# Why Can’t I Break Even?

I visit quite a few dealers in the course of a year. What Ii find at times is that the challenge is not only prescribing a plan of action for the department after the evaluation to become profitable, but simply how to just break even (sometimes you have to crawl before you can walk).

** Before we begin:**

Service departments with manufactures that use parts transfer sometimes seem to think that although before transfer the service department had a negative net profit, after factoring in transfer, now they are profitable, all’s well.

When the topic of parts transfer is discussed, the theory and reasoning are very debatable topics in workshops, 7 c’s training and fixed ops classes. When we evaluate the service department’s profitability, we evaluate them before transfer. Why? Because the true and tried way is to evaluate the service department’s performance, is to evaluate it based on its standalone performance before transfer.

** Breaking even:**

So how do i get to break even? There are several ways you could look at this and the answer in your mind may be, “we’ll just cut back on expenses”; one of which is staffing. However, you need to keep something in mind when looking at staffing or any expenses in general. You cannot expense your way into a profit. So, the question is, do i have an option? The answer is yes.

** Let’s say:**

Your expenses per month are $136,000

Your gross profit percentage is 70%

Divide your expenses by your gross profit percentage ($136,000 / 70% = $194,286 labor sales needed to break even).

So, now what do you do with this information? Part one of the equation is to now determine how many shop hours are required to accomplish your goal. Let’s say your overall effective rate is $90.00 per hour, divide the sales needed to break even by the overall effective rate ($194,286 / $90.00 = 2158 hours needed per month).

Part two of the equation is if you’re current monthly labor sales are say $180,000, the variance between the current sales and the needed sales is now $14,286. Based on your current overall effective rate, this would mean that you will need to produce an additional 158.7 hours per month to accomplish your goal.

$14,286 / $90.00 = 158.7. So, what if you’re work days per month are 20 and you have 8 techs?

158 needed hours / 20 work days = 7.9 hours per day / 8 tech’s = .98 hours per day per tech. Could you make this happen in your shop? Most likely yes, but if you think not, then you will need to look at why. Is it due to?

- Poor tech attendance
- Dispatching procedures
- Advisor performance
- Advisors not trained to your expectations
- Poor multi point inspection utilization
- Appointment scheduling
- Pay plans

There are many contributors to the challenge of a positive net profit in the service department or simply just breaking even. What are your challenges?