Service Department Profitability KPIs, Part 1

Service department profitability is all about the numbers or your Key Performance Indicators or KPIs.  Analyzing your potential vs your utilization and performance is the first step to increasing revenue.

Part 1 of 2: Analyze Department Potential

Today’s technologically advanced Service Departments can spend millions of dollars in building expenses and equipment.  Many dealerships consider the Service Department a necessary evil and the expense as a cost of doing business for the goal of selling units.

Monthly reviews often consist of how many units are sold and gross profit, instead of focusing on more specific indicators of dealership health such as actual performance versus potential.  Reviewing key performance indicators (KPIs) of the Service Department can highlight areas of potential revenue increases, which will turn this often neglected department into a profitable component of a thriving dealership.

Many variables affect the profitability of the Service Department.  The first step is to analyze the Facility Utilization and Labor Sales potential.

Analyze Facility Utilization: 4 Easy Steps

To find the maximum productive capacity of a Service Department:

  1. Multiply the labor rate by 24 hours.
  2. Multiply the result by the number of days in the reporting period.
  3. Multiply the result of step 2 by the number of Service Bays.

This is the true maximum revenue potential if the Service Department is open 24 hours a day, 7 days a week.

4. Compare this number to the actual revenue to determine the Facility Utilization                    percentage. Some dealerships may be surprised to find that their Facility Utilization            rate is 50% or below.

Increasing the Service Department hours even slightly can make a dramatic impact in on the Facility Utilization rate.  For example, a 10 bay dealership with a labor rate of $125 can increase their monthly revenue by $38,750 just by staying open 1 additional hour per day.  Adding a second shift can almost double revenue.

Labor Sales Potential: 3 Easy Steps

To determine the Labor Sales potential of the Service Department:

  1. Multiply the labor rate by the number of hours that the Service Department is open during the reporting period.
  2. Multiply the result by the number of bays.

This is the potential revenue of the Service Department with the current operating hours.

3.  Compare this number to the actual revenue to determine if the physical space is being maximized during normal business hours.

Now that we have analyzed our true potential, in the next issue we’ll examine Part Two: How to Reveal Areas of Needed Improvement 

Published in Insights Magazine May 16, 2014

Leave a Reply

Your email address will not be published. Required fields are marked *