My favorite question to ask a dealer is, “If you were to wave a magic wand to make your biggest issue disappear, what would that issue be?” Over the years, I’ve received numerous answers ranging from state tax issues shutting down their business, inventory that never seems to be there when they need it, to even how to deal with their spouse.
I quickly exit that conversation because I’ve never claimed to be a therapist.
One answer repeatedly coming up is, “Sara, if I could just figure out how to get my service department to break even, I’d be happy.”
Whoa, whoa, whoa—breaking even is an incredibly low bar. You have hundreds of thousands of dollars invested in this business when you include your people and your space, and all you want is to break even? That is ridiculous.
The service department often can feel like the dark hole of hell Satan himself does not want to enter, but it does not have to be. Putting a plan (or processes) into place in your service department can change everything.
How Do You Check in RVs?
If you have worked in a service department, you know the answer to a few simple questions can be the difference between a three-hour job and a three-week job.
Has a customer ever dropped off their RV at your dealership with a note simply saying “fix it”? Super—you and every other dealership in the world have been there. How helpful is the information you received? About as helpful as your mother-in-law inserting herself in the middle of an argument in your marriage—not helpful at all, unless she is taking your side.
When a customer brings in their RV, we need to immediately ask the right questions. This will transform how quickly you can complete work in your service department.
The questions you should be asking can vary from dealership to dealership, but certain themes transcend (insert sci-fi music here) all RV dealerships.
Let’s walk through an example of someone bringing in an RV to your service department that “won’t run.” An RV not running is quite different from one not starting and can lead to a different diagnostic and repair path.
If someone walks in and says, “My RV won’t run,” some questions we would ask are:
- When was the last time you had this RV serviced?
- When was the last time the RV did run without any issues?
- How long does it run before stopping, or does it not run at all?
- Did you notice any specific weather conditions happen when it didn’t run?
- Have you had any past problems with the RV?
- Did you notice any unusual sounds the last time you used it?
- Have you noticed other problems you would like us to check while the equipment is here?
When you have this information on an RV that will not run, depending on the answers you receive, it will dramatically narrow the goose chase your technicians may have to go down to diagnose the issue.
Now, let’s talk about an RV that will not start. We have separate questions we would ask to address the problem.
- First, will the RV start? If yes, move back to the previous “RV will not run” questions.
- Did the RV suddenly stop the last time you were using it?
- Have you needed to add any fluids since the last time you used your RV?
- Do you notice any clicking when you try to start it?
- How old is the battery?
- Did you notice any unusual sounds the last time you used the RV?
- Have you noticed any other issues you would like us to check while the equipment is here?
Track Your Inventory
In the service department, your inventory is time. You buy inventory by the day, sell it by the hour and track it by the 10th of an hour, or every six minutes.
Just because this is a simple plan doesn’t mean you are actually tracking your inventory (or time). Typically, you are tracking neither inventory nor time.
Most times, getting your team on board to start tracking your service inventory is challenging. Being unprofitable is hard and getting your team on board is hard, so you must pick which hard thing you want to do.
If you are running a dealership management system (DMS), first, pat yourself on the back and cheer like you have just been chosen to be a contestant on “The Price is Right” because you have an easy button. If you did nothing other than track your service inventory or time in your DMS, it would be worth the cost alone.
I said what I said.
Let me show you an example. Let’s say our service department has three full-time technicians showing up every day (a girl can dream, can’t she?) and our labor rate is $150/hour.
Our daily inventory would equate to 24 hours a day (or $3,600 of potential revenue).
Our weekly inventory would be 120 hours a week (or $18,000 of potential revenue).
Our monthly inventory would come to 480 hours (or $72,000 of potential revenue).
Our yearly (11 months) inventory would equal 5,280 hours (or $792,000 of potential revenue).
This assumes you have only three technicians, so imagine even more potential revenue if you have additional techs.
Could you imagine having almost 800,000 pieces of whole goods inventory (or parts) and not tracking it? No? Me either, and that is why if we do nothing other than keep track of our service inventory via a DMS, the DMS is worth it.
Flat Rate Service Work
Oh no, she didn’t! Did she just say we should be flat-rating work in the service department?
I did.
When you consider service pricing strategies, you have three options.
One is time and material work. This is the worst and most expensive option, so avoid this like the plague.
Second is menu pricing. This option applies to standard RV maintenance (think an oil change); it is a set price and often includes all the parts needed to do the maintenance.
Finally, we have flat-rating. This is the best and most profitable option for your dealership, and you should be aiming to bill 70% or more of your work in the service department as a flat rate.
Let’s break these down, but backward.
Flat-rating is the crown jewel of service billing because when you flat-rate jobs, your service department is rewarded for the time and money you have invested in your people, the training and the tools—none of which are inexpensive. At its core, flat-rating is assigning a standard rate to a specific job.
If your technician can complete the job faster than you estimated, you are like a magician and create more inventory, which by now we all know is time, out of thin air. The first step is creating dealership magic; next, you will be headlining a magic show in Vegas!
We want to flat-rate the majority of service work in your dealership because it is the most profitable work you can do. When you set a flat rate, the time baseline should be how long a B-level technician using hand tools takes to do the job.
Menu pricing should be the second-most prominent type of billing you do. Menu pricing is similar to flat-rate work, but typically is for regular maintenance and includes parts. These should be fast jobs your technicians can do with their eyes closed. Okay, maybe they shouldn’t close their eyes while doing this, for safety reasons, but B-level technicians typically perform these jobs, which are money in the bank.
Time and material work relates to when we are going on a “ghost hunt.” When techs have no idea what is going on with the RV in the bay, despite asking all the right questions, we resort to time and material work. Typically, an A-level technician will do this job. If we fail to structure the pay scale correctly, this can be the least profitable work we do.
Think about it this way—if I had this technician on any other job, the tech would be repairing and creating additional inventory for me. That is not occurring with this work.
When we have a technician doing a time and material job,
we multiply the time by the technician’s efficiency—the time required to do a repair/the time they were given for a repair—from the last two weeks. If we have a technician who has been 120% efficient over the last two weeks, we would bill the customer for one hour and 20 minutes for a one-hour job.
Turning your service department into an ATM machine, throwing off hundred-dollar bills all day, is not easy, but it is not complex, either. With processes in place, you can turn your service department into a profitable part of your dealership.
Sara Hey, Vice President of Business Development, Bob Clements International
Hey started working with dealerships when she was young by packing VHS training tapes for dealers across the country. In college, she studied psychology, which has been an enormous benefit working in her family’s business and with family-owned dealerships over the last 10-plus years. Now, she spends her time speaking at conferences around the world and working with manufacturers and dealers to achieve success.
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