new and used vehicle sales to make a net profit, which becomes a huge benefit during a soft market, high interest rates, expensive fuel, bad weather and a whole lot of other ills.
In far too many dealerships, the service and parts departments are simply there to provide support for the sale and delivery of new and used vehicles. Their secondary role is to take care of all the warranty repairs, and last of all, if time permits, they will write a retail work order for cash business. I’ve actually been in a service department that told customers that if they didn’t buy their vehicle from the dealership, they were low priority.
If this philosophy makes sense to you, then welcome to the dark ages! As you can imagine, this dealer was losing money in his service and parts department in numbers that would take your breath away. Would you want to be a service advisor or service manager in that store? It’s worth noting that the turnover in those two positions was quite high.
Why would you want to operate any department in your dealership at a loss to support another department? I believe it makes a lot more sense to operate every department as a standalone enterprise that works with the other departments to maximize overall performance and profits. It’s called return on investment.
Don Reed
CEO, Fixed Ops Solutions
DealerPro Training Solutions
To begin with, let me ask you this question: What percentage of your customers take delivery of their new or used vehicle and then, once they get home, remove that maintenance manual so they can review and study their required and recommended maintenance services? I don’t know the exact answer but I’m pretty confident the answer is, not very many. I’m talking about the transmission services, coolant flushes, air filters, pollen filters (which very few customers know they need), alignments, tire rotations, and the list goes on, and on. Everyone knows when to change the engine oil, but how many do you really think know when to perform all of those other maintenance services?
Next question: Are all of your customers mechanically inclined and can they perform all maintenance services on their vehicles themselves? Most customers rely upon someone with knowledge of their vehicle to provide recommendations for the proper maintenance and service on their vehicle.
It’s kind of like going to the dentist; the dentist performs an inspection of your teeth on each and every visit and makes recommendations to you based on the time since your last visit and the condition of your teeth. You know that you have to brush after every meal and floss, but there are other things your teeth need that you may not be aware of.
You rely upon a professional to help you maintain healthy teeth. An automobile customer is no different. They rely upon a professional, your technician or your service advisor, to properly advise them on how to maintain a reliable and safe vehicle which, in the long run, provides a much more enjoyable driving experience. There’s nothing worse than going on a trip with the family and having a problem occur with your vehicle, right?
Okay, so let’s look at the profit potential regarding this process of inspecting every vehicle and making recommendations to your customers for additional maintenance. In working with dealers all over the country, I have found that a complete and thorough inspection will produce, on average, an additional 0.7 hour of labor per retail work order. Let’s use the following assumptions when calculating the profit opportunity in our model dealership/service facility:
•Retail labor rate of $85 per hour
•Retail labor profit margin of 75% (Techs are paid $21.25 per hour)
•Parts-to-labor sales ratio of 0.8-to-1 ($0.80 in parts sales = $1.00 in labor sales)
•Retail parts profit margin of 45%
•Average 500 retail work orders per month
By performing complete and thorough inspections of all 500 vehicles we find, on average, 0.7 additional hours to sell at $85 per hour equals $59.50 in labor sales. At a profit margin of 75 percent, this produces additional gross profit of $44.63. At a 0.8-to-1 ratio our parts sales would be $68 per hour with a profit margin of 45 percent, which produces additional gross profit of $30.60 per repair order. Add the two together, and our total additional gross profit equals $75.23 per work order. Multiply that by our 500 work orders and the result is an additional gross profit of $37,615 per month. That comes to $451,380 for the year, based on 500 work orders each month.
Now ask yourself this question: “How many additional vehicles would I need to sell throughout the year to produce another $451,380 in gross profit?” If your average gross profit per unit is $1,500, this equates to approximately 301 additional vehicles. Does that get your attention? The point is, you need to start looking at your service and parts departments as true profit centers that can not only stand on their own, but also actually generate enough profit to cover all of your dealership’s fixed expenses. That’s service absorption! This means you have less dependency on new and used vehicle sales to make a net profit, which becomes a huge benefit during a soft market, high interest rates, expensive fuel, bad weather and a whole lot of other ills.
In far too many dealerships, the service and parts departments are simply there to provide support for the sale and delivery of new and used vehicles. Their secondary role is to take care of all the warranty repairs, and last of all, if time permits, they will write a retail work order for cash business. I’ve actually been in a service department that told customers that if they didn’t buy their vehicle from the dealership, they were low priority.
If this philosophy makes sense to you, then welcome to the dark ages! As you can imagine, this dealer was losing money in his service and parts department in numbers that would take your breath away. Would you want to be a service advisor or service manager in that store? It’s worth noting that the turnover in those two positions was quite high.
Why would you want to operate any department in your dealership at a loss to support another department? I believe it makes a lot more sense to operate every department as a standalone enterprise that works with the other departments to maximize overall performance and profits. It’s called return on investment.
Don Reed
CEO, Fixed Ops Solutions
DealerPro Training Solutions
Business Development Centers Can Maximize Service Appointments
I recently reviewed some research findings from a Detroit 3 manufacturer that revealed a very disturbing statistic: “The average dealer has a drop rate of about 35% on incoming service calls.” This simply means the customer hangs up the phone without speaking to anyone. This is disturbing, particularly in light of the declining warranty and retail repair order counts we are experiencing in our industry today. As a dealer or general manager, would you allow 35 percent of your incoming sales calls to be dropped? What would happen to your service appointments if you could find a way to capture all of these lost calls?
