Retaining Service Customers While Increasing Service Sales

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1 Retaining Service Customers While Increasing Service Sales Prepared By: Larry Edwards CMC President of Edwards & Associates Consulting, Inc. You cannot change what is happening in your Dealership Service Department until you decide to change your perspective of how to deal with it! 1

2 Every time a new vehicle is sold, the Automotive Service Industry receives an annuity of approximately $ How much of this Annuity are you currently retaining? Service Potential Formula Annual Visits 3.0 Times Average Hours per R.O. x 2.5 = 7.5 Hours Times Your Labor Rate x $ = $ Times Your Parts to Labor Ratio % + 100% x = $ Times Average Vehicle Life (7 years) x 7 Equals Annuity to S ervice = $ To determine the size of the service maintenance and repair market you have created, perform the Market Potential Analysis. Calculate Your Dealerships Service Market Potential New Units Sold Last 7 Years Times Projected R.O. s per Year (3.0) x 3.0 Equals Repair Event Opportunities = Times Industry Average Hours per R.O. (2.5) Equals Potential Annual Labor Hours x = 2.5 Times Current Customer Pay Labor Rate x $ Equals Labor Potential at 100% Retention = $ Times Current C.P. Parts to Labor Ratio % x % Equals Dealership Service Market = $ Potential 2

3 Service Retention measures how well your Service Department is doing in retaining the potential service business that was developed by your Sales Department. The best way to measure this is by using Customer Pay Repair Orders written. This factors out prices charged and good or poor selling practices. Measuring Your Service Customer Retention = C.P. R.O. s Written Previous Year Repair Event Opportunities Service Retention E&A s goal for Service Customer Retention is 70% or better. The NADA Average Dealer Retention is 28%. The E&A Average Dealer Retention is 72%.. High Service Retention is possible if you have a service strategy that is geared towards never losing another customer again. You must also employ service tactics that ensure every customer is treated as a valuable asset to the Dealership. Warranty Customer Pay Internal Before we discuss the key things that are required to have an excellent Service Customer Retention, it is important to understand that because most Service Departments rely on warranty and internal work for nearly 50% of their income, they can easily show an operating profit with Customer Retention numbers below 30%. Copyrig ht 2004 Edwards & Associates Consulting, Inc. 3

4 What percentage of your Service business is derived from Customer Pay work? Ideally, 70% of your service revenues are derived from Customer Pay work. = C.P. Labor Sales Total Labor Sales % of Customer Pay Labor Three key items are required to increase Customer Retention: 1. Proper staffing to handle all of the potential business that you have created 2. An effective Service Marketing Program 3. An effective Service Merchandising Program E&A finds that the average Dealer is understaffed relative to the potential that exists in their market. Many paying customers are lost because they cannot get their questions answered in a timely manner, or because their first (warranty) experience was less than they expected. The following are problems with low staffing levels: 1. Telephones are not promptly answered (in three rings). 2. Appointments are difficult to obtain, or worse, have no real meaning. 3. Customers are not greeted promptly upon arrival. 4. Customers are not escorted to the next station after write up. 5. Customers are kept uninformed during the repair process. 6. Customers must wait in line to pay their bill. Improper staffing leads customers to believe You can t take care of me, so you probably cannot take care of my vehicle either. Proper staffing must be part of your Service Marketing Strategy. 4

5 E&A s guide for service staffing is one Consultant for every fifteen total (C.W.I.) Repair Orders written each day. What is your current staffing relative to Repair Orders written? = CWI R.O. s Written Avg. Days per Month Number of Service Consultants Average R.O. s per Consultant per Month Service Consulting Staffing Sample 8 hours available each day per Consultant ½ hour per Repair Order (time needed with each repair job plus 2-15 minute breaks each day) = 15 total Repair Orders in 1 day x 2.0 hours per Repair Order = 30 billed labor hours each day x $80.00 per hour sold = $2, in labor sales each day + $1, in parts for every labor dollar at 80% = $4, in parts & labor sales each day x 21 Days per month = $90, Avg. Month Sales Per Consultant Appointments are necessary to accomplish two objectives: 1. Making the appointment drop-off convenient for the customer. 2. Scheduling work so that Service has a smooth flow of work throughout the day. Allowing Service Consultants to make their own appointments defeats the purpose of a good Appointment System. An Appointment Coordinator is a necessity if you want to improve Customer Retention. Management must control the number and amount of appointments coming into Service each day. 5

