Service Department Training exercise
Service Department training, especially based on the financials, is a critical process that adds value throughout your operation. Too often, managers cannot identify key lines on the financial statement much less connect the most important metrics to other areas of opportunity in their daily operation. In our 20-Groups, we mix a focus on financial training with our discussions of best practices in order to ensure management treats their department as a business that must sustain profitability to succeed. One great exercise for fresh managers as well as seasoned veterans is to determine your breakeven point. This is a common practice in the sales department but when was the last time you calculated how many hours had to be generated in order to cover the Service Department’s expenses? This will do wonders for everyone’s basic understanding of the department’s financial performance and what has to be accomplished on a daily, weekly and monthly basis in order to be sustainable.
This is a relatively easy calculation to make, so grab your financials and give it a couple minutes:
1. Service Gross (YTD) ÷ Service Sales (YTD) = Service Gross Margin (YTD)
2. Total Service Expenses (YTD) ÷ Service Gross Margin (YTD) = Breakeven Sales (YTD)
3. Breakeven Sales (YTD) ÷ Months elapsed (i.e. 10 for October) = Breakeven Sales per month
4. Breakeven Sales per month ÷ Effective Labor Rate = Breakeven Hours per month
5. Breakeven Hours per month ÷ # of Technicians = Breakeven Hours per Tech per Month
Obviously this can be broken down into total shop hours per day, hours per tech per day, etc. And while this is a great exercise for management and owners, it is especially useful in setting expectations for technicians and service advisors. Too often, your staff will honestly believe the Service Department is making truckloads of money. We see enough financial statements to know that profitability is the exception rather than the rule, and running this breakeven exercise will actually set the bar higher than it currently is….