Ivy League Financial Formula for Success in Service

Transcription

1 Ivy League Financial Formula for Success in Service Chris Collins President Chris Collins, Inc. Los Angeles, CA

2 The views and opinions presented in this educational program and any accompanying handout material are those of the speakers, and do not necessarily represent the views or opinions of NADA. The speakers are not NADA representatives, and their presence on the program is not a NADA endorsement or sponsorship of the speaker or the speaker s company, product, or services. Nothing that is presented during this educational program is intended as legal advice, and this program may not address all federal, state, or local regulatory or other legal issues raised by the subject matter it addresses. The purpose of the program is to help dealers improve the effectiveness of their business practices. The information presented is also not intended to urge or suggest that dealers adopt any specific practices or policies for their dealerships, nor is it intended to encourage concerted action among competitors or any other action on the part of dealers that would in any manner fix or stabilize the price or any element of the price of any good or service. 2

3 Our Industry is Rapidly Changing Right Before Our Eyes RO counts are dropping dramatically as manufacturers continue to produce better-quality cars. There is Less Repair Work Intervals for Maintenance Repairs are Higher o Synthetic Oils Decrease the Frequency of Oil Changes The Repair to Maintenance Mix is Changing Effective Labor Rate (ELR) is Being Driven Down o Dealers are Chasing Traffic and RO Count o Dealers are Slashing Prices to Compete Consumer Expectations are Higher Than Ever 3

4 What We Will Cover in This Workshop: Increase Customer Retention By an Improved Customer Experience Instantly connect with customers and endear them to your dealership for a lifetime. A Strategy to Increase Closing Ratios on the Service Drive Most service managers either never see the financial statement, or if they do, they don t understand how to read it. You will be able to master a true understanding of the financial statement. How to Master Complicated Pricing Strategies Learn effective pricing strategies that will instantly increase your effective-labor rate by at least $10. These are easy-toimplement pricing strategies that will immediately drive up the bottom line. Gain a Deeper Understanding of Profitability Achieve above-benchmark retention scores by implementing a VIP customer loyalty program that builds a chain-link fence around your customer base. 4

5 The Ivy League Financial Formula We find that most service managers, though held accountable to what s on the financial statement, they never see it! And if they do, many do not understand how to read it. By gaining a simple understanding of the financial statement, you will never be in jeopardy of losing money in your service drive. To understand this, we will begin by breaking down to one hour of labor sold. What is your profit per hour of labor sold? This is calculated by using the Effective Labor Rate ELR for Customer Pay, Warranty, and Internal (less sublet). Notes: 5

6 Cost of Labor To do this calculation you will need: 1. Your last financial statement 2. An Advisor Performance Report for the same month showing ELR 3. The average cost of labor (technician pay). The Formula for Calculating Your Cost of Labor: 1. Calculate your total Effective Labor Rate ELR (Customer Pay, Warranty, and Internal) 2. Take your gross profit percentage minus Multiply line 1 your total ELR by line 2 as a percentage For Example: Gross profit percentage before sublet it 70 percent and Total ELR is $75 Take 100 percent, subtract 70 percent, this equals 30 percent Then take your ELR of $75 multiplied by 30 percent, and you have a Cost of Labor of $

7 The Impact ELR Has on Profitability Sale Cost Gross Personnel Expense Semi Fixed Expense Fixed Expense Total Expense Net/Profit Notes: 7

8 Other Thoughts Your customer pay ELR affects your warranty rate Hours per RO are harder and harder to achieve A 0.3 increase in Hours Per RO is equal to a $20 increase in ELR! Notes: 8

9 Pricing Strategy to Increase Effective Labor Rate To understand how this works you need to embrace complexity Test, test, test Each labor type has a different strategy Service advisors must connect with customers and have their trust Don t treat a quick-lube advisor differently in RO counts 9

10 To Understand How This Works, Let s Take a Look at a Grocery Store Notes: 10

11 Establish a Deeper Connection With Your Customers Service advisors in our industry create arguably more gross profit than any other employee in the dealership and receive the least amount of training. If your service advisors are not holding onto your customers by connecting with them on the service drive, someone else is. When a customer comes into your service drive, it is the job of your service advisors to instantly connect with them on a deep level. Doing this establishes trust, which leads to increased sales and retention. In fact NADA suggests: Regular service customers are 17 times more likely to buy their next vehicle from their servicing dealership. An increase in customer retention rates of just five percent improves dealership profits by 35 percent. PET THE DOG! 11

12 Service Drive Judo Rather than fight customer momentum, use it to your advantage. Chris Collins Service Drive Judo is a system for setting up your service drive to increase customer retention by an improved customer experience that builds trust and improves your closing ratios. 12

13 Current Drive System in Most Dealerships Draw it in: 13

14 Service Drive Judo Notes: 14

15 The Keys to Implementing Service Drive Judo in Your Dealership Flow chart your current system Separate LOF/quick service Have a good SPG/Pricing Guide Test inspecting cars up front Pet the dog! Track closing ratios, technician productivity, and customer response 15

16 Build a Fence Around Your Customer Base Customer VIP Program Implementing a customer VIP program will set you apart from the competition. Transcends parts and service sells cars Builds customer retention to get customers back in your service drive Competition killer this will separate you from your competition Has monitory value 16

17 VIP Program: Exercise What are some added-value services you can offer to customers in a VIP program? What is it? Value $ What is it? Value $ What is it? Value $ What is it? Value $ What is it? Value $ 17