Rashaan Baskerville
Your Service Department : A Hidden Gem
By Rashaan Baskerville
BIO :
Rashaan Baskerville , Director of Angus Finance , has over a decade of experience in the financial services and energy services fields . He helps fuel dealers develop and implement business growth strategies .
If you ’ re reading this and the sun is still rising every day , it ’ s likely a great time to improve your profitability in your Service ( and Installation ) department . In the past , the Service department had traditionally been a loss leader for most dealers and , therefore , represented one of the biggest and quickest opportunities for a dealer to grow their profitability . And that remains true to this day , despite the fact that most full-service dealers have already transitioned their Service departments from a loss leader to a profit center .
With the transition to focusing on Service department profitability , dealers like you have had to shift the mindset of your organizations , along with overhauling processes and systems to match your new ambitions . As with any complex organizational change , it can be frustrating because it takes time to implement and you are never truly “ finished ” as long as you are still in business .
But what if you had a roadmap to show you how to grow your service department profitability by 25 % or more over the next year ? Well , to guide you on your journey toward greater Service department profitability and consistency , this article will cover five areas that will help you polish your gem of a Service department .
Service Department Sales Mix
Within the Service department , there are three general categories of sales : service contracts , noncontract maintenance and repair , and installation . Each of them has a typical range of material gross margin ( GM ) rate associated with them , with installation being the lowest and service contracts being the highest .
So , one of the ways of driving up your overall department profitability is by shifting the mix toward more profitable work . We have seen some of our clients make this change and significantly increase profit . Of course , you would get the greatest impact if your existing service business is heavily skewed toward installation sales . With an overall GM rate increase of 5 percentage points , you can take home an extra $ 50K for every $ 1M of total service sales , which translates to a profit increase of at least 25 % for many businesses .
Proper Staffing
As with any company that has employees , fuel dealers must deal with the challenge of hiring and maintaining the right mix of talented techs . In recent years , the difficulty in finding and keeping your best techs has only gotten harder . How do you hire the right number of techs , get the right mix of techs for your sales mix so that you have the proper tech types working on the proper job types , and plan for the future by keeping a sustainable mix of seniority levels ?
There are many creative approaches to attracting top talent , including various pay incentives and bonuses , outsized benefits plans , greater vacation allowances , company outings , and more . However , many dealers avoid them because they all raise your expenses . But how much profit are you losing already due improper staffing , leading to subbing out work at low margins , lower customer satisfaction or losing jobs altogether due to long lead times , the cost of inefficiency because you have a service tech leading an install job , or vice versa ?
These costs are typically below the radar because you don ’ t get hit with an invoice , however they are real costs to your business . They can and should be calculated so that you can make the best decision . By knowing how much profit you are already losing in these areas , you can determine the proper budget for attracting the right talent to increase your overall profitability , and lower your stress levels in the process .
Pricing Mastery
A sound pricing model is at the heart of every successful business . For your Service department , the most important factors are setting your labor rate according to your cost structure and consistently achieving your targeted material GM rates . In the cost / billable hour analysis that we perform for our clients , we start by calculating the total cost of Service payroll and then add all of the supporting costs to maintain the department . Finally , we add your profit margin to come up with the ideal billing rate . This is an exercise that every dealer should complete .
As mentioned earlier , your overall Service GM rate is
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