Four Ways to Score Higher Fixed Operations Profits

Lee Newsletter PicI love Alabama football. Like a lot of people in my home state, we watch it throughout the season and cheer ’Bama on.

Coach Nick Saban has done an outstanding job with the team. So what does this have to do with fixed operations? It’s the attitude that he develops in his players that we can learn from.

He speaks about the “the process of winning” built on basic fundamentals: Do your job. Finish the play. Dominate your opponent. Don’t look at the scoreboard, because if you are successful at the fundamentals, the score will take care of itself.

So let’s look at our business with the same approach. Coach Saban’s definition of winning is to outscore the opposing team. In our business, it is to generate a profit. That’s the win we are in business for. The focus of the business needs to be on what drives the win.

That includes the production of quality flat-rate hours, control of the effective labor-sales rate, control of expenses, and most importantly, earning future business based on the level of service provided. Let’s look at each of these.

1. Production of quality flat-rate hours

We often think of service-department quality as directly related to the level of repair work by technicians. Yes, that’s part of it. The true definition of quality is the complete elimination of human suffering. A colleague once told me that. It was a light-bulb moment. So for us, quality extends beyond the repair work to the entire customer-handling process.

Our units in the service department are the flat-rate hours. For each hour produced we earn gross profit, we sell parts and our employees make their living directly and indirectly from them.

The mission is to produce hours without anyone suffering, not customers, employees, managers nor executive management.

Sales are a direct result of the flat-rate hours produced. The equation is: flat-rate hours multiplied by effective labor rate equals sales.

What’s your process to win in this area? Here are two winning recommendations: produce more and seek a higher level of performance.

Another University of Alabama coach once told his players before a big game: “If we play the best we can and they play the best they can, they will beat us. We, however, must push our performance beyond our best and reach a new level, if we are successful in finding this new level, we will beat them.”

That coach was the late Paul “Bear” Bryant. He challenged his players to rise to a new level beyond their expectations. They did and won.

2. Control of the effective labor sales rate

Many people have developed an understanding of an effective labor rate. The bottom line is it’s a mathematical average based on the sales amount divided by the number of hours that make up the sales.

A number of vendors have developed computer-generated methods to increase your rate. I will be the first to tell you, it must be managed daily. I don’t believe dealership rates are too high. I believe your perceived value is too low.

If the customer sees no value in the service you provide beyond their expectations, then it comes down to price, and it will always be perceived as too high at a dealership.

To combat that, kick up the value. Let customers know what you have done for them, including the little extras. Train your service advisers to sell value each and every time, and the rate will be a non-issue.

3. Control expenses

This is not just the typical operating expenses we report on the financial statement. Those should be managed daily, and some dealerships need to refocus on them because they may be getting out of control.

Business has been better. When this happens, everyone loves to focus on the glamor of sales. But hold a staff invoice-review party. Select a few expenses and drill down and review.

Another overlooked area often is the expense of production or cost-of-sales control. You need to know your average cost of sales per hour. This number is as important as the effective labor rate.

4. Earn future business from customers

The key word here is “earn.” For a lot of stores, business is up and vehicles are selling well. But remember 2008 and 2009. A lot of people didn’t focus on customer retention in the preceding years. They were busy selling cars, parts and labor. Customer retention was not a foundational component. Learn from this downswing and focus on earning every customer’s repeat business.

Call it anything you want: loyalty, retention, developing customer advocacy. It comes down to one thing; earning the business based on the level of service provided in the current transaction. That’s the moment of truth.

Train your staff to look for opportunities to sell the effort to conduct business. Do something extra for customers. Make them feel special. Make them feel good about spending their money with you. Let them know your staff wants a lasting relationship with them. Be viewed as more than a dollars-and-cents dealership. Also, forget about trying to overcome objections. Instead, sell the service and put the customer in a position where the logical answer is yes.

Dominate your competition with service, not price. Otherwise, you can’t win this one.

Every person in your fixed operations must do their job. Managers must clearly outline everyone’s responsibilities. Customers drive past other service providers to visit your dealership. They talk with their feet. Deny them of what they want, and they will walk off the field, never to return. Don’t let the game end like that.


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