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Denim Simkins

Denim Simkins Director, Fixed Ops

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Great News!! Service traffic is up and so are sales….. WARNING so are your expenses

After finishing a very successful August and looking back on the success so far year to date it is very easy to blissfully roll into September and the remaining quarter of the year. Let’s face it, the fixed operations business has been good. Everyone I talk to are having record months with increases in parts and labor gross and customer retention, this trend is very exciting. In addition, it is showing us that with a good basic process in place and decent staff there to help the increase in traffic you should be in a position to do more sales. And most of us are doing just that but I have one simple question; Are your departmental profits showing the same percentage of increase?

 

I am immediately drawn back to pre-2008 when our business was growing at an exceptional rate and the lessons I learned post 2008 and everything it took to sustain business thereafter. Now I am not saying to prepare for that type of scenario but I am saying that most economist are predicting some form of downturn and you should be preparing right now so you are in a position to weather the storm.

 

Process – Is your team following each proven step of the repair process, or have they been able to deliver industry standard type of results when our industry has been anything but standard. My guess would that they are following the path of least resistance and are not taking your customer through every step you have put in place to maximize your opportunity for this increased traffic. Time to get back to the basics, train on the basic process steps and make certain everyone on the team can deliver a similar process and result.

 

Personnel – Do you have the right people in the right position? Do you have more people doing more siloed type of activities and daily functions? Review your staffing needs at every spot and ask your self can you get the same type of results by asking everyone to do a little more. When our business is strained those with the best staff will be the best positioned and those with the most staff will have the hardest time.

  • Number of People - Quick calculation: What is your gross per employee? Take your TOTAL gross and then divide that number by the TOTAL number of employees in your department. Are you above or close to the guide of $12,500? I like to look at this number a couple different ways to identify the area for improvement. First is a combined Fixed number, total parts and labor gross divided by total number of employees and then do the same calculation departmentally. You will find that the parts average is and should be a lot higher average than service. Everyone’s operation is structured slightly different and there are many variables but using this a guide will you help you determine a proper headcount.
  • Price per person – The largest expense we all have on our financial statement is our staff and it is the largest controllable expense. Identify every dollar it takes to employ someone (this includes their income and benefits.) Guide for service should be in the thirty percent range and parts should be closer to forty percent. Again this is a guide but it is a proven metric that the most profitable dealers meet and exceed month in and month out.

 

Profit – One of the best words of advice I received early in my career was “you can’t save yourself into a profit” and “gross hides a lot of sins.” Really what this means, our staff needs to be seasoned sales vets and as managers we need to have our department price positioned to capitalize on those additional sales. Of course and as I mentioned before; a good well followed process will help you with this but make certain your team knows the importance of the dollar and how critical effective labor rate is. Again I see many stores do this differently but make sure you are looking at this ELR correctly. This should include all discounts such coupons and other price manipulations. Next you need to determine what is your true cost per flat rate hour sold. This number should contain your average cost per hour from your technician staff and then it should also contain your total expenses. NCM does a really good job on their composite breaking this down but you can do the calculation as well.

  • Technician expense – this is a pretty typical report from most DMS and can give you an average of your cost per hour. Typically, I see this number to be in the $16 to $23 range depending on your work mix in the shop.
  • Total expense – take all your departmental expenses and overhead expenses then divide that number by the total number of flat rate hours you produced. For instance, your TOTAL expenses for the month come in at $160,000 and your total flagged hours were 2,500. This would put your number at $160,000/2,500 = $64. This would mean that if you take your average cost per technician ($23) and your average expense per flat rate hour ($64) your break even combined ELR is $23+$64 = $87

 

To wrap it all up, I have found that it is easier to make changes when the going is good (like fixing your roof on a sunny day) and there is less push back from employees. Review your operation and make sure everyone is following your process for success and you have the right personnel in place and your department is price positioned for success. Good luck and more importantly have fun!!!

Chris K Leslie

Thank  you so much for sharing your breakdowns. Some real interesting numbers to look at. 

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