Setting the bar and how to get there
We know that 2010 has been a tough year for many service managers, but we’re somewhat concerned to find service departments that either forecasted a zero-percent increase for 2011 or worse, decided not to forecast at all. One thing is certain in this business: you have to grow or go! So backing away from a tough market makes little sense.
Our question is: “If you completed a forecast, how did you come up with the number?” Did you use the traditional method of taking last year’s number and adding 10 percent, because you just raised the door rate again? Or did you get more technical by wetting your finger and sticking it in the air?
Our observation on increasing the door rate is that it has had very little impact on the bottom line. You might well increase the gap between the posted and effective rate only to actually reduce gross profit on your customer-pay (CP) labour.
When someone tells us they just had a ‘record year’, we have to ask if they mean in terms of dollar sales or in terms of produced hours. If the year-over-year comparison is based on dollar sales and you happened to raise the labour rate sometime during the year, then you’re just fooling yourself – if productivity stayed the same, dollar sales would obviously have to go up.
Think in terms of produced hours per work order, per technician, and per bay for the department, and you’ll have a much better picture on being up, down, or sideways.
Setting the goal
To formulate a realistic forecast, you’ve got to ask a lot of questions:
• Are you expecting the customer pay work order count to increase
or decrease this year?
• Are warranty and internal dollars trending upwards or downwards?
• If you forecast an increase in business, where is it going to
come from?
• How many hours per day did you produce last year? How did that
look from a technician’s productivity and efficiency point of view?
• Is there room for increasing the hours per work order, or has the
manufacturer got you swimming upstream, by taking away more
traditional business with low maintenance vehicles?
• How is the shop’s utilization? For example, how many hours per
day are you currently producing per bay?
• Do you need more or less productive staff – are you measuring
technicians on hours per work order?
• What about non-applied time? Is that going to increase or
decrease this year?
Also take a good look at your expenses, such as policy, shop supplies and personnel expense. There are still only two ways to increase the bottom line: increase the gross or reduce expenses.
How is your gross profit on the CP labour sales? Is it more than 70 percent? If not, why not? Do you have the right mix of staff who are effectively producing the sold hours with the appropriate skill levels, or are you paying brain surgeons to work on warts?
Goals should be broken down into little comprehensible bits, such as how many hours the shop needs to bring in every day to break even.
Keep your staff involved
Be sure to tell staff about the forecast. We just completed a meeting with the service staff of a poorly performing service department. The staff all thought they were doing OK, but in reality, they were actually doing anything but!
Input from staff is also a necessary component of forecasting. Ask them how they see their performance trending. Each staff member should have a noted performance goal in order for you to compile an overall forecast, which also enables employees to reach their full potential.
For example, in the case of a technician, management and the technician should sit down and agree on a workable forecast for the coming year. To ensure the tech is up for the challenge of increasing his or her performance, compare items such as hours per work order with the store average. If it’s not adequate, ask them how to improve it, and what their target should be for the year.
Tell them that all you can provide is a decent wage and a good work environment – they’re the ones under the car, looking under the hood; they need to be proactive to help the store and their co-workers thrive.
Remember that employees should be given a formal appraisal of the year that just ended, and have performance goals set for the new year. The call-centre person, for example, should know how many appointments they are expected to book in the upcoming year.
When setting these performance goals, you’ll find some staff will need to tone down their expectations, while others will need to be encouraged to meet suitable goals.
Remember, if you’re not keeping score, it’s only a practice. Winning is not the only thing, it is everything, and if you don’t believe me, just ask the bank!
