Tag Archives: increase gross profit

Why small increases are important to your Dealership profits

Just what does a 10% increase (in any KPI you choose) really mean to your dealership?

Why small changes make big things happen.

Why small changes make big things happen.

 

Have you heard the old saying “Yard by yard it’s hard, but inch by inch is a cinch”?

If I were to go to any of your dealerships and walk into the GM’s office and say “Would you be interested in a 50% increase in Gross Profits?” what do you think he or she would say to me?

They would jump out of their chairs and yell out “Of course…how do I get it!”

And therein lies the problem with increasing performance or increasing profits 50% at a time. It is really hard to achieve that big of a jump all at once. It’s not that people are not capable or willing, it’s just that getting all of the components of a dealership focused and firing on all cylinders at the same time is a difficult proposition at best, and trying to get a 50% increase in any measurable KPI just becomes impossible.

Truthfully, whenever you have heard someone (DP, GM, New Manager, etc…especially the New Manager) say something like “I’m expecting big things this year and our goal is to increase (fill in the blank) by 50%”, would you say the “Dirty Diaper Alarm” trips in your head and you disregard everything that was said and develop a less than favorable opinion of said “Authority Figure” (or whomever was speaking)? Yep, me too.

But if I go into any dealership and ask any service advisor “Hey there Mr. /Ms. Advisor, do you think you could sell an extra $10-20 dollars on every repair order?” what do you think the answer is nearly 100% of the time?

“Of course I can.”

That is the power of a 10% increase.

So let’s look at John Q. Advisor and some of his numbers. At the average of 1.5 HPRO at $85.00 an hour, every repair order John writes is averaging about $229.00 a ticket. A 10% increase is only $22.90 and if John writes 220 repair orders a month, that equates to a $5 Grand a Month increase in Service Sales.

What does John get? At the end of a year, he gets an additional $60 grand in Commission-able Sales and if he is on an average pay plan, he just made another $5000.00 or so dollars for the year or $400.00 bucks a month.

Now go ask your Advisors, “Hey there Mr. /Ms. Advisor, want to make $400.00 more a month?” and what do you think their answer will be? (If they say something smarty pants or “No” or “Who do I have to kill?” just tell them you are going to write a letter to their spouse or significant other stating they turned down a $400.00 dollar a month raise)

Most organizations focus on trying to increase too much when they should focus on just making small but effective changes that yield results over time.

One more thing. Don’t forget the power of compounding.

Back to back increases of 10% in John Q’s example is big. How big? In the second year of a 10% increase, John’s average sales per repair order become $277.00 per copy or $48.00 more than year one, which equates to a $126,720.00 yearly increase in service sales…not too bad a result for a 10% increase.

Get focused on making small incremental changes that add up to big improvements! Help your team see the value and vision of a 10% increase in their service sales process and watch those profits (not to mention team morale) soar!

By Leonard Buchholz

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“Missed it by that much”

There is an old saying carpenters use. “Measure twice, cut once.”

I recently went to a Dealer to present DealerPro and our Performance Driven Training Program and guess what…I measured once and missed the cut.

I didn’t miss by much. About a 1/16th of and inch or so. When you really think about it, on a small scale, 1/16th is not that much at all. It really does not seem that big a deal.

But miss by 1/16th of an inch when you are calculating something like the square footage of your home and taxes are involved and suddenly you remember things like high school algebra and can quote complex mathematical theories.

The point I am making is everyday we all say things to ourselves like “Oh, it’s ok if I don’t give that Customer a menu because I know that they don’t buy anything” or “I’m not going to worry about that multipoint inspection. They were in just a few months ago” and we give ourselves a pass.

Why?

It’s just a little bit and it won’t make a difference. Right?

I flew 200o miles to present our program to a Dealer that was not prepared to see me because I failed to follow my own process. I got busy with other things and did not “measure twice, cut once.” Can you guess the end result?

It’s never the big disaster that kills a deal. Big disasters almost always start with small decisions that don’t really seem that important when you are making them.