6 E&A recommends a Grid System for scheduling appointments into the Shop. Appointments should be made for vehicle write-up only. If a diagnosis is involved, the customer must be notified that more than one appointment may be needed. Consultant A Consultant B Consultant C Consultant D 7:00 Jones NONE Johnson NONE 7:30 W ilson NONE Carlson NONE 8:00 Martin NONE Helms NONE 8:30 Phelps Martinsic W illiams Surner 9:00 Phillips W alker Angular Burke 9:30 Sm ith Helm s Burke Carlson 10:00 Jones Martinsic W alker 10:30 NONE NONE 11:00 NONE Burke NONE 11:30 NONE NONE NONE NONE 12:00 James NONE NONE 12:30 Edward NONE Jones NONE 1:00 Frank W ilson 1:30 Angular Phelps 2:00 Davidovich 2:30 Burke Frank W alker 3:00 Udeshi 3:30 W alker Angular 4:00 4:30 NONE W a lla c e NONE Marten 5:00 NONE Smith NONE Green 5:30 NONE Grimes NONE Phillips 6

7 Two separate strategies are needed in order to increase Service Retention: 1. A Marketing Strategy. Marketing is all the things we do in order to convince customers to come visit our Dealership s Service Department. 2. A Merchandising Strategy. Merchandising is all of the things that we do in order to convince a customer to buy from us once they have arrived. The following are Marketing Tactics: New Owner Clinics Customer Reminder Letters Current Owner Clinics Coupon Mailings Factory Mailings Advertisements The following are Merchandising Tactics: Accessory Displays Worn Parts Displays Competitive Pricing Board Service Manager s Daily Specials Display Electronic Service Menus 7

8 There are three distinctly different types of customers who purchase new vehicles from Dealers: Type 1 Customers are the most educated about the vehicle and are the most loyal. They read their owner s manuals and they know that a Dealer is the best place to have their vehicle serviced. Type 2 Customers know that their vehicle needs some type of maintenance service, but they are not sure what needs to be done or who is best suited to do this work. Type 3 Customers are not aware that anything needs to be done to their vehicle. They will only go to a Dealer when it breaks. A successful Service Marketing and Merchandising Strategy must address each of these different types of customers. Type 1 Customers simply need to be reminded when they need to bring their vehicle in. Type 2 Customers need to have the maintenance needs explained to them and then they need to be constantly reminded. Type 3 Customers have to be found. They may not ever visit your Dealership. 8

9 New Owner Clinics will attract the Type 1 Customers. These need to be scheduled as often as it takes you to get 30+ people to show up for a clinic. For Type 2 & 3 Customers, you will need to call and invite them to come by the Dealership so that the Service Consultant can go over their vehicle with them. This visit should include a Walk Around of the customer s vehicle, including the following: Point out where the fluid checks are Show where the spare and jack are Show how to set the radio and clock Shop how to use the accessories Pull out the owners manual and review the minimum maintenance requirements Most importantly, you want the customers first service experience to be a positive one Many Type 2 Customers come into Service and say I just need an oil change. We must train Consultants to ask if they want the factory recommended maintenance service or just an oil change. If the customer refuses the factory recommended maintenance service, you should have a labor operation for customer declined factory recommended maintenance service and the customer must be asked to initial that they do not want the maintenance service performed. 9