Additionally, research shows that for every five incoming calls that are answered, one results in an appointment, one is calling on the status of their vehicle and three are calling for a price quote or availability. What would happen to your service appointments if you could convert just one of the three incoming calls for price and availability to an appointment?
How does this happen in so many dealerships across the country? It’s because most dealers send incoming service calls to their service advisors. Some dealers even have a direct phone line to the service advisors. Most of these calls are coming in during the morning hours, midday and late afternoon, which is exactly the same time the advisors are their busiest working with customers and technicians. These processes are not conducive to increasing appointments, increasing sales, improving CSI or building owner retention.
Here are a few situations to consider evaluating in your dealership:
•Your advisor is making a maintenance menu presentation to a customer and the phone rings. What do they do?
•Your advisor is on the phone with a customer and the phone rings. What do they do?
•Your advisor is reviewing a repair order with a technician or customer and the phone rings. What do they do?
•Do your advisors ever answer the phone, “Service, hold”?
•Does your receptionist ever complain about your advisors not answering their phone?
The correct answer to the first three is: never stop working with the customer in front of you to answer the phone. The answer to the last two is probably yes, which is exactly why 35 percent of the service calls are dropped. What can you do to change this?
One very effective way to correct this is to send all incoming service calls to a business development center (BDC). Properly trained BDC personnel can provide a multitude of services that will increase owner retention and CSI while enabling your advisors to become more productive, thereby increasing sales and shop productivity. Here are some examples:
•Answer all incoming calls eliminating the 35 percent dropped calls and increase appointments set.
•Convert one of the three customers who call for price and availability to an appointment.
•Call all lost service customers to invite them back for service
•Make CSI follow-up calls
•Contact all no-shows to reschedule their missed appointment
•Call customers for appointments to install special order parts
•Contact all customers with an appointment reminder
•Advise customers on recall campaigns
Now your advisors have the time available to focus on providing your customers the highest level of service they expect and deserve. Advisors tell me that the phone consumes more of their time than any other function they perform. With a BDC, you can greatly reduce the number of time-consuming incoming service calls going to your advisors, giving them the available time they need.
How much time do your advisors spend answering incoming service calls? Well, again the research shows that the average dealer will schedule one appointment for every five incoming service calls. Let’s assume your service department schedules 500 appointments per month (retail and warranty), or 24 per day. That equates to about 2,500 service phone calls per month or about 120 per day.
If you had two service advisors taking these calls, then each would handle approximately 60 service calls per day to schedule 12 appointments each. Assuming each call lasts for three minutes, each service advisor would spend three hours on the phone. With a 9-hour workday, that means your advisors are spending 33 percent of their day answering the phone. This does not include outgoing calls advising their customers on needed repairs or services, reviewing the repair order with their customer, getting authorization for extended service contract repairs or advising on completion times, all of which could easily add another three hours. Is a business development center starting to make sense?
If you don’t think you are quite ready for a BDC, then you might want to consider hiring appointment coordinators. Appointment coordinators will receive all incoming service calls and schedule service appointments. They can perform the exact same functions as the BDC would for the service department, except they only work for the service department. The benefits to the advisors and customers are still the same, and your sales and CSI will increase. Your increase in sales and CSI will far outweigh the costs of this position.
If you are of the opinion that you don’t need a BDC or appointment coordinators, then here is a simple exercise for you to complete as soon as you finish reading this magazine. Phone shop each of your advisors. Ask a friend, a relative or maybe someone in your office staff to do the phone shopping. Make a note of how many times the phone rings, whether the caller was put on hold at any time during the conversation, whether the advisor offered an appointment for a specific time for today or tomorrow, and if the advisor give his or her name and asked for the callers. Did the advisor exceed your expectations?
Don Reed
CEO, Fixed Ops Solutions
DealerPro Training Solutions
Additionally, research shows that for every five incoming calls that are answered, one results in an appointment, one is calling on the status of their vehicle and three are calling for a price quote or availability. What would happen to your service appointments if you could convert just one of the three incoming calls for price and availability to an appointment?
How does this happen in so many dealerships across the country? It’s because most dealers send incoming service calls to their service advisors. Some dealers even have a direct phone line to the service advisors. Most of these calls are coming in during the morning hours, midday and late afternoon, which is exactly the same time the advisors are their busiest working with customers and technicians. These processes are not conducive to increasing appointments, increasing sales, improving CSI or building owner retention.
Here are a few situations to consider evaluating in your dealership:
•Your advisor is making a maintenance menu presentation to a customer and the phone rings. What do they do?
•Your advisor is on the phone with a customer and the phone rings. What do they do?
•Your advisor is reviewing a repair order with a technician or customer and the phone rings. What do they do?
•Do your advisors ever answer the phone, “Service, hold”?
•Does your receptionist ever complain about your advisors not answering their phone?
The correct answer to the first three is: never stop working with the customer in front of you to answer the phone. The answer to the last two is probably yes, which is exactly why 35 percent of the service calls are dropped. What can you do to change this?
One very effective way to correct this is to send all incoming service calls to a business development center (BDC). Properly trained BDC personnel can provide a multitude of services that will increase owner retention and CSI while enabling your advisors to become more productive, thereby increasing sales and shop productivity. Here are some examples:
•Answer all incoming calls eliminating the 35 percent dropped calls and increase appointments set.
•Convert one of the three customers who call for price and availability to an appointment.
•Call all lost service customers to invite them back for service
•Make CSI follow-up calls
•Contact all no-shows to reschedule their missed appointment
•Call customers for appointments to install special order parts
•Contact all customers with an appointment reminder
•Advise customers on recall campaigns
Now your advisors have the time available to focus on providing your customers the highest level of service they expect and deserve. Advisors tell me that the phone consumes more of their time than any other function they perform. With a BDC, you can greatly reduce the number of time-consuming incoming service calls going to your advisors, giving them the available time they need.