Deciding not to personally call this Dealer and get him on the phone even after we had talked a couple of times, did not seem that big a deal. I mean, everybody reads their email…right? And everybody can read and follow directions…can’t they?

It was only a little shortcut. And it caused a huge miss.

Are your Service Advisors taking those little “shortcuts” because in their minds “it’s just a little thing” and nobody will notice? Are you allowing your Service Team to circumvent, use “choice implementation” or refuse to follow processes that are in place? Are they “missing the cut?”

Take the time NOW to review everything you are doing that is working and  everything that is not working and find out why.

Grandma dropped her car off and did not get a multipoint inspection? Why?

Mr. Jones came in for a recall and was not offered a menu? Why?

Billybob the local twice a month customer came in and was not greeted properly? Why?

Silly Sally the Service Advisor did not complete and walk around on her 10 writeups today? Why?

Ms. Coffeecellphone came in and was completely taken care of and even wrote a letter to the owner about her recent service experience. Why?

It’s not just about what is not being done. It also about what is being done correctly.

Find out what is being done correctly… train, show,coach, review, train, show, coach, review, lather, rinse, repeat daily for maximum results.

Do this enough and missing by just a 1/16th becomes a footnote in your Success Story.

Me, I’m back to measuring twice. I hate missing the cut. Don’t you?

(send me an email with the name of the famous tv show that the title of this blog post came from and I’ll get your Service Advisors signed up for a free e-learning series lbuchholz@dealerprotraining.com)

Comfort Zone vs Accountability

As a Dealer, did last year bring you the return on investment that
you expected?

As a General Manager did you meet or exceed your net profit
projections
for the year?

If you are a Fixed Operations Director did you increase your customer pay retail sales for parts and labor over last year?

For all three of you, is your Service Absorption rising year over
year? If any of your answers were “NO”, then you must ask yourself…why?

To begin with, your financial statements will show you where the opportunities for improvement (conditions) are but what they won’t show you is how to fix them. To fix them you have to know what’s causing the out of line condition.

Once the cause is determined you can then make the corrections
necessary to properly bring the condition in line with industry guides. For those of you who have ever written a repair order you probably recognized this as the “Three C’s”, Condition-Cause-Correction.

The Technician needs the Condition to properly diagnose the Cause which then enables him to make the necessary Correction. It’s no different for the Dealer, the General Manager or the Fixed Operations director when it comes to making money.

So, now that you have studied your financials carefully to determine the conditions that prevented you from attaining your respective financial goals, let’s determine what the cause might have been. I believe the culprits here are Comfort Zones and Accountability.

Everyone in your dealership has a comfort zone just as you do. The issue is not to get rid of them but to simply move them again and again until you achieve the results you’re looking for and then move them again!

This is important because it enables you to focus on the performance
of your employees. Next, you must hold them accountable for their individual performance.

Currently, most of you are doing that in the New Car, Used Car and F&I departments, which of course is where you devote much of your time and energy anyway, but you fail to do so in the Service and Parts departments.

Allow me to give you some examples to clarify what I’m talking about:

  1. If I am a Salesperson and I sold an average of 5
    units per month last year, what are you going to do with me? Answer: Train me how to sell 10 units or more per
    month or replace me with someone who can.
  2. If I am a Service Advisor and I sold an average
    of 1.5 hours per customer pay repair order last year, what are you going to do with me? Answer: I have a job for life!
  3. If I am a Sales Manager and my Sales Team averages 5 units per month and my gross per retail unit is at $700, what are
    you going to do with me? Answer: Train me how to average 10 units per Salesperson and gross $1500 PRU or replace me with
    someone who can.
  4. If I am a Service Manager and my Service Team averages 1.5 HPRO and my Technicians’ productivity is at 80%, what are you
    going to do with me? Answer: Leave me alone because the other dealers in your 20 Group are about the same!
  5. If I am your General Sales Manager and my Sales Team
    averages 5 units per salesperson, $700 gross PRU, $200 F&I gross PRU and loose $600 per wholesale unit, what are you going to do with me? Answer: I wouldn’t have lasted 6 months let alone a
    year!
  6. 6.    If I am a Fixed Operations Director and my Parts and Service Team averages 34% in retail parts gross, 62% in labor gross, averages 1.5 HPRO, shop productivity of 80% with a declining repair order count, what are you going to do with me? Answer: Thank you for being back there because I sure as heck don’t want to fool with that stuff!

