by Sara Hey
Over the last few years, I’ve been sharing weekly dealership challenges on my Instagram account (@sarahey1). The challenges are small things that you can do to move your dealership forward. As we have been working through how to support your dealership and have fun while doing it, we are bringing more challenges to you via this column. Here’s what I’ve found: I’ve rarely met a dealership owner (or dealership GM) who doesn’t like a good challenge. Seriously, you wouldn’t be doing what you are doing if you didn’t have just a little fight in you.
The other thing I’ve realized is those small movements comprise tremendous results, but it’s about knowing what to do and when to do it. This strategy is the thought process behind our Dealer Success Group program at Bob Clements International, where we partner with dealers to make small change after small change to help create processes and profitability in dealerships.
Focusing on inventory
For this challenge, we’ll focus on the inventory in your service department. Now, before we get started, we must identify what your inventory is. In the service department, your inventory is time. How can “time” be inventory? Let me walk you through the logic: Inventory, at its core, is what you have available to sell (thank you, Captain Obvious) – but where things get a little less obvious is when we move from physical products to products you can’t touch.
In your service department, you trade money (or payroll) for inventory; it’s much the same way you trade money for wholegoods or parts. The idea across the board is that we make a profit on everything we buy to sell. Now, if this is a new concept and you have been in business for any length of time, we need to talk. Here’s the thing, in wholegoods and parts, your inventory keeps, but in service, once the inventory is gone, there’s no getting it back. Brutal how that works, isn’t it?
I repeatedly see that most service departments have no idea how much inventory (or time) they’re losing each day. Let’s say that you had wholegoods units on your lot, and for every single day you were open that year, one of those units went missing. Over the year, you had approximately 262 units go missing. What would you do? Sound the alarm? Set up a security system? Call the police? Or just ignore it and think, “Since I’ve been able to keep my doors open, no harm, no foul?”
Well, this is what’s happening every day in your service department. Seriously. In your service department, you buy eight billable hours a day per technician (this is your inventory), but it doesn’t seem like a big deal if you lose an hour or two. This is crazy!
Feeling the pain
Are you ready for this month’s challenge? I want you to feel the pain of your lost inventory.
Let’s figure out what your lost service inventory is worth. Let’s say your service department has a labor rate of $100/hour, and you have three technicians. In your service department, we just happen to lose an hour a day per technician. You know how it goes – a smoke break here, looking for units, taking customer phone calls, pulling parts, the list goes on and on, and so does your inventory. To figure out the value of our loss, we would take our labor rate ($100) and multiply it by the number of days in the workweek (5, at least here in Missouri). That would tell us that we lost $500/week per technician. Then, we would take that $500 and multiply it by the number of weeks our service department is open (let’s say 4), indicating that we lost $2,000/month per technician. Finally, let’s assume we can only keep our service department busy 10 months a year, so we will multiply the $2,000 x 10 months, indicating that we lost $20,000 per technician or $60,000 in total. All simply by losing an hour a day per technician. Also, my friends, this is net profit, meaning you already paid all your expenses, and this should be in your bank account.
So, let’s see what losing one hour a day equals in your service department. Take your labor rate and multiply it by 5 (number of days in the week). Then take that number and multiply it by 4 (number of weeks in a month). You will take that number and multiply it by 10 (or 11, or 12, this is your choice). Finally, take that number and multiply it by the number of technicians you have in your shop.
Join the challenge live
Want to join this challenge live and see how everyone else is doing? Share your number on social media and tag @sarahey1 and @opebusiness with the hashtag #opebusinesschallenge for an opportunity to win a signed copy of Bob Clements’ and Sara Hey’s book, You’re the Problem (and the Solution!).
This article first appeared in our March 2022 issue of OPE Business.