3 KPIs EVERY Service Manager Needs to Know (Service Drive Revolution)

The three KPIs you're being judged on and don't realize it.

And so the first one is profitability. Right. So the thing that we find more and more, and I, I think it applies to shop owners too is you ask like what is, what is your profitability? And nobody knows. And I don't. I always thought that the reason for doing business was profitability.

That is the nature of the beast. For sure.

Like the reason for doing charity is not profitability.

Unless you're a very profitable non profit.

Which is very common.

Can be. You can have a high salary. They don't cap salaries in nonprofits. Maybe we should turn this into a non profit. We could. No, they don't.

So you can pay yourself like $5 million a year?

Absolutely. And it happens on a regular basis.

Really.

It's non for profit means that you're not seeking to have profit. But it doesn't mean that there's not.

Stuff, hey, there's overhead. We have to run the organization. We need a CEO.

So there's no governors on charitable organizations and the profit that they can pay out. But there is on shops and service departments.

That's right.

What are they, what are they governed at? What's the limit for how much profit you can make?

Well, it's America. There's no limit.

You just said there was.

He did. I didn't.

No, there's a limit.

You shook your head.

You agree with him.

No, I did not.

You did. No, it's a conspiracy.

No, I did not. Not at all. So do you know what? Okay, so I agree with you. And profit is key. And from the advisor position it's interesting because we can get so stuck in the four letter word. Do you know what that four letter word is?

Shih tzu.

Shih tzu. B, U, S Y. Being busy so you can get caught up in activity but you don't follow the profit. And a lot of times there's work that we can actually do that will be profitable and then there's other work that we take in that is not profitable. And I just look at so many times I've said yes, trying to help somebody, but at the same time I didn't think about the profit. And then it actually cost us money. And you got to realize that every minute of your day counts the productivity of the shop. You've got to get that work out. And if something's going to steal profit in time, it's going to cost you to fix that car. And we should not pay to fix our customers cars. So we have to be smart and realize that being busy is a four letter word and you want to be profitable. So when people ask me, how am I? You guys are really busy. I said, hey, I'd rather be profitable than busy.

So the thing that I know in the dealership world is the financial statements. If you're good and you know what you're doing, usually print around the third of the month. If you're old school and slow, they print around the 10th of the month. But either way, a general manager or a dealer is getting that financial statement and the first thing they're doing is opening up and looking at profitability by department.

Most of the time the service manager never sees that, but they're being judged on it. And it's a trick bag. It's a trick bag from the dealer's side that they're not educating them on, that they're not sharing it with them. It's like the best kept secret that you're judged on.

Right.

Like, I can't think of another analogy of something like that where you're judged on it but you're not involved in it.

Well, and how much of it do you control too, which is you, through awareness needs to be brought that if you're a service manager and you don't have access to it, you need to get access to it because your job in your career is riding on that profitability, that bottom line number.

Well, I think what happens is that people come into the service manager position and let's say that their pay plan is based on gross profit. They assume the social contract that their measuring stick is gross profit. The truth is that it's net profit, it's total profit at the end. Whether or not they know or are exposed to it doesn't change the fact that this is judgment, not what they think it is with the pig plan. That's why it's so easy for them to come in. And then they might generate a ton of gross profit over expend. Right. And have their expenses exceed their increase in gross profit. They're losing money, they're jobless, and they don't even figure it out at the end. I was trying to think of it too. Like, I can't think of an industry where we're judged on something that we're not.

You know, privy to the information. Like that's.

Yeah, I've always said it's like driving a car without a steering wheel. Like you, you know, you have a brake and an accelerator, but you can't really steer. And so but what, what happens in, in dealerships is most of the general managers or dealers come from car sales.

Yep.

So they're not sharing the service in parts numbers that much because they don't understand them. So it's kind of like, I know this, I know sales, I know f. And I. So let me work on that. And I don't understand this. So it's a necessary evil. But they don't understand that the, the, like every month that you don't make that other hundred thousand dollars adds up to a million dollars a year. Like how many times do you, do we go into a dealership and that break even becomes millions of dollars, like very quick. Because 100,000amonth, 200,000amonth, it adds up. Right. Like you were showing me a client that was that literally, if we stayed on that pace, would be 10 million a year.

Yeah, it would be. No, if they do it now, they're almost 13 million a year. But the important thing is that is when we started that program, it was less than 100,000 in net a month. Yeah.

But 13 million of unfound cash, that goes.

Right.

That's. We're talking about the bottom line. We're not talking about 13 million in sales. We're talking about 13 million in profit.

Wow.

So just think about another hundred thousand a month adds up to 1.2 million. Another $200,000 a month. Right. Like we've had service departments that are making half a million dollars a month in profit. Profit.

Not adjusted profit on a forward statement, not, you know, gross profit. We're talking about, bottom line, $6 million a year. Right.

