industry expert / accounting
Service and Parts More Gross or Less Expense to Obtain Profitability?
David Keller, CPA, CFE, is a partner with CliftonLarsonAllen, a top ten nationwide CPA firm with extensive experience in serving the new, used, heavy truck, utility trailer and buy-here pay-here industries. Contact him at 314.925.4317.
DKeller@AutoDealerMonthly.com
departments' net profitability? Some of the factors that affect profitability are sales, cost of sales, management and technicians' abilities, number of technician stalls available, number of hours each techni- cian turns, and expenses.
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Gross profit is simply sales less cost of sales. Sales are generated from customer retail, warranty, extended warranty, sublet, internal and maintenance repair orders. Cost of sales has a direct
re you wondering how you can increase your parts and service
relationship to sales. In serv- ice, it is the technician's cost per hour they are paid, either in hourly, salary or flat-rate time. In parts sales, it is the cost of the parts you purchase for the repair order.
Management's ability plays a key part in profitability. If your technicians are not supervised, if repairs are not scheduled properly among the techs, if customer follow-up is not a high priority, etc., then service and parts will have a lower chance of being profitable.
Technician's ability, number of stalls available and the number of hours each of your technicians produces will greatly affect your ability to be profitable. You can have too many stalls for your current sales, which increases your overhead unnecessarily. Too few stalls will result in not being able to complete all the work you have available, resulting in unhappy cus- tomers (retail and/or internal) and unnecessary expense moving vehicles in and out of the shop before the repairs are completed.
If your techs are not trained properly, or have too few years of experience in ride, drive and diagnostic capabilities, the number of hours sold will be below what would normally be produced in most profitable repair shops. If you do not concentrate on upselling,
which is normally generated from inspecting the customer vehicles when they arrive at your shop for maintenance or repairs, your average hours per repair order will also suffer. Check to see how many one- line repair orders you have generated over the last three months. Most were probably oil changes, and you may have been so busy you did not have or did not take the time to per- form adequate inspections of the vehicles to recommend further service while they were in your shop.
The amount of maintenance repairs is increasing because vehicles are lasting longer. With this in mind, you need to market yourself similar to the way the other maintenance shops in your town are pro- moting themselves. You have to have competitive, tiered pricing based on the type of repair, loss leaders, etc., if you are going to get your fair share of the business. Customers still seem to think dealerships are much more expensive places to get their vehicles maintained than the smaller shop down the street. It is up to you to dispel this thought.
Charging retail prices to your- self for all internal sales is also very important, since you are your own best customer. Your managers and salespeople will argue that it can be repaired
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