Part 1 of 2: Analyze Department Potential
Today’s technologically advanced service departments can spend millions of dollars in building expenses and equipment. Many dealerships consider the service department a necessary evil and the expense a cost of doing business with the goal of selling units.
Monthly reviews often consist of how many units are sold and gross profit instead of focusing on more specific indicators of dealership health such as actual performance versus potential. Reviewing key performance indicators (KPIs) of the service department can highlight areas of potential revenue increases, which will turn this often neglected department into a profitable component of a thriving dealership.
This process begins with analyzing the facility utilization rate and labor sales potential.
Analyze Facility Utilization: 4 Easy Steps
To find a service department’s maximum productive capacity:
- Multiply the labor rate by 24 hours.
- Labor rate = $125/hour
- $125 x 24 hours = $3,000
- Multiply the result by the number of days in the reporting period.
- $3,000 x 30 days in reporting period = $90,000
- Multiply the result of step 2 by the number of service bays. This is the true maximum revenue potential if the service department is open 24 hours a day, seven days a week.
- $90,000 x 10 bays = $900,000
- Compare the number from step 3 to the actual revenue to determine the facility utilization percentage. Some dealerships may be surprised to find that their facility utilization rate is 50% or below.
- Actual revenue = $200,000
- ($200,000 / $900,000) x 100% = 22.22%
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Increasing the service department hours even slightly can make a dramatic impact on the facility utilization rate. For example, a 10-bay dealership with a labor rate of $125 an hour can increase its monthly revenue by $37,500 just by staying open one additional hour per day. Adding a second shift can almost double revenue.
Evaluate Labor Sales Potential: 3 Easy Steps
To determine the servicer department’s labor sales potential:
- Multiply the labor rate by the number of hours the service department is open during the reporting period.
- Labor rate = $125/hour
- $125 x 10 hours = $1,250
- $1,250 x 20 days in reporting period = $25,000
- Multiply the result of step 2 by the number of service bays. This is the service department’s potential revenue with the current operating hours.
- $25,000 x 10 bays = $250,000
- Compare the number from step 3 to the actual revenue to determine if the physical space is being maximized during normal business hours.
- Actual revenue = $200,000
- $250,000 - $200,000 = $50,000 profit potential
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To learn more about evaluating your Service Department’s profitability, contact the Motility Software Solution’s training department at training@motilitysoftware.com.
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