enx magazine

Could you imagine trying to win a basketball game without knowing what the score is? You play the game without ever knowing if you've won or not. You might think to yourself, "The games seem to be going well, I think we'll make the playoffs" . When you don't make the playoffs, you can't figure out why. Unfortunately, too many service departments are doing the same thing, except not making the playoffs is more like not making payroll.

There are basic management tools that can and should be implemented to drive service department profit margins to the 50% called for in industry models. Of course to achieve a goal it is critical to have a method for evaluating the goal. You cannot improve what you cannot measure. The best method for evaluating and driving the service department profitability is implementing a service department profit and loss statement also referred to as a P&L or income statement.

In cooperation with Digital Gateway, we have helped dealers create this P&L in e-automate as a custom report that can be run at will. This service department P&L shows all service revenue whether from contracts, billable calls, billable parts or any other source. It also captures all service department costs from cost of goods on parts to service department payroll, travel, training and miscellaneous expenses. It is the difference between these revenues and expenses that must equal 50%. Using this P&L as a routine part of managing service departments has helped many dealers pinpoint exactly what is causing them to fall short of 50% GPM and what they can do to raise margins to desired levels.

There are some important things to consider when starting this process. First, all revenues and expenses must be properly categorized at the transaction level. This may take a little set up in e-automate and some minor changes in processes but is well worth the time invested. It will allow you to get an accurate service department P&L without asking your people to jump through hoops.

Service departments can use their P&L to track and drive their desired results. The service manager should be looking at the P&L regularly and using it to determine strategy and the senior management should be using the P&L as a tool to incentivize the service manager. This gets everyone on the same page and pulling in the same direction. Your service department score card should be as visible and available as the score board at a basketball game. With a little preparation, planning and set-up in e-automate, it can be.

Jim Kahrs is the Founder and President of Prosperity Plus Management Consulting, Inc. .

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