Trade Secrets to Finding Lost Profit - Part 1

If I told you that you could double the profit margin on that last sale you made, you’d probably call me nuts, right? Well, the odds are pretty good that over the life of that unit you just sold you could easily double the profit you just made.

The first trade secret to finding lost profit is lurking behind the door of your Service Department.  Here’s how you can open that door to find your lost income and send it right to the bottom line.

I am sure many dealers view their Service Department as a necessary evil to complete the customer service cycle for the sale of new and used units.  Why? 

  1. First and foremost, good service Technicians are hard to find and keep. 
  2. Then there are environmental issues for the disposal of wastes.
  3. It can also be a customer service nightmare, because people are naturally unhappy when their toys breakdown.

The reality is your Service Department should be the highest profit centre in your dealership as a percentage of sales. The most profitable Motorsports dealers in the industry earn a gross margin of between 65.0% and 70.0% and Marine dealers should be in the 60.0% range. 

So if your dealership is earning 50.0% or less gross margin you are throwing away good profit!

The question is how do you figure out why the Service Department is underperforming in relation to the most profitable dealers in the industry?  There are three things you can do right now to figure out just why you are not making the gross margin you should.

    Analyze Billable Hours: 

  • First set up a chart listing your Technicians down the left side.
  • The second column should record the number of hours each Tech works in a week less time for lunch and breaks.  Let’s say Tech 1 works 5 days a week from 8AM to 5PM with an hour for lunch and breaks. You would record 40 available billable hours for this Tech.
  • The third column will list the number of labour hours you actually billed from your customer service invoices for each Tech.
  • The fourth column will establish the percentage of available hours to the actual number hours billed. Assuming your Service Department is busy, that ratio should be approximately 70.0%.  If your Tech is only billing 40.0% to 50.0% you have a problem, because you are losing income.

    Analyze Efficiency Ratio:

  • The next analysis that goes hand in hand with billable hours is how efficient your Technicians are at completing jobs: 
  • The fifth column in your chart should record the number of hours it should take to do the jobs that were billed during the week. This would come from the industry for standard service jobs such as manufacturer warranty manuals and established time allotments for normal service work.
  • The sixth column will record the time it actually took for your Tech’s to complete the jobs. Good Technicians should be capable of completing the work in less time than is allotted so if they are taking more time you are losing income.
  • Another indicator for efficiency is the number of comebacks that you have to do for free. This should be recorded in a seventh column for each Tech.

    Analyze Service Gross Margin:

  • In the eighth column record the wages you paid each Tech for the week
  • The ninth column is where you record the income earned.
  • The tenth column will then record the percent margin earned by each Tech. If you are not meeting industry standards you are losing income

You don’t necessarily have to do this analysis every month but it should be done periodically throughout your fiscal year. The results may dictate that you need to provide some or all of your Tech’s with additional training to perform their jobs more efficiently. 

It may also mean you have to find ways to better incentivize your Tech’s to ramp up their effort to meet your margin objectives.  And, of course, it may mean that you simply have too many Techs for the service work that is coming through your door. 

Whatever the reason, your analysis will establish the shortfalls and what you should be doing to turn things around and earn more profit.

And here’s another thought. If you have a service shop that is busy all year round, you may seriously want to consider paying your techs on piece work, not salary. 

Most all Technicians in the Auto industry are paid based on piece work because inevitably the cream will rise to the top.  For the underperforming Technicians you won’t be paying on unbilled hours.

If you need or want help analyzing the profitability of your Service Department, contact me for a free consultation.

Comments (1)

  1. michaelrobert

nice post.very useful for startupsdetailed informations are conveyed about the topic.thank you so much for sharing such informative article..if any body have essay related doubts,feel free to contactcustom essay writing service.they are genuine...

nice post.very useful for startupsdetailed informations are conveyed about the topic.thank you so much for sharing such informative article..if any body have essay related doubts,feel free to contactcustom essay writing service.they are genuine sites with zero plagiarism.we will get best essays from cheaper cost.

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