Long before technology was available to detect lethal gases in coal mines, miners carried canaries into the mines with them to act as an early warning system. If the canary died, it meant the gas levels had risen to where the miners’ lives were in danger and it was time to evacuate. While we don’t actually use canaries in our dealerships to alert us of potential issues, we do have three simple numbers that warn us of impending doom.
It’s important to look at each of your profit centers as a standalone business that flows money into a common bank account. For instance, when you think about your service department, you need to measure time, not dollars of labor sold. Time is the product to monitor daily because it shows the effectiveness of our management of the department. In the parts department, we measure the time transaction value. How much time does it take to complete a parts transaction? Finally, in sales, we measure how many people we talk to and how many of them end up doing business with us.
Adjusting Your Service Processes
The nice thing about service is that it’s simple to measure what is happening and then make adjustments to the processes to improve performance. Some of you may be thinking, “Simple? It’s the one thing that is the most complex to manage!” I disagree — it is the easiest part of the dealership to manage, but the most difficult to staff.
In a service department, we know how many hours we have to sell each day by simply multiplying the number of technicians paid by the number of hours they’re paid. If you have two techs and they are being paid 8 hours a day to work, then your manager has 16 hours of time to sell each day. If 16 billable hours each day are not coming out of your shop, then you simply have to stand back and watch for about 30 minutes to figure out what is going wrong. After doing this for 30 years, I can tell you it will always be about a broken process.
Your manager’s job is to define and improve the process so that a minimum of 8 billable hours each day are coming out of each tech that you have employed. If you combine good processes with good pricing strategies, you will always produce more than 8 hours per day per tech.
Watching Efficiencies at the Parts Counter
In the parts department, we need to look at the average transaction time, which is the time it takes for a parts person to move a transaction from start to finish. In most parts departments, the common theme is “We need more help!” Yet, like in service, the question is, “Do you need more help or do you need your parts people to be more efficient?”
I encourage owners to spend just a few hours watching what happens at the parts counter and measure the average time it takes for a parts person to move a customer from the counter to heading back out the door. Not all parts people are inefficient, but if you just have two parts people and one of them takes twice as long to care for a customer as the other, the answer is not to “throw a body” at the problem, it is to train and coach the one who is having issues.
Improving Sales Ratios
The most important measurement of any salesperson is a mystery to almost everyone in a dealership. There is no measurement more important in sales than knowing what a salesperson’s closing ratio is. It’s a simple calculation — qualified prospects divided by sales — and should be in the 40-45% range. Unfortunately, for most salespeople, it’s closer to 25%.
If each salesperson simply did a better job, a dealership could easily increase their wholegood sales by 20%. Most salespeople today have no understanding of the sales process (qualifying, presenting, negotiating, closing and follow-up). They cross their fingers, start throwing facts and figures at a customer and hope the customer will hand them money. It’s much less expensive than marketing and better for the dealership’s bottom line to improve the quality of the salesperson.