How much time do your advisors spend answering incoming service calls? Well, again the research shows that the average dealer will schedule one appointment for every five incoming service calls. Let’s assume your service department schedules 500 appointments per month (retail and warranty), or 24 per day. That equates to about 2,500 service phone calls per month or about 120 per day.
If you had two service advisors taking these calls, then each would handle approximately 60 service calls per day to schedule 12 appointments each. Assuming each call lasts for three minutes, each service advisor would spend three hours on the phone. With a 9-hour workday, that means your advisors are spending 33 percent of their day answering the phone. This does not include outgoing calls advising their customers on needed repairs or services, reviewing the repair order with their customer, getting authorization for extended service contract repairs or advising on completion times, all of which could easily add another three hours. Is a business development center starting to make sense?
If you don’t think you are quite ready for a BDC, then you might want to consider hiring appointment coordinators. Appointment coordinators will receive all incoming service calls and schedule service appointments. They can perform the exact same functions as the BDC would for the service department, except they only work for the service department. The benefits to the advisors and customers are still the same, and your sales and CSI will increase. Your increase in sales and CSI will far outweigh the costs of this position.
If you are of the opinion that you don’t need a BDC or appointment coordinators, then here is a simple exercise for you to complete as soon as you finish reading this magazine. Phone shop each of your advisors. Ask a friend, a relative or maybe someone in your office staff to do the phone shopping. Make a note of how many times the phone rings, whether the caller was put on hold at any time during the conversation, whether the advisor offered an appointment for a specific time for today or tomorrow, and if the advisor give his or her name and asked for the callers. Did the advisor exceed your expectations?
Don Reed
CEO, Fixed Ops Solutions
DealerPro Training Solutions
Maximum Accountability Creates Maximum Profitability
After spending the last nine years working with hundreds of dealerships all across our country, I have discovered an amazing phenomenon permeating fixed operations. One could compare this phenomenon to cancer. The good news is this cancer is 100 percent curable for every single dealer who really wants to be cancer-free! The cancer is called “Lack of Accountability.” I find maximum accountability for everyone’s performance in the sales department, but when I cross over the demarcation line into the service and parts departments, I find a total absence of accountability with the exception of technicians, who are usually held accountable for their performance due to their flat rate compensation plan. Let’s look at some examples.
Most dealers would fire a used car manager who had $50,000 in used inventory over 12 months old, yet their parts manager can have $50,000 in 12 month old obsolete inventory and the dealer says, “He’s been a good employee and he will sell it someday.” Really? Most dealers would not tolerate salespeople with a 10 percent closing ratio, yet they continue to employ service advisors averaging 1.0 customer pay hours per repair order and say “I can’t find anyone who can do any better.” Most dealers would not tolerate a finance manager who averages $250 PRU, but a service director averaging 60 percent one-item retail repair orders has a job for life because “the customers like him.” If you have the misfortune of being one of these dealers whose business has this cancer, then I ask you to consider the following mathematical exercise.
This exercise begins with the following formula:
3 x 5 x 500 = 20,812
Now, if you are using conventional mathematics, you are most likely going to try and convince me the actual answer should be 7500 versus 20,812; however, I’m not using conventional math, I’m using accountability math.
The 3 represents three of the most important controllable areas of profitably when managing a Service and Parts department:
1. Hours per repair order
2. Labor Gross Profit margin
3. Parts Gross Profit margin
The 5 represents the improvement in these three controllable areas that most of you can realize starting today if you decide you want to get cured:
1. Add 0.5 hours per retail repair order
2. Add 5 percentage points to your Labor Gross profit margin
3. Add 5 percentage points to your Parts Gross profit margin
The 500 equals the number of Retail Repair Orders written in a given month, which is probably very close to what many of you are currently producing.
The 20,812 is the total additional gross profit dollars produced by increasing the three controllable areas on 500 repair orders as outlined above. Do I have your attention yet? This doesn’t require advertising, or fixed or semi-fixed expenses, just accountability for one’s performance.
Hours per repair order (HPRO) nationally are going down for far too many dealers. I see most dealers averaging between 1.0 and 1.3 HPRO. I see more and more averaging 0.6 to 0.9. What’s up with that? The answer is quite simple; there’s no selling going on. Why do you allow your service advisors, writers and assistant service managers (or whatever you call them) to become clerks? Most of you reading this article have the opportunity to raise your sales by 0.5 HPRO starting today if you’re ready to start your cancer treatments. It’s called process change with accountability for performance. Do you expect your finance producers to make a menu presentation to 100 percent of your sales customers? If so, then require your service advisors to make a maintenance menu presentation to 100 percent of your service customers.
In reviewing thousands of financial statements in our workshops, I find that most dealers’ retail labor gross profit as a percentage of sales revenue is averaging around 70 percent or less. Your benchmark needs to be 75 percent, so there’s your additional 5 percent in labor gross. It amazes me how many dealers have a higher margin on internal and warranty labor sales than they do on retail. Now think about that for a moment; your used car manager and your manufacturer are paying a higher price than your retail customer. Does this make any sense to you? Please, get out there and get that extra 5 points in margin. All you need to do is hold your service director/manager and advisors accountable for “unauthorized discounts” and your margin will go up starting today. I bet your used car manager is on my side with this one!
