Forecasting: Do You Have a Plan?

Good departmental forecasting, or the lack thereof. I am surprised when working with management teams when the topic of forecasting comes up. I usually get the general response that they calculated the average of the last 2 years and added 10%.

If this is how you are forecasting, or are allowing your forecasting to be performed, then you need help. I look at forecasting as a road map on how a department is going to arrive at the desired destination. The lack of a factual forecast is the same as starting a journey to an unknown destination without a map or a sense of how you are going to get there.

Now let’sdiscuss a method I have used for years. This is the data I use when establishing a service department forecast:

  • Average monthly (period) expenses
  • Gross profit percentage
  • Desire net profit
  • Overall effective labor rate
  • Average hours per repair order
  • Workdays within the month (period)

Once we have the above listed data, the forecasting is easy. See the below illustrations:

Now based on the above illustrations the service department will need to produce the following in order to achieve the desire net profit:

    • $240,125 Labor Sales
    • 2,402.2 Flat Rate Hours
    • 1,413 Repair Orders
    • 160 Flat Rate Hours Per Technician Per Month
    • 7.1 Flat Rate Hours Per Technician Per Day
    • 283 Repair Orders Per Service Advisor Per Month
    • 12 Repair Orders Per Service Advisor Per Day

This type of forecasting allows the management team to have daily key performance indicators to track each day’s performance. When I was managing service departments, the four items I tracked and knew each day were the following:

    • Daily flat rate hour production
    • Overall effective labor rate
    • Gross profit performance / cost of sales
    • Days in period (worked & remaining)

Knowing these four items allowed me to know each day what the department’s current situation was and my rate of travel. All of this is possible due to setting a forecast each month and having the performance map to begin the journey.
Other information that having a good forecast model will allow is to determine if the current staffing situation will allow for the desired level of performance.

For example, if you determined the situation requires 10.3 flat rate hours per technician per day and 21 repair orders per service advisor per day then we would know the department required additional technicians and service advisors to achieve this performance.

While there are many ways to set a forecast and measurement techniques to track performance, the most critical part is to just be sure and have a plan and review your performance daily. Remember to treat every day as if it were the last day of the month and you will be successful.

Written by Kemp Evans

This is the kind of expertise that M5 Management Inc. specializes in, If you are interested in more information on how to set your dealership apart from your competition, contact me at (205)-603-1996 or kempevans@m5ms.com.

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