Are you satisfied with your dealership’s current revenue stream and trajectory? If you are serious about your dealership’s profitability, you cannot ignore the money you are leaving on the table. Everyone can agree there is always room for improvement within any Fixed Ops department, but the question is, where are you falling short? Often, dealers attempt to increase the service department’s revenue and profitability through increased traffic and selling more, leaving pricing strategies up to gut feeling, traditional pricing, or based on outdated models.
In order to optimize your Fixed-Ops, it is important to take these 5 steps to ensure you drop that hidden money to the bottom line.
1. Assess the Current Situation of Profit Leakage
Evaluate Customer Pay (CP)
Begin by evaluating your customer pay (CP) and warranty repair orders to determine your specific opportunity for increased gross profits in warranty labor rate, warranty parts markup increase, and customer paid effective labor rate (CP ELR). In the case of your warranty labor rate, repair orders (ROs) from the last 30-90 days will need to be complied with requirements varying by state, to decide what rate can be authorized during warranty work. Improving your CP ELR, proper documentation, and consistent implementation will raise the rate authorized. Warranty parts markup increase works similarly to this.
Address Op-Code Utilization & Compliance
It is also a best practice to address your op-code utilization, CP pricing compliance, and CP repair ELR. Evaluating your op-code utilization can lead to the discovery of hidden opportunities and give more visibility on what is really happening in your shops. In order to maximize your CP pricing compliance, set the right price for the service the customer is paying for and the technician’s flat rate. Once the prices are determined, stress compliance to the pricing policy and adjust the prices as needed. A lack of compliance is one of the largest robbers of a higher CP repair ELR and this small modification can potentially save you thousands of dollars in the long run.
In addition, if you consistently monitor a good set of op-codes for proper use, advisors can access the vehicle’s history quicker, and more accurately to know whether the customer is in need of a service. This could lead to more opportunities and, as previously mentioned, better documentation can lead to an annual warranty labor rate increase, uncovering even more profit for your bottom line.
2. Understand the Downfalls of Your DMS
A dealer management system (DMS) should provide tools for auto dealers to more efficiently run their business. It manages deals, maintains inventory, generates reports, tracks financing, and so on. Unfortunately, not all DMS software is effective in unifying your business into one system, which can lead to poor integration and communication between various departments. A number of issues can arise with the improper DMS and these gaps can become apparent when you are designing a process to fit your specific dealership.
One gap that can quickly become apparent in your DMS is your op-code utilization. There are a number of things your DMS cannot detect, such as incorrect op-code usage, pay type, labor hours, and labor or parts override charges. Ignorance on how your DMS is being used can lead to price erosion and unauthorized, consistent price deviations. If you have too few codes, encompassing too many different services, it becomes harder to manage the department because you don’t know what really was sold, what you need to reorder, or what you paid. One of the biggest offenders of this inefficiency is the MISC code usage because it is common for it to become a catch-all for repairs, especially if the advisor is in a hurry. If this is the case, you could be missing opportunities, meaning that you are losing money.
3. Consider Analytics Software and Business Intelligence
After putting consideration into the gaps in your DMS, it is also recommended that you reflect on any disparities you may have within your analytics software and business intelligence. The correct analytics software can start to plug in the holes left behind in your DMS and begin to drive high managerial efficiency.
Analytics software, such as Dynatron’s ROI Suite, can bring visibility to issues previously discussed by better channeling your DMS’ abilities into one, more complete view of marketing, sales, key performance indicators (KPIs), opportunities, and better visibility on advisor performance. Our ROI Suite can also help you to easily track poor pricing compliance making it possible to avoid price deviations and erosions that could leave thousands on the table in opportunities and lost warranty increases.
Not only is having a single dashboard of information extremely useful, but it can also make it easier for upper management and service management to be on the same page about where opportunity exists and how to capture it. This type of strong communicative tool coupled with managerial solidarity can help unify the teams into a stronger sales force.
4. Identify Opportunities to Increase Profitability
It is important to remember that just because you are optimizing your prices, does not mean you have to leave the idea of increased traffic and boosted sales behind. There are a number of opportunities that can appear here as well.
Improve Service Advisor Selling Capabilities
One of the best ways to improve selling is to set a game plan for tailored strategies and goals. Continue to measure your KPIs over time and use incremental checkpoints to drive toward your goal. Analyze your statistics and plan any course corrections as they come up. Ensure that you are assessing every aspect of the customer handling process for any missed opportunities for improvement. If you are unable to notice any missing opportunities or are unsure what to look for, signing up for a training program, Dynatron’s SellSmart solution may help you find where you may be falling short and assist in maximizing the effectiveness of your service team selling. Once your goal is reached, you can move the bar higher and repeat until you are able to close any performance gaps left.
Increase Traffic to Your Service Drive
In order to improve traffic, you must increase customer retention, improve reactivation, boost lifetime spends, and distinguish the real return on investment (ROI) on campaign performance reporting and tracking. To do this, you could enlist a service, such as Dynatron’s MarketSmart. First, we begin by evaluating the market and perform a mystery shop to gather applied business intelligence; then we target based on geo-demographic data. Once your data is segmented, we have the ability to target specific marketing campaigns to the appropriate customers that can provide the best return at the lowest cost per contact.
Throughout your campaign, our experts continue to hone your selection based on measurable results and analytical data, using pricing optimization along the way to maximize your ROI. This method will provide a continually improving response rate.
5. Develop and Implement the Perfect Pricing Strategy
When searching for increased revenue, dealers often attempt to increase traffic and sales. However, few consider the overlooked option of the “Perfect Price”, where the largest profit increase can be found without negatively impacting customer experience, perception, or defection. The “Perfect Price” refers to the economic intersection of pricing that is not too low that you are losing margin but not too high that you are driving away customers.
The best way to look at maximizing your pricing is to first observe how pricing is conducted in other industries. For example, hotels take into account: market research, competitive analysis, customer type, demand, labor costs, and so many other factors to adjust their pricing. Even within the automotive industry, used auto sales use similar methods to keep their prices competitive for quick sales with the most profitability. The best way to begin to segment is to create a matrix for pricing labor, parts, repairs, and so on. As an added benefit, dealers are able to optimize their warranty submissions for labor and/or parts reimbursement rates this way as well by enforcing compliance to these set prices.
Optimize Pricing Based on Current Market Conditions
Another area where you can optimize your pricing is by addressing accelerating inflation. The same dollar you make today will be worth less by next year. Inflation continues to rise at around 4%. If you are on the OEM auto increase, which runs around a 3%-4% increase, you are actually just breaking even or losing money. It is best to leave your auto increase and put in the work to outpace inflation. And speaking of auto increases, warranty and labor parts warranties are another place where you can save. Working through the process alone is extremely complex and time consuming but if you are willing to reclaim that profit, companies like Dynatron can help you wade through the complexities for much less than you are losing.
Conclusion
Once you have focused on implementing these steps and updating your strategy, the results will be able to speak for themselves. On average, Dynatron Software has consistently been able to increase dealership’s revenue $200K annualized with work that’s performed within the first 90 days of launch. Imagine how much money can be uncovered beyond that initial mark! For example, even if you followed one of the above methods and updated your pricing grid, that could raise your overall ELR, impacting your warranties and trickling down into your pocket.
Remember that in order to maximize your revenue and make more, it is NOT a one-time process. These steps should be reassessed annually to ensure that small changes in external factors, such as inflation, do not deplete your newfound profit. Repeat these steps for continued success with the help of Dynatron Software!