Internal RO's - A Mark-Up?

Derrick Woolfson

Internal RO's are not a new conversation. But one thing I have yet to find the perfect answer on is "marking-up" an internal RO. I would offer that it is merely robbing Peter to pay Paul. And that with front-end grosses thinning why would dealers want to continue a practice that creates 'fake' service RO revenue? Instead, wouldn't a service drive want to sell the MSI (state inspection) parts at cost and simply charge a flat labor rate per hour w/ maximums on labor rates excluding (of course) extenuating circumstances. 

How does your dealer handle internal RO's? Does your advisor make money for "selling" the parts or do you have a position that handles inspections? 

mark rask

we always said that are best customer is internal

Scott Hager

Because your service manager wants paid for his time as well, since he is on commission also.  He may even spend more time on internal vehicles in the case where used parts are preferable.

 

mark rask

@scott you are correct

!

Derrick Woolfson

I agree, otherwise - there would be a struggle to get work done. However, I would also offer that in order to keep profits stabilized that there ought to be a separate position established for internal work. The internal State Inspector would receive a labor rate + spiff for turn-time,  and remove the markup on parts. The Service Manager would then be paid a flat-rate per car turned as he's managing the service center. But if the vast majority (or a large sum) of your profits are from internal sales then somethings not right, no? More money can be made from customer pay RO's. 

Scott Hager

"ought to be a separate position established for internal work".  What does that mean?

Why remove the markup on parts?  The SM gets a percentage of profits.  I agree to a smaller percentage.  Mine is currently 25% profit on parts with a discounted labor rate.  ($80 vs $85-100)  Why should he work so hard for nothing.  He still has to source and bill the parts.  No cut for him, and he won't try as hard to source the best value on parts, relying on just "gettin' 'em done"

You put the SM on a flat rate per car turned, and they might not work as hard to find the problems, relying more on getting them out.

Also, the SM cut of profit is smaller than sales cut of profit.  So undercutting service just so sales can make more is self defeating.  You want your service guys happy too right?

 

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