Too often, I find myself visiting with a service manager during the first few days of a new month, and I hear them complain about the erosion of the net profit of their department from the previous month due to expenses impacting their department. I ask them if this is a bulk end-of-month posting from the office manager or entries that have been there all month but have received little attention. I also investigate how many of these expenses are controllable by the Service Manager.
Most commonly, I find three expense categories that are definitely controllable by the service manager. Being diligent throughout the month in monitoring them will save your bottom line.
The first category is unapplied labor time. On most manufacturers’ financial statements, this line is found in the income category and is not classified as an expense. Many service managers are unaware of how unapplied time is calculated or its true definition. Unapplied time is the time that an hourly technician is on the clock but unable to bill production labor hours to a client. An example of an unapplied time entry would be when an hourly technician, at $17.00 per clock hour, would produce twenty billable labor hours during a forty-hour workweek. The unapplied entry would be twenty hours at their $17.00 an hour wage, totaling $340.00. This technician’s actual cost would be $34.00 per flagged production hour. Most likely, this would make this technician one of the highest-paid technicians in your department. Think about that when you send this technician to pick up parts, shuttle a customer, or sweep the shop. Just as we all track the production of our flat-rate technicians, hourly technicians are equally critical to track, setting daily production goals, and providing them with the resources of training and dispatch of work that aligns with their competency. I often visit a service department where PDI’s and used vehicle reconditioning are saved for tenured technicians as a reward, while competent hourly technicians are left without being assigned jobs that produce billable labor hours. Each payroll cycle, the unapplied time entry should be reviewed with the office manager for accuracy and opportunities for reduction.
The second category managers struggle with is the service policy account. Rental cars are the number one items of abuse that I find. Do you have some checks in place to minimize rental expenses? I suggest a daily review of clients that are in rental cars, with a focus on anyone in a rental car exceeding three days. What obstacles are keeping us from completing the job? If parts are an issue, can the manufacturer assist? Have we applied for an extension with the manufacturer? Are we pushing off some of these jobs due to our capacity? I encourage you to evaluate what the true carrying cost of one rental car is, calculating the monthly depreciation of the asset, maintenance, licensing, and other costs associated with the vehicle. You may be shocked by your findings. Do you have a policy charge-off accountability process in place with your advisors? Set a maximum dollar amount that an advisor is authorized to offer a client for empowerment for customer satisfaction, and anything above that should be authorized by management. Never, ever, should the policy account be used to hide a “missed” estimate mistake. I recommend that all policy work be calculated at retail parts and labor pricing, so we do not hide the full cost of this expense. Monthly policy expenses should not exceed two percent of customer pay labor sales.
Advertising is the third controllable expense line on our financial statement. Do you have a discount pricing policy in place, allowing the service advisors only the authorization to offer clients discounts on advertised specials, and print or digital coupon offers? Advertising expenses need to be tracked for the effectiveness of the offers, including how many new or returning clients responded. Service advertising should have a monthly budget not exceeding four percent of forecasted customer pay labor sales, including shared advertising expenses within the dealership.
I recommend that each service manager create a relationship with the office manager and encourage a weekly review of the discussed accounts. Following these recommendations will definitely reduce your monthly expenses and grow your bottom line.