On the Topic of Service Retention…
Measuring service customer retention with more than methodologies…
Last month we talked about sales commissions and advertising expenses, two significant areas that get out of control if not monitored extensively. Although I had mentioned more on this topic this week, I wanted to shift gears for a moment and talk about fixed operations opportunities.
While there are different methodologies to measure service customer retention, almost all of them are based on ambiguous data which does not yield significant results to understand if you are missing the boat on this subject. Over the years we have developed a system in our own data base which provides somewhat better information at least based on the client information that we have accumulated. Most of the retention analysis usually comes from manufacturer reports and they are based on UIOs “Units in Operation” in your market and or a percentage of your new vehicle sales volume after the warranty period. The problem is, as long as there is such a beast called “pump in” and “Pump out” those calculations do not really reflect reality.
Our method is pretty simple; it is based on the number of customer pay repair orders written per average new vehicle retailed per month over a 12 month period. (CPRO/PNVR). Then we take this benchmark and find out what the service efficiency of any given store is. However in order to use this data and compare your own store’s performance you will need some other benchmark numbers which are also from our client data base. So below are some of these numbers and you can use them to compare how your service department performs:
METRO MARKETS IN CALIFORNIA, NEVADA, ARIZONA, OREGON AND WASHINGTON:
1 – Average customer pay labor rate $110
2 – Average gross profit margin 77%
3 – Average labor hours per customer pay RO 2.2hrs.
4 – Average CP RO/ PNVR 4.5 CP Ros
5 – Internal labor gross profit PUVR/mo. $500
6 – Warranty labor gross profit PNVR/mo. $350
7 – Parts to service gross profit ratio 60%
8 – Average fixed absorption 60.1%
9 – Average total expenses per month $557,000
10 – Variable to total expenses ratio 33%
Based on the above data and presumed 100 new and 40 used vehicle sales average per month, here is how the math would work:
1 – Average Customer pay Ros per month 450
2 – Total customer labor hours sold 990 Hrs.
3 – Total Customer pay labor sales $108,900
4 – Total Customer pay labor G.P. $86,031
5 – Warranty labor G.P. @ $350 PNVR $35,000
6 – Internal labor G.P @ $500 PUVR $20,000
7 – Total Service labor G.P. $141,031
8 – Total Parts G.P. @ 60% $84,619
9 – Total Fixed G.P. $225,650
10 – Average total expenses per month $557,000
11 – Less variable expenses @ 33% ($181,500)
12 – Expenses subject to absorption $375,500
13 – Absorption ratio 60.1%
While this may be a lot of data and raw numbers to digest, it should give you a pretty good idea as to how you compare to your peers in your market. Please keep in mind that this information is calculated based on our data base of clients and your situation may or may not fit the picture.
There are many factors that will change these stats such as your vehicle reserve allocation, internal and recon policy, what manufacturers you represent, your labor rate, your expense structure and how your financial statement allocates them and so on. Nevertheless this will be a good gage for you to start having conversations with people who are accountable for fixed operations income.
If you need more information on the subject please feel free to send me an e-mail or better yet call my cell phone at anytime.
Phone: (310) 717 1876
Fax : (310) 883 0019