Additionally, I see these same “unauthorized discounts” with parts sales, and that’s why your retail parts gross profit as a percentage of sales is averaging around 35 percent. If you simply follow your factory pricing guides, you will most likely average closer to 40 percent. With a good parts pricing matrix, you can take it up to 45 percent, and now you have your additional 5 percent in parts gross. This, of course, would not apply to items like tires and accessories, but chances are those two items do not account for the majority of your sales. This is a very simple fix if you’re willing to hold everyone accountable for maintaining the 45 percent margin.
Finally, the assumptions I used in my accountability math are as follows:
1. An Effective Labor Rate of $75.00 @ 75% margin
2. A Parts to Labor sales ratio of 80% @ 45% margin
3. Add .5 HPRO to 500 repair orders
For every 500 repair orders that equals over $20,812 in gross profit or almost $250,000 per year. Do you like that math? If so, then you are ready to start the cure.
Article by:
Don Reed
CEO-DealerPro Training Solutions
NADA University Partner
Most dealers would fire a used car manager who had $50,000 in used inventory over 12 months old, yet their parts manager can have $50,000 in 12 month old obsolete inventory and the dealer says, “He’s been a good employee and he will sell it someday.” Really? Most dealers would not tolerate salespeople with a 10 percent closing ratio, yet they continue to employ service advisors averaging 1.0 customer pay hours per repair order and say “I can’t find anyone who can do any better.” Most dealers would not tolerate a finance manager who averages $250 PRU, but a service director averaging 60 percent one-item retail repair orders has a job for life because “the customers like him.” If you have the misfortune of being one of these dealers whose business has this cancer, then I ask you to consider the following mathematical exercise.
This exercise begins with the following formula:
3 x 5 x 500 = 20,812
Now, if you are using conventional mathematics, you are most likely going to try and convince me the actual answer should be 7500 versus 20,812; however, I’m not using conventional math, I’m using accountability math.
The 3 represents three of the most important controllable areas of profitably when managing a Service and Parts department:
1. Hours per repair order
2. Labor Gross Profit margin
3. Parts Gross Profit margin
The 5 represents the improvement in these three controllable areas that most of you can realize starting today if you decide you want to get cured:
1. Add 0.5 hours per retail repair order
2. Add 5 percentage points to your Labor Gross profit margin
3. Add 5 percentage points to your Parts Gross profit margin
The 500 equals the number of Retail Repair Orders written in a given month, which is probably very close to what many of you are currently producing.
The 20,812 is the total additional gross profit dollars produced by increasing the three controllable areas on 500 repair orders as outlined above. Do I have your attention yet? This doesn’t require advertising, or fixed or semi-fixed expenses, just accountability for one’s performance.
Hours per repair order (HPRO) nationally are going down for far too many dealers. I see most dealers averaging between 1.0 and 1.3 HPRO. I see more and more averaging 0.6 to 0.9. What’s up with that? The answer is quite simple; there’s no selling going on. Why do you allow your service advisors, writers and assistant service managers (or whatever you call them) to become clerks? Most of you reading this article have the opportunity to raise your sales by 0.5 HPRO starting today if you’re ready to start your cancer treatments. It’s called process change with accountability for performance. Do you expect your finance producers to make a menu presentation to 100 percent of your sales customers? If so, then require your service advisors to make a maintenance menu presentation to 100 percent of your service customers.
In reviewing thousands of financial statements in our workshops, I find that most dealers’ retail labor gross profit as a percentage of sales revenue is averaging around 70 percent or less. Your benchmark needs to be 75 percent, so there’s your additional 5 percent in labor gross. It amazes me how many dealers have a higher margin on internal and warranty labor sales than they do on retail. Now think about that for a moment; your used car manager and your manufacturer are paying a higher price than your retail customer. Does this make any sense to you? Please, get out there and get that extra 5 points in margin. All you need to do is hold your service director/manager and advisors accountable for “unauthorized discounts” and your margin will go up starting today. I bet your used car manager is on my side with this one!
Additionally, I see these same “unauthorized discounts” with parts sales, and that’s why your retail parts gross profit as a percentage of sales is averaging around 35 percent. If you simply follow your factory pricing guides, you will most likely average closer to 40 percent. With a good parts pricing matrix, you can take it up to 45 percent, and now you have your additional 5 percent in parts gross. This, of course, would not apply to items like tires and accessories, but chances are those two items do not account for the majority of your sales. This is a very simple fix if you’re willing to hold everyone accountable for maintaining the 45 percent margin.
Finally, the assumptions I used in my accountability math are as follows:
1. An Effective Labor Rate of $75.00 @ 75% margin
2. A Parts to Labor sales ratio of 80% @ 45% margin
3. Add .5 HPRO to 500 repair orders
For every 500 repair orders that equals over $20,812 in gross profit or almost $250,000 per year. Do you like that math? If so, then you are ready to start the cure.
Article by:
Don Reed
CEO-DealerPro Training Solutions
NADA University Partner
Menus Can Make a Difference
Most dealers today understand the value of an F&I department, and history shows that this department can be a significant profit center when the right processes are implemented, enabling managers to sell additional products and services to every customer who takes delivery of a new or used vehicle. One of those processes is menu selling.
These menus are designed to offer the customer choices for protecting their vehicle, credit, payment, etc. Most menus will give the customer the opportunity to choose from three or four different options such as Platinum, Gold, Silver or Bronze coverage. We know that if the customer chooses any one of these options, it results in an automatic upsell, which of course means more gross profit in the car deal.
