A Visit To The Dentist

 

How does the dealer decide what to charge you for repairs and maintenance on your bike? If you’ve been to a dealership a few times, you probably think you have a pretty good idea of how things work. But, there’s a lot more going on that isn’t obvious to the average rider. We’re going to take a look at the part of the iceberg that’s below the water line to see what goes on beneath the surface and how it affects your experience at the dealership (and your wallet).

Most riders view making an appointment with the service department the same way they think about the dentist: “I’ve got to take care of periodic preventative maintenance. Or, there’s a problem that needs to be taken care of before the pain gets worse.” Occasionally, we might go to simply have the latest cool accessory installed, but usually we only go when we have to.

When we arrive, we see the state-mandated sign that announces the hourly service charge. Maybe it’s $75 per hour, or $95 per hour or (if you live in a major metropolitan area) well north of $100 per hour. It’s likely that the service rate is substantially more than the rate you’re earning on your job. So, besides being something you really don’t want to do, it’s liable to take a goodly chunk out of your hard earned income. About the only time you can avoid the big ouch is when you’re in for a warranty repair or manufacturers recall, both of which are done at no cost to you.

Simply stated, there are a few key areas that need the dealer’s careful scrutiny to insure that the service department is holding up its third of the three-legged stool of dealership profitability. They are:

– Technician hourly rate of pay

– Use of Technician hour inventory – productivity and efficiency (two very different things)

– Effects of seasonality (high season vs. “winter” activity)

Technician Compensation

There are nearly as many pay plans for technicians as there are dealerships. It’s much more involved than simply coming up with a technician hourly rate or salary. Firstly, there is the issue of different skill levels – typically designated as A, B, and C. “A” technicians are those with the most experience and training and earn top wages. “C” technicians are often just out of school and perform the least complex service procedures (tire changes, oil changes, etc.). They, of course, are at the bottom of the pay scale.

If capable, over time they will work their way through “B” on their way to “A” status. The real challenge in developing a technician pay plan is tracking the number of actual billable hours produced by each technician and also how to pay them for time that they are not actually producing revenue for the dealership. Keeping technicians motivated and reasonably satisfied with their earnings is critical to a successful service department.

Technician available hours inventory

The concept of inventory and its cost is one that most dealers grasp reasonably well. In the parts department it’s simply the purchase cost of the goods that are on the shelf. Most parts inventory is quite durable and has a long shelf life during which the dealership has an opportunity to convert that inventory into revenue. It’s totally different in the service department. Other than some miscellaneous shop supplies and other odds n’ ends, the service department inventory is very short-lived.

In fact, by the end of each work day, the inventory has been depleted and is exactly zero. That’s because the inventory in the service department consists of one thing – the number of technician hours available to be converted into revenue. If the service department had a successful day, then they converted all or most of the available technician hours to billed hours. Any hours that were not billed due to lack of work, inefficiency, lack of parts, etc. are gone forever. So, one of the greatest challenges in the service department is to make sure as much of each day’s inventory of hours gets sold.

Efficiency and productivity

As the old saying goes, “If you don’t measure it, you can’t manage it.” This is particularly true in attempting to maximize the revenue potential from the inventory of technician hours.

Efficiency is the measurement of how many hours a technician is actually working on bikes expressed as a percentage of how many hours he is at the dealership. Example: if a technician is punched in for eight hours and has spent 6 of those hours working on bikes, he has been 75% efficient. Taking into account lost time for lunch, breaks, waiting for parts, etc., a realistic efficiency target is 80-85%. You might be amazed at how many dealers fail to achieve this critical benchmark or even measure it.

Productivity is the measurement of how many billed hours a technician has generated as a percentage of the clock hours he has been working on bikes. Example: if a technician has been punched in on repair jobs for 6 hours and has generated 6 hours of billing, then he has been 100% productive. A realistic goal for a skilled Technician in a well-run shop is 125% productivity. He can generate more billed hours than worked hours by beating the flat rate times that are assigned to most repair and maintenance jobs.

In part two, we will address the very real effect that seasonality has on a service department’s financial performance. We will also tie together the multiple elements associated with operating a service department to get a solid sense of how the whole picture looks.