The End of an Era

Rick NewsletterPart 1

The era of Hours per Repair Order as the method of measurement for advisor performance is over! Yes, that’s right, someone finally said it. It’s over. Now, before everyone calls me crazy and stops reading, hear me out for just a minute. If you think about it, I believe this will make sense to you…

First, let’s look at the basics of our business. What is the product we sell in the service department? We sell hours, right? The amount of hours we sell, multiplied by our effective labor rate equals our labor sales.

From those sales, we subtract what we pay the technicians that produce the hours which leaves us with our gross profit. Then we pay our expenses and we’re hopefully left with some net profit.

Now that we have established that, can we all agree that at its most basic level, if you can drive hours, you indirectly drive net profit? I believe that this is where the disconnect occurs, and here’s how…

In years gone by the thinking was that since it’s too difficult and slow responding to drive the number of repair orders, if you concentrate on the amount of hours you sell per each repair order, you can affect sales and thus net. And so we worked hard with our service advisors to produce what we called a “quality” ticket. We developed pay plans that focused on hours per repair order and beat up the advisors to produce hours per R.O. In doing this, we created a monster. We never developed good menus to present, we never developed strong, measurable processes with our courtesy inspections and so we pushed our advisors to produce 2.0 and 2.5 hours per repair order without effective tools. Guess what they did. They did anything they had to in order to produce the desired results. Many of them resulted to “pushy” sales tactics like “…if I could, would you?” and “…if I take 10% off, would you buy today?” The result of this was customer defection to the Independent Service Providers (ISP’s). And no matter how you look at it, when you drive hours per repair order, what you really drive is your customers… out of your dealership and into the waiting arms of the local independent.

Now, I can think of a few fixed operations directors as well as “consultants” (and I use that term VERY loosely) that I’ve run into lately that will still agree that this is the way to do business. “Customers aren’t loyal anyway, so why not get all you can from them while they’re in your store…” is what they say. This logic is ancient and is no longer applicable in today’s market…period…end of story. If someone tries to preach this to you, they are probably still listening to 8 track tapes and watching Happy Days because they are stuck in a time warp. Here’s why…

Point 1:

Think of yourself at the grocery store. Do they employ salespeople there to try to talk you into the high priced products or do they let you make your own choice? Why not? Because, as consumers we buy what we “need”. Need is the first phase of the buying process. As consumers, we must first have a need (real or perceived) before we will actively pursue the purchase of any product or service. Why do you think companies spend millions of dollars in advertising? They do it to promote a “need” in us as consumers.

Point 2:

When you choose to deal with a retail establishment that employs salespeople, do you prefer to go to a place where they give you some information and allow you to pick your own product or one that pressures you into what they want to sell you. In short, we all prefer to “buy” rather than to “be sold”. Can we all agree on that? Really, if you think about it, the definition of selling is: the presentation of information in a weighted fashion to influence a decision. Nowhere in that definition does it say beating the customer into submission until they say “yes”.

Point 3:

Have you turned on the TV or read a newspaper lately without hearing about the economy? Wouldn’t we all agree that people’s pockets aren’t as deep as they once were? We’ve all seen hours per repair order decline in the past few years. Why? Because people are not as apt to spend as they once were. There is a “new service customer” in your drives and that customer will not tolerate your advisors beating them up to spend money they don’t have. And when they have that type of experience, their response is very predictable…they defect to the ISP’s never to be seen or heard from again.

Part 2

Last week I talked about how Hours per Repair Order as the method of measurement for advisor performance is over. I also gave three points to substantiate my belief.

So, where does all of this leave us? If we don’t concentrate on hours, how can we possibly make any money? The answer is actually quite simple, just not easy. And it requires a total change of thinking on your part. In fact, I would advise that everyone in the dealership, at all levels of management MUST change their thinking. Here’s the thought: Let’s go back to the basic business model we discussed earlier and say you have determined that 3,000 hours is what you need to produce the desired net for your service department. If you were producing 2.0 hours per repair order at one time, you would have needed to drive 1,500 customers that month to produce your 3,000 hours. Now let’s say your hours per repair order drops to 1.0. You now need to drive 3,000 customers to your service drive that month to produce the desired net. So where are you getting the additional 1,500 customers?

This brings us to the TRUE method of measurement of advisor performance…customer retention. Customer retention is THE key to your service department’s financial health and long term viability. Simply put, if you retain more customers, you gain RO count. If you gain RO count, you produce more hours…and as we proved earlier, when you gain hours, you are more profitable.

There are many ways to focus on retention, all of which are proven to be successful methods of not only driving customers but driving hours as a by-product. Here are just a few of them:

  • Train your advisors to “Sell the Creative Effort” as opposed to selling the service(s). This includes their focus on selling your dealership as the vendor of choice at every service transaction as opposed to pushing the customers into packages and flushes.
  • Develop healthy service menus that mirror your factory recommendations rather than promoting “the wallet flush” at every service interval. Many service managers still believe that the factory is “in it for themselves”. This cannot be further than the truth. In fact, those of you who have your chemical suppliers providing your service menus should give close consideration to what the real underlying focus of your menus is. Are you in it to sell chemicals or retain customers?
  • Train your advisors to present the multi-point vehicle inspection at the time of write-up. When presented properly AT THE TIME OF WRITEUP, this is the most effective customer retention tool you have at your disposal. Are your advisors really selling the value of the multi-point inspection at the time of write-up or just presenting it when something is found. This can be the difference between the customer perceiving it as something of value or just an attempt to sell them something they don’t need.
  • Create a written process for the consistent checking over of customer’s vehicles. Ask each of your technicians one-on-one “What constitutes a checkmark in the yellow box when you are checking steering system?” and see how many different answers you get. How can you expect consistent results without a consistent process? Consider getting all of your technicians together and as a group defining what conditions need to be present for red, yellow, and green for EVERY checkbox on your multi-point inspection form and develop a written process.
  • Measure and track the results of ALL multi-point inspections for every technician and every service advisor. How many of you know what your average request value is? It’s simply the average amount of hours that your technicians are requesting every time they bring a completed multi-point inspection form to the advisors. Think about it this way…if your average request is 3.5 hours, what would that mean in dollars?

Let’s do the math:

Average Request
Effective Labor Rate
Average Labor Request
3.5 hours
x
$85.00
=
$297.50
Parts to Labor Ratio
Average Labor Request
Average Parts Request
$0.90
x
$297.50
=
$267.75
Average Labor Request
Average Parts Request
Average Request Value
$297.50
+
$267.75
=
$565.25

 

Have you ever heard your customers comment “Every time I come in for an oil change they try to get me for $500.00 worth of additional work.”? Tracking your average request value per technician can allow you to quantify how often the technicians are asking and how much they are asking for.

  • Does your advisor pay plan reward customer retention or are they rewarded for blowing the top of every customer’s head off?
  • Do you listen to your Factory Representative or dismiss their advice as “unrealistic”? Keep one thing in mind. The factory only makes money when your dealership sells cars and parts. So they have to have your best interests in mind. A retained customer is typically twice as likely to purchase their next new car from you as a non-retained customer. So why would your rep steer your wrong? Here’s the answer…they wouldn’t. If they did, they’d be cutting their own throats. Listen to them. I promise they have your best interests in mind.

So to wrap it up, it’s actually very simple…do you want to move your business forward? If so, begin focusing on the greatest asset you have…you customers. Retain them, and you win the game. It’s as simple as that.

If you’d like any help with installing any of these processes in your store, your M5 Consultant/Coach would be glad to assist. Feel free to email or call at any time and we’ll be more than happily make ourselves available to you.

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