Additionally, the finance producer is usually required to present these menus to 100 percent of your customers with no exceptions! This process breeds consistency and ensures that every customer is treated the same, meaning that each and every customer receives a feature/benefit presentation on all of the products contained in the menu. Starting today, why don’t you install this same process in your service department?
Menus can be just as effective in your service department. Here are five steps to properly implement maintenance menus:
1. Create your own menu
2. Train service advisors how to make a feature/benefit presentation
3. Require this process to be followed with every customer on every visit
4. Measure menu sales for each service advisor
5. Hold managers and advisors accountable for performance
Designing a maintenance menu can be very time consuming if you do it right, but I can assure you the time will be well spent. You can choose to design a paper menu or you might prefer an electronic one. Technology is a wonderful thing when it’s used properly. I prefer the electronic menus, which require nothing more than Internet service.
Electronic menus cost less, allow for more pricing flexibility, are easy to use, offer 100-percent accountability tracking for advisors, are customer-friendly and are available 24/7 for your customers. Research shows that online menus partnered with an online appointment process will generate about 20 percent more in sales per repair order than those written by your advisors. Do the math in your store and you’ll probably see an opportunity to add at least $50 per repair order. The fact is, online customers will go to your online menu and “sell themselves” because 100 percent of the customers are presented the menu when they log in.
All maintenance menus should start with the manufacturer’s requirements and recommendations based on months in service and/or mileage. From there, you must add services for local driving conditions as well as the customer’s own driving habits. For example, the driving conditions in Mesa, Ariz., are not the same as those in Bangor, Maine, and a truck owner towing boats does not have the same driving habits as one hauling a horse trailer in the mountains.
Training your advisors on how to make a feature/benefit presentation starts with taking a plain sheet of paper and drawing a line down the middle of the page. On the left, you should list all of the features outlined in your menu. On the right, list the corresponding benefits of each feature, which are the reasons a customer will say yes to a menu presentation. Remember, your advisors must understand that customers only buy benefits; they don’t buy features. An example would be a tire rotation. Nobody wants to buy a tire rotation (a feature), but they do want to have longer-lasting tires to save money (a benefit). Electronic menus also have full-color video feature/benefit presentations that enable the customer to actually see the benefits as well as hear about them.
Now, you must require every advisor to follow this process every day with each customer they greet, both warranty and customer-pay. This is not an option for your finance producers, and it should not be an option for your service advisors. You will never get 50 percent service contract penetration in F&I by offering contracts to only those customers who might buy them, right? It’s no different in service.
You can’t manage what you don’t measure, so it’s imperative that you keep a record of each advisor’s sales performance. I’m talking about sales per RO, hours per RO, profit margins on parts and labor, effective labor rate, closing ratio on menu sales, and closing ratio on inspection upsells. You’re most likely measuring every measurable statistic in your sales and F&I departments every day, so start doing the same for your service and parts departments. Then, you will have complete accountability for their individual performance.
These five steps outlined in this article will boost your bottom line starting with day one. Your customers will become trained on how to pay attention to preventative maintenance, which will give them a much more pleasurable ownership experience and save them money over time. If you doubt me, just go visit any aftermarket service facility and observe their processes since they now own 84 percent of the parts and service business in America.
Article by:
Don Reed
Dealer Pro Training Solutions
These menus are designed to offer the customer choices for protecting their vehicle, credit, payment, etc. Most menus will give the customer the opportunity to choose from three or four different options such as Platinum, Gold, Silver or Bronze coverage. We know that if the customer chooses any one of these options, it results in an automatic upsell, which of course means more gross profit in the car deal.
Additionally, the finance producer is usually required to present these menus to 100 percent of your customers with no exceptions! This process breeds consistency and ensures that every customer is treated the same, meaning that each and every customer receives a feature/benefit presentation on all of the products contained in the menu. Starting today, why don’t you install this same process in your service department?
Menus can be just as effective in your service department. Here are five steps to properly implement maintenance menus:
1. Create your own menu
2. Train service advisors how to make a feature/benefit presentation
3. Require this process to be followed with every customer on every visit
4. Measure menu sales for each service advisor
5. Hold managers and advisors accountable for performance
Designing a maintenance menu can be very time consuming if you do it right, but I can assure you the time will be well spent. You can choose to design a paper menu or you might prefer an electronic one. Technology is a wonderful thing when it’s used properly. I prefer the electronic menus, which require nothing more than Internet service.
Electronic menus cost less, allow for more pricing flexibility, are easy to use, offer 100-percent accountability tracking for advisors, are customer-friendly and are available 24/7 for your customers. Research shows that online menus partnered with an online appointment process will generate about 20 percent more in sales per repair order than those written by your advisors. Do the math in your store and you’ll probably see an opportunity to add at least $50 per repair order. The fact is, online customers will go to your online menu and “sell themselves” because 100 percent of the customers are presented the menu when they log in.
All maintenance menus should start with the manufacturer’s requirements and recommendations based on months in service and/or mileage. From there, you must add services for local driving conditions as well as the customer’s own driving habits. For example, the driving conditions in Mesa, Ariz., are not the same as those in Bangor, Maine, and a truck owner towing boats does not have the same driving habits as one hauling a horse trailer in the mountains.
Training your advisors on how to make a feature/benefit presentation starts with taking a plain sheet of paper and drawing a line down the middle of the page. On the left, you should list all of the features outlined in your menu. On the right, list the corresponding benefits of each feature, which are the reasons a customer will say yes to a menu presentation. Remember, your advisors must understand that customers only buy benefits; they don’t buy features. An example would be a tire rotation. Nobody wants to buy a tire rotation (a feature), but they do want to have longer-lasting tires to save money (a benefit). Electronic menus also have full-color video feature/benefit presentations that enable the customer to actually see the benefits as well as hear about them.
