Every person seeks to improve. It is a natural and healthy feeling that most humans have when engaged in an endeavor they believe in. Teams are in a constant state of action followed by evaluation. It is the way we human beings find value and worth in what we choose to do.
And because the Automotive Dealership Industry is one of the most heavily measured (think baseball statistics) every action is tabulated, evaluated, cerebrated, deliberated, calibrated and then regurgitated back into the workforce (dealership personnel) with the battle cry “Do it right this time or else!”
Of course, that never happens in your Dealership… I’m talking about the “other guy.”
What do you think about fine tuning and honing the process down to say “7 Measurable and Improvable Fixed Operations Key Performance Indicators?” Would that be something that would interest you?
Ok. Here they are.
RO Count, HPRO, Labor Gross Margin, Parts Gross Margin, EFL, Total Gross Profit Margin, Total Net Profit Margin.
If you need an explanation…you might be reading the wrong article.
So, you want to improve, right? What is the standard and what do I need to do?
The RO Count in many Dealerships is often left up to the “Customer Gods.” In other words, when people are not coming in to the Service Drive, often the Service Manager or Service Director will say something like “It’s like this every __________” or “It’s the down economy here” or some other equally interesting and totally wrong excuse.
The CUSTOMER is having their vehicle SERVICED SOMEWHERE, just not at your Dealership. Your job is to figure out what you need to do to jump start the process. If you have not prepared a plan of action that includes an ongoing Marketing Plan, then you need to.
Let me leave you with this thought. A 10% decrease in RO Count over a two year period is a 1/5th drop in RO Count. No business can stay in business losing 1/5th of their Customers every two years.
HPRO is another measurable that can be improved. Let me ask you this. In the past year have any of your Service Advisors increased their average HPRO by greater than 2 or 3 tenths? Why not?
It seems that we hire people who can Advise but they can’t Sell. Hey, I can get Lucy to give me some advice for 5 cents. What I need is an Advisor who can Sell because that’s what I hired them to do!
If your Advisors have not improved by at least a couple of tenths, you will need an ongoing Training and Accountability System.
Labor Gross and Parts Gross Margins are one measurable that is totally controllable with one Action Step.
Eliminate Un-Authorized Discounts! And hold the Advisor/Parts Counterperson completely and totally responsible.
EFL (Effective Labor Rate) is another measurable that the Advisors have directly in their Control. The key is to have Maintenance Labor Rates that are reasonable and the use of Labor Times/Charges that reflect the complexity of the work being performed.
Again, the use of Un-Authorized Discounts will greatly affect your EFL.
So, at the end of the month, after all the books are closed, you have a number called Total Gross Profit. And this measurable is the end results of all of the other measurable(s) working together and after you have paid your Techs to perform the work. And you want more.
Then, my friend, you need more RO Count, more HPRO, more Labor and Parts Sales with a corresponding decrease in un-authorized discounts and the correct Labor Rate being charged.
Sounds pretty simple, doesn’t it?
Finally, you want a higher Net Profit realization. Well, this is where you can sharpen your pencil and look at expenses. Are all of your expenses in line with the industry standard? Are you spending too much in Policy Adjustment and not enough in Marketing Expenses?
These “7 Measurable and Improvable Fixed Operation Key Performance Indicators” is a great place to start on improving your Fixed Operations Profitability.