I was visiting some friends last week at ADP Lightspeed and the conversation of service selling came up. ADP analyst Hal Ethington and I started talking about how to quantify gained and missed opportunities, and I found out that he had been doing some work on this and was already putting something together based on Lightspeed Databack.
In the data below, the repair orders are focused on metric bikes. We compared V-Twin bikes, and the results were similar.
Dealers A, B and C were from the top 20 percent of dealers as measured by average revenue per repair order. Dealers X, Y and Z were drawn from the bottom 20 percent of dealers, again as measured by their average revenue per repair order.
Total labor lines per repair order are the total of all labor lines on all jobs. Parts to labor ratio is how many dollars of labor were sold compared with how many dollars of parts were sold to the same repair order. The higher the ratio, the higher the dollar figure of parts sold to the repair order. The data here is a sample of 2.1 million repair orders from 1,511 dealers across the nation during 2013. The averages derived from that sample have been extrapolated into sales from 300 repair orders for equal comparison between dealerships with different rates of work.
Let’s compare Dealer B and Dealer Y. Notice that Dealer Y has a $5 per hour higher labor rate, so he should be making more money in service, right? Not exactly. If you look at Dealer B they average 0.1 more labor lines per repair order. That means on 300 repair orders they did 30 more labor lines. They also averaged 0.1 more hours on every repair order and have a lower shop rate than Dealer Y.
Therefore, the quick math for Dealer B would look like this:
300 repair orders multiplied by 0.10 per repair order equals an extra 30 hours of labor compared with Dealer Y at $78 per hour and you get $2,340 in labor. If you look at the last column, the total sales reflect a much more significant story. Dealer B had $192,000 in sales and Dealer Y had only $81,000 in sales. If you reduce Dealer B’s upsell in labor by $2,340 you still have a gap of more than $108,000. This gap seems like funny accounting, but it’s not.
The telling story is the parts to labor ratio on the repair order. Dealer B has a 1.9 ratio and Dealer Y has a 0.18 ratio. Dealer B generated more than $108,000 more in parts sales than Dealer Y on just 300 repair orders.
There are several important things to look at when you see these numbers. I have always said that if you sell hard and give your customer great service, you will be able to increase every repair order by one or two tenths of an hour. Hal’s research proves this. I have also said that you should strive for a 1:1 ratio on parts to labor on any given repair order. The research proves this possible as well; many of these dealers are well above 1:1.
Even though I knew these processes and numbers were something to strive for, it becomes clear how they relate to each other in a format like this. It was a real eye-opener for me to see how a 1:1 ratio can affect the bottom line.
There will always be one constant in the powersports business, and that is the inability of a consumer to order a repair from an online retailer and have it delivered in a box. The consumer will always need a local dealer with a trained professional to fix their unit when they get in over their head. Hal and the ADP Databack group have proven that if you concentrate on being the best service department in your market, you will not only win in labor dollars, but you will in parts dollars as well.
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.