Now, you must require every advisor to follow this process every day with each customer they greet, both warranty and customer-pay. This is not an option for your finance producers, and it should not be an option for your service advisors. You will never get 50 percent service contract penetration in F&I by offering contracts to only those customers who might buy them, right? It’s no different in service.
You can’t manage what you don’t measure, so it’s imperative that you keep a record of each advisor’s sales performance. I’m talking about sales per RO, hours per RO, profit margins on parts and labor, effective labor rate, closing ratio on menu sales, and closing ratio on inspection upsells. You’re most likely measuring every measurable statistic in your sales and F&I departments every day, so start doing the same for your service and parts departments. Then, you will have complete accountability for their individual performance.
These five steps outlined in this article will boost your bottom line starting with day one. Your customers will become trained on how to pay attention to preventative maintenance, which will give them a much more pleasurable ownership experience and save them money over time. If you doubt me, just go visit any aftermarket service facility and observe their processes since they now own 84 percent of the parts and service business in America.
Article by:
Don Reed
Dealer Pro Training Solutions
Service Advisor Training---Expense or Investment?
Service Advisor Training---Expense or Investment?
A significant number of dealers these days are becoming more and more aggressive in selling used vehicles. Some have even lost their new car franchises and now rely solely on used vehicle sales along with parts and service sales to pay the overhead and hopefully provide them with a significant Return On Investment (ROI). I’m confident you will agree that it is critically important for all dealers to earn the highest possible ROI on every single investment they make, right?
Now, in order to increase sales in any department you have to start doing things differently and/or do different things. If not, then you simply continue to do what you’ve always done as stated so clearly by Zig Ziglar: “You have the perfect processes in place to get you exactly what you got last year.” I’m talking about training here in order to positively affect change. Some of you will take the approach of “saving your way into profitability” by vowing not to increase your expenses but you remain willing to make investments every day of your business life. Let’s consider some examples.
NADA research shows that the average used car cost (investment) is about $13,300 and sells for around $15,000 resulting in a gross profit of $1700 which is a ROI of 13%. ($1700 divided by $13,300 = $13%). Assume you can turn that inventory investment of $13,300 every 30 days (great job) that would be 12 turns per year at $1700 gross PRU for a total gross profit of $20,400 resulting in a ROI of 153%! My guess is none of you would hesitate to invest $13,300 in a used car knowing that you will realize a 153% ROI over the next 12 months. As a matter of fact, many of you wouldn’t hesitate to make multiple investments: 50, 75 or even 100 of those $13,300 cars to earn that kind of an ROI. Makes perfect sense to me!
Research also shows that a Service Advisor servicing 12 customers per day (4 Warranty and 8 Customer Pay) and averaging 1.5 Hours Per Repair Order at NADA benchmark’s will produce about $1637 in Gross Profit per day, $36,016 in Gross Profit per month and a total of $432,194 in Gross Profit per year. Let’s assume you diverted just one of those $13,300 used car inventory investments into a $13,300 training investment in your Service Advisor and that training produced an extra .5 HPRO (33% Improvement), you would realize a Gross Profit increase of about $12,000 per month or $144,000 over the next 12 months resulting in a ROI of 1082%! (If your stock broker can do that for you please send me his name and number.) Let’s finish the math here by adding the additional gross profit of $144,000 to the $432,194 and you have a total gross profit of $576,194 produced by one employee—The Service Advisor. Now I ask you, how many employees do you have producing over $576,000 a year in Gross Profit? Maybe your F&I Producers. How many salespeople are producing that kind of gross for you? This is the equivalent of selling 28 used cars a month at $1700 PRU. How many sales people are selling an average of 28 cars a month to match the performance of a 2.0 HPRO Service Advisor? How’s that $13,300 training investment working out for you now? Is it an expense or an investment? Maybe you should ask your broker to answer that one for you?
Let’s continue on with this logic and consider the following:
1. Who gets the most incoming Sales Calls per day—Salesperson or Service Advisor?
2. Who meets and greets the most Sales Opportunities per day—Salesperson or Service Advisor?
3. Who has the greatest impact on Owner Retention—Salesperson or Service Advisor?
4. Who has the greatest impact on Brand Loyalty—Salesperson or Service Advisor
5. Who needs Telephone & Sales Training—Salesperson or Service Advisor
The answer to questions 1, 2, 3, and 4 is the Service Advisor. The answer to question number 5 is both the Salesperson and the Service Advisor. The simple fact is anyone in your dealership who comes in contact with your customers as well as your potential customers, must be professionally trained on how to effectively communicate (Sell) to them all.
I’m sure far too many of you Dealers, General Managers and Service Directors will continue to try and “save your way into profitability” versus being proactive and commit to re-allocating some of your inventory investment into your training investment. For those Dealers, General Managers and Service Directors who “get it” you can look forward to record Service and Parts Net Profits in 2010. It’s your choice to make.
Article by:
Don Reed
CEO-DealerPro Training Solutions
NADA University Partner
A significant number of dealers these days are becoming more and more aggressive in selling used vehicles. Some have even lost their new car franchises and now rely solely on used vehicle sales along with parts and service sales to pay the overhead and hopefully provide them with a significant Return On Investment (ROI). I’m confident you will agree that it is critically important for all dealers to earn the highest possible ROI on every single investment they make, right?
