Work Hard And Win: Part Two

How To Increase Your Parts-To-Labor Ratio

In November’s column, I wrote about the ratio between parts and labor on a service ticket. To recap, Hal Ethington had gathered some data from the ADP Lightspeed Databack system and analyzed repair orders. We determined that the parts-to-labor ratio had a much higher correlation factor to service department profitability than the actual hourly labor rate itself.

So now that we’re aware of how the ratio can affect profitability, how can you capture this business? How can you make sure that the upsell happens and gets completed?

The first thing you might consider is looking at the last 24 months of repair orders. It is sometimes slow in the wintertime, so this might be the best time to review. First, look at the years, makes and models of the vehicles you have serviced. Make sure you have the common parts for these in stock — items like brakes, chains, sprockets, CV boots, spark plugs, belts, etc., for your top 20 vehicles. Run a report and see what the parts department has sold across the counter and see if there is any correlation there.

Once you have determined what you have been servicing based on reports and not hunches, get the service data. It is beneficial for service writers to have some kind of visual aid when selling service. Find a program with service intervals in it or open up the manuals for the top 50 units your department serviced last year and make a binder of the service schedules. This will help your service writers feel more confident in talking with customers.

The key to help you push your service ratio up is employee incentives. This starts with the manager and goes all the way down to the technicians. Consider paying managers from the profit of the department and the profit from the whole store. Service managers should get paid from the profit of the whole store because they support sales by building units and preparing used units to be sold. If you only pay the service manager based on service profits, chances are there’s going to be an immediate price increase in your sales department.

If you have looked over the last 24 months of repair orders to see what models you have serviced, then you will likely have noticed a few sales trends. These trends, or monthly sales numbers, can be used to create sales goals for your department. Service writers should be paid on every hour of non-warranty labor sold in the department. Make sure that their pay scale is weighted toward monthly sales goals. When it comes to creating sales goals for your team, try making the first few kind of easy to reach to get them excited about the program. Then, as the summer ramps up, keep increasing the difficulty of the goals and see what happens. I see pay plans for service writers that are as varied as the colors in the sky. The ones that seem to work the best are heavily commission-based with bonus plans structured around those monthly sales goals. Implementing this type of system will probably require you to cut the service team’s existing hourly pay, but should be more beneficial to both parties when it is in full swing.

The next part of getting something like this started is making sure your mechanics are on board. This, in my opinion, is the most critical part of increasing your parts-to-labor ratio. If you don’t build an incentive plan for the people who are working on the bikes and looking at them while they are on the bench, then why would they report any need to upsell? If you pay your technician an hourly salary based only on the number of hours they are in your dealership, why would they want to do more work? Pay your technicians at least in part on commission.

Another way of increasing your ratio is by involving your parts and sales departments more in the process. Some of the best ratio work available is accessory installations. If your parts department sells an accessory, try paying them a spiff if they can sell the install. If your sales department can wrap up some accessory installs in a deal, then pay them a spiff as well. This is typically easy work that will be high profit when completed. One of the hardest parts of installing accessories is making sure you have the right items at the time of the sale. If you have Lightspeed and you are subscribed to Databack, take a look at some of those reports. I bet you will find some information about the types of parts that are most commonly installed at the time a vehicle is purchased.

Making a service department run on all cylinders is a major effort and takes constant management. The good news is if you can get there, your dealership will be more profitable and more stable than the competition.  

C.R. Gittere and the Service Manager Pro team specialize in service department efficiency, elevating customer service and increasing department profitability. His monthly column focuses on best practices and unique ways to get the most out of your service department. More information about Service Manager Pro can be found at www.servicemanagerpro.com.

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