10 Following are some new owner Marketing Strategies: Send every new owner a letter from the Service Manager inviting them to either visit the Service Department at their convenience via an appointment or to attend a New Owners Clinic to learn more about how to properly care for their new vehicle. Follow up these letters with a personal phone call from your Appointment Coordinator. Have the Service Manager call those customers who refuse to participate to inform them how much the Dealership cares about them and their vehicle. Use reminders to keep current Type 1 Customers returning regularly for maintenance. Use Current Owners Clinics for active Type 2 Customers who are not returning regularly for maintenance service. Use coupon mailers for Type 3 Lost Customers who have not visited your Service Department in over 9 months. All of the service marketing in the world will not work unless you employ effective service merchandising strategies. Remember, marketing delivers customers to your door. Merchandising tools help you to sell them additional needed services. Most Service Department write-up areas are devoid of any merchandising tools! Merchandising displays help Consultants sell once the customer has arrived in the Service Lane. Menus help Type 1 Customers by confirming what will be done to their vehicles. Menus help Consultants demonstrate to Type 2 Customers what needs to be done and how much it will cost. 10

11 The following are examples of E&A s web-based menus, which can be located on the web at 11

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13 Worn Parts Displays help Type 2 and Type 3 Customers to see what worn parts and old fluids look like at low mileages. Remember, people are much more likely to buy what they can see versus what someone tells them that they need. Competitive Pricing Boards help: Type 1 Customers to see that their Dealer is competitive with the local market. Type 2 & 3 Customers to see that they will not get a better deal anywhere else. They also help develop an impression that your Dealership is just as competitive as aftermarket providers. Accessory and Tire Displays demonstrate that your Dealership is a full service provider with factory trained Technicians, factory approved tools and equipment and offers a true full service promise. Accessory Displays must offer a full range of accessories from manufacturer approved to aftermarket appearance as well as manufacturer performance and aftermarket performance items. Tire Displays must offer the full range of tire options from the base $99.00 set of tires up to the $2, set. Tire Displays sell much better if the tires are premounted on custom wheels. Wheel Displays should also include the installed price for the tires and the Tire & Wheel Package. A Vehicle Walk Around on every vehicle written up is an integral part of any successful Merchandising Plan. 13

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16 Review Service Customer Retention should be over 70%. o Manager s compensation should include retention as a performance measure. Service Consultants should not handle more than 15 Customer Paid Repair Orders. Appointments must be controlled by Service Manager. Appointments should be spread 30 minutes apart. A separate Marketing and Merchandising Strategy must be in place for each type of potential service customer: o Type 1, loyal service customers o Type 2, interested in proper vehicle care o Type 3, see no need for vehicle service Remember o Marketing activities deliver potential customers to your Dealership. o Merchandising activities encourage them to make a buying decision. Give your customers everything they want. Then charge them for it! 16

17 Fill this form out for a Free Service Profit Potential Analysis From Edwards & Associates Dealership Name Street Address City State Zip Phone Number Fax Number Completed By Date Financial Information Customer Labor Sales Cars Customer Labor Gross Cars Customer Labor Sales Trucks Customer Labor Gross Trucks Warranty Labor Sales Warranty Labor Gross Pre-delivery Labor Sales Pre-delivery Labor Gross Retail Parts Sales Retail Parts Gross Unapplied Time Total Labor Sales Total Labor Gross Sublet Sales Sublet Gross Total Dealership Fixed Gross Profit Personnel Expense Semi-Fixed Expense 17

18 Fixed Expense G&A Expense Total Expense Total Dealership Overhead Expense Number of Customer R/O s Number of Internal R/O s Number of Warranty R/O s Number of Months included on this Statement Number of New Retail Units Sold Customer Labor Rate Warranty Labor Rate Internal Labor Rate Number of Service Writers Daily Clock Hours Worked by Each Technician Number of Service Technicians Days Open per week Fax this form to Edwards & Associates at Copyright 2004 Edwards & Associates Consulting, Inc. 18

19 If you would like more information, please contact us at: Edwards & Associates Consulting, Inc Harrisburg Industrial Park Drive Harrisburg, NC Phone: Fax: Visit our Website for Free Information and Free Service Department Management Downloads 19