Now, in order to increase sales in any department you have to start doing things differently and/or do different things. If not, then you simply continue to do what you’ve always done as stated so clearly by Zig Ziglar: “You have the perfect processes in place to get you exactly what you got last year.” I’m talking about training here in order to positively affect change. Some of you will take the approach of “saving your way into profitability” by vowing not to increase your expenses but you remain willing to make investments every day of your business life. Let’s consider some examples.
NADA research shows that the average used car cost (investment) is about $13,300 and sells for around $15,000 resulting in a gross profit of $1700 which is a ROI of 13%. ($1700 divided by $13,300 = $13%). Assume you can turn that inventory investment of $13,300 every 30 days (great job) that would be 12 turns per year at $1700 gross PRU for a total gross profit of $20,400 resulting in a ROI of 153%! My guess is none of you would hesitate to invest $13,300 in a used car knowing that you will realize a 153% ROI over the next 12 months. As a matter of fact, many of you wouldn’t hesitate to make multiple investments: 50, 75 or even 100 of those $13,300 cars to earn that kind of an ROI. Makes perfect sense to me!
Research also shows that a Service Advisor servicing 12 customers per day (4 Warranty and 8 Customer Pay) and averaging 1.5 Hours Per Repair Order at NADA benchmark’s will produce about $1637 in Gross Profit per day, $36,016 in Gross Profit per month and a total of $432,194 in Gross Profit per year. Let’s assume you diverted just one of those $13,300 used car inventory investments into a $13,300 training investment in your Service Advisor and that training produced an extra .5 HPRO (33% Improvement), you would realize a Gross Profit increase of about $12,000 per month or $144,000 over the next 12 months resulting in a ROI of 1082%! (If your stock broker can do that for you please send me his name and number.) Let’s finish the math here by adding the additional gross profit of $144,000 to the $432,194 and you have a total gross profit of $576,194 produced by one employee—The Service Advisor. Now I ask you, how many employees do you have producing over $576,000 a year in Gross Profit? Maybe your F&I Producers. How many salespeople are producing that kind of gross for you? This is the equivalent of selling 28 used cars a month at $1700 PRU. How many sales people are selling an average of 28 cars a month to match the performance of a 2.0 HPRO Service Advisor? How’s that $13,300 training investment working out for you now? Is it an expense or an investment? Maybe you should ask your broker to answer that one for you?
Let’s continue on with this logic and consider the following:
1. Who gets the most incoming Sales Calls per day—Salesperson or Service Advisor?
2. Who meets and greets the most Sales Opportunities per day—Salesperson or Service Advisor?
3. Who has the greatest impact on Owner Retention—Salesperson or Service Advisor?
4. Who has the greatest impact on Brand Loyalty—Salesperson or Service Advisor
5. Who needs Telephone & Sales Training—Salesperson or Service Advisor
The answer to questions 1, 2, 3, and 4 is the Service Advisor. The answer to question number 5 is both the Salesperson and the Service Advisor. The simple fact is anyone in your dealership who comes in contact with your customers as well as your potential customers, must be professionally trained on how to effectively communicate (Sell) to them all.
I’m sure far too many of you Dealers, General Managers and Service Directors will continue to try and “save your way into profitability” versus being proactive and commit to re-allocating some of your inventory investment into your training investment. For those Dealers, General Managers and Service Directors who “get it” you can look forward to record Service and Parts Net Profits in 2010. It’s your choice to make.
Article by:
Don Reed
CEO-DealerPro Training Solutions
NADA University Partner
HOW TO DESIGN A FIXED OPS MARKETING PLAN
How to Design a Fixed Ops Marketing Plan
A worthy goal for every dealer would be to sell a new or used vehicle today and keep that customer coming back to your dealership for life. You want them coming back for all their service needs, for parts, for body repairs, to buy additional vehicles for their family and of course, to trade in the vehicle you just sold them to buy another. Makes sense, right? If so, then let’s put together a marketing plan designed to keep your customers for life.
According to NADA’s Average Dealership Profile, the average dealer in 2009 spent a record high $708 in advertising per new vehicle retailed while averaging $1,193 on gross profit PRU. Looks like about 59 percent of the average dealer’s new vehicle gross profit was spent on advertising. Wow! Does anybody see a problem with that? In reviewing hundreds of dealer financial statements last year, I found that the average dealer is spending about $10 in advertising per retail service customer per month which comes in at about 5 to 7 percent of service gross profit. Does anybody see a problem with that?
Research shows that over 70 percent of your service customers who come back to your dealership for all of their service needs will buy or lease another vehicle from you. What’s your closing ratio on repeat customers? I guarantee you it’s not the 15 to 20 percent you’re getting with walk-ins! A realistic number would be well over 60 percent. So the question is what can you do to keep them coming back? The answer is: give them a reason.
A customer retention marketing plan for fixed operations costs a fraction of what most dealers are spending to bring bodies into the showroom. Again, according to NADA the average dealer is spending about $28,320 in advertising per month to sell cars. So if you’re an average dealer selling about 40 new units a month, you would then most likely be writing about 500 customer pay repair orders per month and spending around $5,000 in advertising and marketing support for those 500 customers ($10 each).
So the average dealer is spending $28,320 to sell 40 vehicles to strangers (20% closing ratio) and only $5,000 to keep the customers they already have coming back to the service department (60% closing ratio). Understand that these customers already know where you’re located, own your product, have done business with your dealership and must like someone at your store since they are coming back. Here are some questions to ask yourself to determine if you’re trying to keep them coming back:
• Have you told them lately that you appreciate their business?