 

Are you starting to see my point?

Most Dealers and General Managers will hold their Sales Team accountable
for their performance on a daily, weekly and monthly basis and make any
adjustments (moving their comfort zones) on an as needed basis NOW!

Meanwhile their Parts and Service Team remain in their comfort zones to continue to dwell in the land of “underachievers”.
Why does this happen?

My belief is that most Dealers and GM’s are outside their comfort zone in the “back end” of their dealership since their roots are in the “front end.” What can a dealer do to enable him or her to leave their comfort zone and cross over the demarcation line to the back end of their business?

  • Measure the performance of the people you intend to
    manage.
  • Your people must know that you are measuring their
    performance.
  • Their performance will be compared to industry
    benchmarks.
  • They must understand that they will be held
    accountable for achieving or exceeding those benchmarks.

Simply say what you mean but more importantly mean what you say. Again, most dealers don’t hesitate to do this in their Sales and F&I departments. Start  making it happen in Fixed Operations.

Now I want you to rid yourself of the usual whiny excuses that I here from dealers when I’m speaking to 20 Groups, Dealer Associations, Dealer groups or individual Dealers. It doesn’t matter whether it’s north, south, east, west or rural versus metropolitan. I hear this all across the U.S.,
Canada and theUnited Kingdom:

“Don, you don’t understand,
my market is depressed.”

“Don, you don’t understand,
my Service Manager has been with me for a
long time.”

“Don, you don’t understand, I
can’t find an Advisor that’s any better.”

“Don, I don’t want to run off
my customers by up selling”

Well folks, here is what I do understand.

A depressed market has nothing to do with accountability for performance.

Time on the job does not dictate a good performance on the job.

If you can’t find better people, look harder because they are out there. If you or any of your people are afraid of “running off customers from up selling” then you need to get out of the retail business of selling parts and service. (By the way, the
aftermarket already has 70% of your customers’ maintenance)

Don’t you think it’s time to get out of your comfort zone and make the return on your investment that you deserve? Please, drag your Fixed Operations Team out of their comfort zones and start holding them accountable! Once they stop kicking and screaming they will all make more money, they will be happier and your customers will realize you have the best dealership in town.

“The entrepreneur always searches for change, responds to it, and exploits it as an opportunity.”    –Peter F. Drucker

Don Reed

CEO

DealerPro Training Solutions

Pro Solutions-Pro Results”

The Hundred Mile An Hour Goat

Two friends are out hunting, and as they are walking along they come upon a huge hole in the ground.  As they approach it they are amazed by the size of it.

The first hunter says “Wow, that’s some hole; I can’t even see the bottom. I wonder how deep it is.”  The second hunter says” I don’t know, let’s throw something down and listen and see how long it takes to hit bottom.”
The first hunter looks around and spies an old automobile transmission lying in the grass.  He tells the other hunter “Hey, there’s this old automobile transmission here. Give me a hand and we’ll throw it in and see”.

So they pick it up, carry it over and count “One, two, three!” and
throw it into the hole.

They are standing there listening and looking over the edge when they hear a rustling in the brush behind them. As they turn around they see a goat come crashing through the brush, run up to the hole and with no hesitation jump in head first!

They are totally shocked and surprised to say the least! While standing at the edge of the hole looking at each other and then looking into the hole trying to figure out what just happened, an old farmer walks up.

“Say there”, says the farmer, “you fellers didn’t happen to see my goat
around here anywhere, did you?”
 
The first hunter says ” Funny you should ask, but we were just standing here a minute ago and a goat came running out of the bushes doin’ about a hunnert miles an hour and jumped headfirst into this hole here!”
 
The old farmer said “Why that’s impossible…… I had him chained to a
 transmission!”

