How to maximize profit margins
First things first, your service advisors must believe in the value they deliver to customers. When your team knows the importance of recommending appropriate repairs and services, then they feel good about their role in helping customers and are motivated to achieve goals that align with improving the bottom line.
How can shop owners and managers ensure their service writers are on board? Meet with them regularly and train them to understand your shops financial goals and the important role they play in meeting targets; better yet, create a compensation plan to reward them for achieving goals.
Also keep in mind
• Big ticket items will have a lower parts margin, but you’ll make more dollars per hour for the service
• While advisors have flexibility with respect to product pricing, ensure you have a product pricing matrix (see previous blog on this topic) in place as a guide; with your software rules settings turned on to automate the process
• Create incentives to discourage too much discounting, again bonus structures here can motivate service advisors to stick with your pricing matrix
• Focus on the sale of benefits of service v.s. listing parts and labour pricing to customers
• Minimize comebacks by selling customers the right service; this is a great team incentive to motivate technicians to diagnose correctly and rely on service advisors to book the next service
Ultimately, we can develop pay incentives and bonus structures to motivate service advisors and technicians to work together as a team toward a common goal, resulting in Increased Profit for the shop.
How to set and meet successful revenue and profit goals
I always recommend starting from the ground up. Working backwards to ensure we know the minimum gross profit required to cover the fixed expenses.
From this “floor” gross margin dollars amount, we can look at the net profit required to hit the company’s targets and how much more gross profit is required to meet this goal; whether it’s a plan to purchase new diagnostic equipment in the coming year or part of a longer strategy to increase share value for a sale of the business in 3 years’ time.
This information combined with best-in-class industry benchmarking, results in a “recipe” for average product margins, effective labour rate, and labour sales targets; carefully devised to produce a desired and realistic annual income statement result.
An important and often overlooked key to achieving success to hit your targets requires that Service Writers are provided with goals towards a specific mix of service types and parts sales.
Achieving the perfect combination of high margin service work blended with parts and labour sales delivers reliable gross margins to cover your fixed expenses and leave a healthy net profit to re-invest back into your shop.
Take the guess work out of goal development and build predictable forecasts that become your shops roadmap.
We work with clients across the country
If you want to work less in your business and focus on working on your business to make it more profitable, easier to run, and positioned for a sale, contact us and see how our team can change your life.