• Do you remind them when it’s time to return for preventive maintenance?
• Do you have an appointment reminder system in place?
• Do you schedule their next appointment before they leave on each visit?
• Do they receive invitations for seasonal promotions?
• Do you follow up on all open factory recall campaigns?
• Do you have a process to follow up on no-shows?
• Are all lost sales followed up within 48 hours?
• Are first appointments scheduled at time of delivery?
• Do 100 percent of these customers get maintenance menus?
• Do you have an automated or live call program?
• Do you communicate with them through e-mail and/or text messaging?
• Are these customers invited back twice a year for free car-care clinics?
The important thing to remember about follow-up is that it must be done daily to build customer retention, not quarterly. Most dealers spend more money on one weekend advertisement for the sales department than they spend in an entire month on customer retention in service. All of the reasons to come back as outlined above can be accomplished in most dealerships for around $2,000 per month, or $24,000 per year which, coincidentally, is about what the average dealer spends on advertising in one month to sell cars. As an ex-dealer, I know we all waste money on advertising, whether it’s TV, radio, newspaper, direct mail, event sales, etc. The tough part is figuring out which dollars were wasted, right? That being said, you don’t need to increase your advertising expense by my $2,000-a-month budget; you just need to reallocate some of that $25,000 you’re already spending.
Of course, in addition to selling more new and used vehicles in the future, you will also see a dramatic increase in your customer pay parts and labor sales. I’m seeing increases in service gross profit of over 60 percent in a lot of our dealership. Increasing service absorption is a terrific way to recession-proof any dealership in our current economy. Imagine unlocking the front door of your dealership tomorrow knowing that 100 percent of your overhead is paid for before you sell your first car or truck. Sounds like a plan to me.
Article by
Don Reed
CEO, Fixed Ops Solutions
DealerPro Training Solutions
A worthy goal for every dealer would be to sell a new or used vehicle today and keep that customer coming back to your dealership for life. You want them coming back for all their service needs, for parts, for body repairs, to buy additional vehicles for their family and of course, to trade in the vehicle you just sold them to buy another. Makes sense, right? If so, then let’s put together a marketing plan designed to keep your customers for life.
According to NADA’s Average Dealership Profile, the average dealer in 2009 spent a record high $708 in advertising per new vehicle retailed while averaging $1,193 on gross profit PRU. Looks like about 59 percent of the average dealer’s new vehicle gross profit was spent on advertising. Wow! Does anybody see a problem with that? In reviewing hundreds of dealer financial statements last year, I found that the average dealer is spending about $10 in advertising per retail service customer per month which comes in at about 5 to 7 percent of service gross profit. Does anybody see a problem with that?
Research shows that over 70 percent of your service customers who come back to your dealership for all of their service needs will buy or lease another vehicle from you. What’s your closing ratio on repeat customers? I guarantee you it’s not the 15 to 20 percent you’re getting with walk-ins! A realistic number would be well over 60 percent. So the question is what can you do to keep them coming back? The answer is: give them a reason.
A customer retention marketing plan for fixed operations costs a fraction of what most dealers are spending to bring bodies into the showroom. Again, according to NADA the average dealer is spending about $28,320 in advertising per month to sell cars. So if you’re an average dealer selling about 40 new units a month, you would then most likely be writing about 500 customer pay repair orders per month and spending around $5,000 in advertising and marketing support for those 500 customers ($10 each).
So the average dealer is spending $28,320 to sell 40 vehicles to strangers (20% closing ratio) and only $5,000 to keep the customers they already have coming back to the service department (60% closing ratio). Understand that these customers already know where you’re located, own your product, have done business with your dealership and must like someone at your store since they are coming back. Here are some questions to ask yourself to determine if you’re trying to keep them coming back:
• Have you told them lately that you appreciate their business?
• Do you remind them when it’s time to return for preventive maintenance?
• Do you have an appointment reminder system in place?
• Do you schedule their next appointment before they leave on each visit?
• Do they receive invitations for seasonal promotions?
• Do you follow up on all open factory recall campaigns?
• Do you have a process to follow up on no-shows?
• Are all lost sales followed up within 48 hours?
• Are first appointments scheduled at time of delivery?
• Do 100 percent of these customers get maintenance menus?
• Do you have an automated or live call program?
• Do you communicate with them through e-mail and/or text messaging?
• Are these customers invited back twice a year for free car-care clinics?
The important thing to remember about follow-up is that it must be done daily to build customer retention, not quarterly. Most dealers spend more money on one weekend advertisement for the sales department than they spend in an entire month on customer retention in service. All of the reasons to come back as outlined above can be accomplished in most dealerships for around $2,000 per month, or $24,000 per year which, coincidentally, is about what the average dealer spends on advertising in one month to sell cars. As an ex-dealer, I know we all waste money on advertising, whether it’s TV, radio, newspaper, direct mail, event sales, etc. The tough part is figuring out which dollars were wasted, right? That being said, you don’t need to increase your advertising expense by my $2,000-a-month budget; you just need to reallocate some of that $25,000 you’re already spending.
Of course, in addition to selling more new and used vehicles in the future, you will also see a dramatic increase in your customer pay parts and labor sales. I’m seeing increases in service gross profit of over 60 percent in a lot of our dealership. Increasing service absorption is a terrific way to recession-proof any dealership in our current economy. Imagine unlocking the front door of your dealership tomorrow knowing that 100 percent of your overhead is paid for before you sell your first car or truck. Sounds like a plan to me.
Article by
Don Reed
CEO, Fixed Ops Solutions
DealerPro Training Solutions
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