The moral of the story…don’t chain your 2011 Fixed Operations Gross Profit to anything that can be tossed into a deep hole. If your 2010 ended up like a goat chained to a transmission, now is the time to make a plan for 2011.

This is the time to measure what you accomplished or did not accomplish in 2010, what you want to improve in 2011 and plan how you are going to do it.

Goal setting is critical for achieving Success.

Here are the 10 most important areas to measure in Fixed Operations and their standards to help you set defined Goals for 2011. 

  • Labor Gross Profit Margins (75% is the correct number)
  • Parts Gross Profit Margins (45% is the correct number)
  • Parts to Labor Ratio (80% is the correct number)
  • Multipoint Inspection Completion Rate (100% is the correct number)
  • Additional Service Requests (30-40% of CP ROs is the correct number)
  • ASR Closing Ratio (30-50% is the correct number)
  • RO Count to Sold Units (6-1 Ratio is the correct number)
  • Effective Labor Rate (90% of Door Rate is the correct number)
  • Gross Profit Increase Year over Year (10% or more is the correct number)
  • RO Count Increase (Yearly 10% or more is the correct number)

These are the bare minimum numbers for planning next years Goals. By planning now you are keeping yourself from “chaining your goat” to something that can be tossed at the first sign of trouble or adversity, which we all know happens when things are not going smoothly.

Goal Setting with everyone involved will prevent the possibility of 2011 being tossed into a deep hole before it even gets started.

Send an email to lbuchholz@dealerprotraining.com put “Send me the 20” in the subject line and I’ll send you a free report on “How to Increase Your RO Count”

Simple Answers in Fixed Operations

I think that most of you would agree that the simplest answers are typically the best answers. Generally speaking, if you can do a  simple task or test to confirm your own thinking it will be the right answer 9 times out of 10.

In Fixed Operations, this same premise holds true.

If you have an Advisor you suspect is having difficulty selling, oh I don’t know…maybe its menu sales in the service drive…and you confirm your suspicions with a simple 50 Repair Order Audit of that Advisor, then the conclusion you make based on those repair orders would be A. The Simplest and B. The Most Accurate.

Fixed Operations is like that. If you have an inkling that there is a Technician or Advisor that is having difficulty completing a proper Multi-point Inspection, it will take you all of 50 Repair Orders and an hour or two to find out if what you believe is happening …is  happening!

The Simplest Answer.

In this clip, Don Reed from DealerPro Training Solutions talks about “A Simple Test” for Managers to determine if the Technicians and Advisors are doing a correct Multi-point Inspection on every vehicle.

“Profit Margins Are A Matter Of Discipline”

says Don Reed from DealerPro Training Solutions.

If you are looking for ways to increase your Profit Margins, you probably want to start right where the process begins, with The Manager!

When to make Hard Decisions in a Dealership

Every week I am in a Dealer and have found certain things to be true for those that are successful and those that are not.

In Dealers that are successful, they make the hard decisions.

The gather information, investigate, counsel with whom they need to and decide. Once that decision is made action is taken and the news is passed on to everyone it needs to be and implemented immediately.

In Dealers that are struggling, this process is broken.

More often than not, they make no decision.

They rely on just the bare information from one source. Little consideration given to other information sources. There is no investigation into alternatives, counsel is not sought nor asked for and decisions are delayed.

In fact, hard decisions are delayed sooooo looooonnnggg that they become superfluous and detrimental to the overall health of the Dealership.

In these broken Dealers you can count on most challenges to go unmet and unresolved. This leads to demoralization and a culture of uncaring and overall malaise.

On the other side is the Dealer that faces the challenge.

They decide on a course of action and implement it so that all of the staff know what direction is being taken, who is responsible, what roles need to be filled and who is doing what. They cultivate a culture of accomplishment, teamwork and satisfaction.

In the end, the Dealer that makes the hardest decisions quickly gets the benefit of Action!

Happier Employees, Outstanding Customer Service and Greater Gross Profit!

Send an email to lbuchholz@dealerprotraining.com for a Free Report on “How to Increase Your RO Count.” Or you can call 888-553-0100 for a Service Department Profit Evaluation. Action Gets Results!