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Profit Center Series (Part III): Service

Last in a three-part series:

By Jeff Sheets

What is the most damaged, broken, in need of repair area in our dealership? Why it’s the service department of course! You try to help your customers repair or service their broken equipment with a department that barely gets equipment out in a timely manner; loses money or, at best, breaks even; and if it had to function on its own, would probably shut down. What leads us down this road? Low expectations. If you ever want your service department to become a profit center, a foundation of your business, you need to expect more, and with that expectation, drive the department into a new direction. Make the service department a priority, and the benefits will be tremendous.

Time is the enemy

You need to create time! How do you do that? Flat rate as many tasks as possible. An easy rule of thumb if you have no flat rate guide is to take the warranty flat rates and multiply them by a factor. I would suggest 1.5 as a starting point. If the manufacturer suggests 1 hour, then you are billing 1.5 hours. Your technicians need the opportunity to gain time, not lose it. (This could mean the possibility of billing 12 hours in an 8-hour day). Every manufacturer might be a little different with regard to the factor you apply, but you need to make sure you are creating time for your service technicians so they can produce the billable labor that you need to have an efficient service department.

This means that you have decided to assign value to the time of the service technicians. Would you rather have a technician working on equipment for 8 hours a day or 6 hours a day? Obviously, 8 if there is work to be done. This means they cannot be made available to unload trucks or perform other jobs when they can be producing 1.5 times the labor rate. If you charge $60 an hour for your labor rate, you are really billing $90 for that technician’s time. Why would you ever want to have technicians stop what they are doing? I walk into service departments all the time where the efficiency is around 50 percent. I often see service technicians who, without much effort, could be 20-30 percent more efficient if they weren’t being asked to leave their work area so much to answer customers’ questions, unload trucks, or pull their own parts. In part two of this series in March 2015 OPE, I mentioned the parts department’s role in the service department process and stated my firm belief that the parts department should be delivering parts to its biggest customer — the service department.

Going forward, technicians need to be aware that they will be evaluated and rewarded by being 100-percent efficient. You are giving them more time, and they have to know that the goal is not to extend the repair time, but to be efficient and beat the flat rate 80 percent of the time. Standards need to be set, so that owners, managers and technicians know what they are working toward as a goal, and establishing a flat-rate time helps do that. Wasting time in any way is the enemy!

Good processes matter

The more rigid of a process that you put in place and can be followed without a lot of ability to divert from it, the better your service department will run. Anyone who has ever had me visit their dealership knows that I advocate beginning the process the first day that the dealership takes in the equipment. You need someone to look at the equipment and make a determination if it was brought in for the correct reasons and if there are additional items that need to be repaired. You then “triage” the equipment, which means sorting and deciding which piece of equipment should be repaired or serviced first based on parts availability and whether you need to contact the customer for further repairs. One of the goals of this is to determine the need to order parts early in the process, so that when you bring in the equipment, you have the parts available to repair it. This speeds up the process by working on what you can while getting the parts ordered the first day, so that you can schedule the “parts waiting” equipment in the third or fourth day based on parts being received in the dealership. Your goal as a service department should be to have equipment in and out in seven business days even in your highest-volume season. With a goal like this, major changes would have to be made to the process in most dealerships.

As I previously mentioned, another part of the process that needs to change for efficiency sake is that technicians must remain in their work area 100 percent of the time. This means that you may need to change job descriptions or hire additional people to make that happen. I have previously stated that parts need to be brought to service technicians and staged at or near their work area, but I also feel that someone needs to be there to bring them equipment to be worked on and help them when they need it in case of a problem. I call this position a service assistant. I see this position being filled by a young, energetic person, who might have an interest in becoming your next technician. As the service assistant grows, he or she might do minor oil changes or remove guards off of equipment so the technician doesn’t have to do it. However, the service assistant’s primary responsibility should be to facilitate the moving of equipment in and out of the service area, so that the technicians are always focused on servicing equipment. If you are 100-percent efficient, a person like this can be paid minimally at first, but hopefully be groomed into a technician position and help train the next service assistant.

Management and compensation are key

As the owner, you are going to have to stay on top of the hours billed vs. hours worked in the service department. I tend to favor making sure that the technicians know where they are on a daily basis. Updating a white board in the service department to show them how they did the previous day, as well as how they are doing for the week, will show them you care about their efficiencies. Generally, I recommend that you hire a service manager when you have three full-time, highly efficient technicians. At that point, you can justify that position to manage the area, so you don’t have to be as involved in the service area. How many billable hours are deemed efficient? I consider 2,000 billable hours, per technician, per year, to be 100-percent efficient if that person is following the processes that I have laid out. If you still use them for side projects, then those hours need to be deleted from each week to find the total of number of hours in your location.

If your technicians are being efficient, I favor a base-plus-commission approach to their compensation. I would never let the base get too high because I would rather increase the compensation for the commission as they become used to it and successful. For more information about compensation for technicians, refer to my article on “5 tips on how to treat your service technicians” in October 2014 OPE or online at outdoorpowerequipment.com.

I started this article about how low expectations for the service department can really cause you to not really expect profitability from it. As Sam Walton once said, “High expectations are the key to everything.” To be successful in all aspects of your business, you need to have high expectations to move forward. In your service department, you need to hit the re-start button, make sure you expect to make a profit, and do everything in your power to accomplish it. Don’t let low expectations take you in the wrong direction.

1504_OPE_FS_Profit Center Series-Part III-Service2_author-Jeff Sheets-web

Jeff Sheets is the founder and owner of OPE Consulting Services. Whether a business is thriving or struggling to survive, Sheets’ rich experience in both the corporate and not-for-profit sectors allows him to partner with business owners to customize unique strategies for their needs. For the past nine years, he has worked extensively with hundreds of outdoor power equipment dealers to create best practices in business structure, personnel management and financial profitability. For more information, he may be contacted at opeconsultingservices@gmail.com or (816) 260-5430. You can also follow him on Twitter @opeconsult, connect with him on LinkedIn, and visit his website at www.opeconsultingservices.com.

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