Why Can’t I At Least Break Even?

Written by George Goldberg

I visit quite a few dealers in the course of a year. What I find at times is that the challenge is not only prescribing a plan of action for the department after an evaluation for the department 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 manufacturers that use parts transfer sometimes seem to think that although before transfer, the service department had a negative net profit and after factoring in transfer they are profitable and 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  to evaluate the service department’s performance, is to evaluate it based on its stand-alone performance before transfer.

Breaking even:

So how do I at least 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 labor gross profit percentage is 70%

Divide your expenses by your labor 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:

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 = 2,158 hours needed per month).

Part Two of the Equation:

If your 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 = 158.7)

Part Three of the Equation:

So now, let’s say your workdays per month are 20 and you have 8 techs.

The 158.7 needed ÷ 20 workdays  = 7.9 hours per day ÷ 8 tech’s = .98 hours per day per tech. Could you make this happen in your shop? Most likely the answer is yes, but if you think not, then you will need to look at what 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 moving pieces to the challenge of generating a positive net profit in the service department or in fact, just trying to break even. What are your challenges?

From a complete Service Department Assessment to targeted Classroom Service Advisor Training options, I am here to assist you with all of your Fixed Operation improvement custom-tailored to your specific needs. For more information feel free to contact me anytime at (714) 396-4935 or georgegoldberg@m5ms.com .

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