This is a pretty basic question, right? But when discussing this subject recently during 2012 annual business planning conferences with several client dealership service managers, I discovered that the answers were far more elusive than they should have been. Most of the NCM client dealers continually try to achieve 5% - 8% year-over-year improvement in Fixed Operations profitability. And those that successfully do so fully understand that it doesn’t just happen. This level of increase requires detailed planning, clear definition and communication of expectations, and flawless execution of processes…or more simply stated, Accountability Management.

Improvements in departmental profitability require increased sales, increased gross profit margins or expense reductions, and sometimes all three together. Today I’m going to talk about increasing Service sales, and since the service manager has little control over warranty sales and internal sales, my focus will be on customer-paid sales. In the NCMi^® management training classes, the faculty emphasizes that there are only three ways to increase customer-paid labor sales:

1. Increase the number of customer-paid service transactions (customer Repair Order count)

2. Increase the number of customer-paid hours sold per Repair Order

3. Increase the customer-paid Effective Labor Rate (ELR)

Each of these three areas of potential improvement will be addressed in more detail during future articles. At this time it’s only important to understand the differences in the degree of difficulty for each strategy.

• By far, the easiest initiative to undertake is increasing the customer-paid ELR. Although it may take a lot of research, combined with a significant period of trial and error, to develop the “perfect” customer-paid ELR, everyone in the industry agrees that it’s pretty simple to implement a price increase. Note: It’s very important to remember that there will be no additional parts sales associated with this strategy.

• Moving next up the ladder of difficulty is increasing the number of customer-paid hours sold per R.O. This initiative is process-driven and requires a high level of documentation, advisor and technician training and counseling, and may be assisted by certain innovations in service department technology.

• The hardest initiative to successfully implement is increasing the customer R.O. count. Although all manufacturers and most dealers are becoming more and more focused on customer retention, most service departments today are not adding new customers at a level commensurate with the level of defecting customers, and their resultant R.O. count is decreasing.  

So why should we care so much and concentrate so heavily on increasing customer labor sales in our Service Departments? Because, as most Service Managers understand, a $1.00 increase in labor sales results in a $0.75 increase in labor gross profit!  And, as most Service Managers don’t readily comprehend, when considering the associated sales of parts, tires, oil, and shop supplies, each $1.00 increase in customer labor sales (accomplished through strategies #1 and #2 above) results in a $1.10 to $1.25 increase in Fixed Gross Profit!