Well, and I think the important thing right now is to understand that the pricing of our service and our, the labor is going to drive profitability, and labor is the one thing you can control. I can't necessarily control my part pricing. Right. If I'm not making enough profit, it's very easy for me to change my labor rate, my effective labor rate, and make sure that we're driving the profit down to the bottom line. And I believe just this is just a general statement that most service departments and auto repair shops are undercharging their labor by about 40% today, just based off of real estate costs, real estate expense, the expense of running the business, doing business in California, all that stuff. So there's room for, to grow, but the limit is right here.

Yeah, but so to that point, though, is most of the time, if you're driving a car without a steering wheel and you don't have access to the information and then if you did have access, you don't understand it. Right. So it's like a, it's like a, it's compounding problems on top of each other is so in that if you were a person trying to run a good business, you're a service manager, the only thing that you're going to revert to is if we're busy, we must be doing good, right?

Yep.

And so what we see time and time again is every hour of labor they sell, they're losing 10 bucks. And you'd be better to stand up front and give customer $5 bills, cut.

Your losses in half.

Yeah.

But they don't understand how profit is created because they don't have access to the information.

Right.

Which basically the point of every business is unique and has unique fixed expenses that go into the cost of doing business. So you can't necessarily compare your labor rate to a shop across town or the dealership across town because their expenses are different than yours. So you've got to be able to understand it to your customized way and make it right for you.

Yeah. We're not saying you have to raise your prices. We're not saying you have to do anything. All we're saying is the leverage and the power is in understanding and knowledge. You can figure the rest out. But if you're driving without a steering wheel, you're, you just think because you're busy, you're doing okay. And every month when the general manager dealer pops up financial statement, they see your face.

Yep.

So they see a negative number, they see a break even, and they see your face.

They don't see your face, they see your paycheck.

Yeah. And then what they do is you walk by the, you're gonna get me 500,000 in gross. And you're like, yeah, well, he's happy if I get him 500,000 in gross. Meanwhile, 500,000 in gross, you're losing 20 grand. Cause you discount your way into the 500,000 or whatever.

Right. And then your pay plan's built off of the gross profit. So the general manager just overpaid you for negative net.

Yeah.

That's not a good long term perspective for career.

My advice to anybody listening to this, that is in this situation is I would trick them into giving me the information because they're not smart enough to do it on their own. Honestly, like they're not. So what I would do, and I don't know what you guys think, but I would go to them in a, you know, cool way, say, hey, I want to be mentored on this. Would you mentor me and play to their ego? Because dealers and general managers have huge egos. Play to their ego and say, hey, I'm trying to learn this. Will you mentor me? You're super good at it and smart and a genius. And so would you please mentor me and teach me this? And then you probably will get to see it and you'll start to have access to it. But I would do that because the turnover in service managers happens more because of this reason than anything else. Even though nobody realizes it.

It.

You're firing the service manager because he's not getting your result, but you never gave him the tools or the training to get the result. I don't know how many times a dealer calls us and they're like, hey, we're gonna hire you as soon as we get a new manager. And we're always like, give us the manager you got. We can fix him. People are smart. Like, if he shows up every day and he cares, we just need to teach him what he's looking at and he'll figure it out. But I think we were tracking it for a while. We're 90% at saving those managers.

Yeah, it's super high. And the thing is that. And I think that that's probably the best part of our job is that we get to go in somewhere and someone, maybe they're on the ropes. Right. They're just about to go out, and they. Sometimes they know it, sometimes they don't. But you actually change their own worth of what they're seeing themselves, and they actually get to learn tools right in front of yourself. And like, our favorite thing is, is when a manager that was on the ropes and just about to go out turns it around in 90 days, and all of a sudden they're like this new person, and then they're irreplaceable. Right. At that point, they've got the tools, and it's fun to see how often. But I'd much rather. I'd much, much rather train an existing manager than go out and start all over fresh.

Absolutely.

Number two is the customer experience, customer satisfaction, and retention.

I like that.

What does retention mean?

How many customers come back to you?

Yeah.

Yeah. So got that one right.

I was so scared.

We should do a terms. You should know, Jeremy.

This is a test.

So why DO dealerships lose 80% of their customers to independence over time? When they have home field advantage.

They.

Sell the car, they have home field advantage. And over the first three to four.

Years, you said it's the customer experience. So one thing, retention is very vague for an advisor on the front line. So you got to think we're Busy, we're riding 30 cars a day, you know, maybe 20 if you're, you know, a little smarter instead of a harder worker. But the retention side of takes time to come back. So what I like to judge is the customer experience, right? How many 5 star reviews organically are we getting? And then are those customers referring people over to us as well? So the challenge is at the dealership level. The process is a lot different at the independent. Whether it's location, it's easier to get to the independent speed of service, the communication process. And you know, we compete with some dealerships in our town that have really great systems in place, but still their retention falls too. We, we gather those customers.

So yeah, and so the reason the retention falls is the customer's perception and feelings about you. That's it. And so as a service manager, you need to get involved in the car sale. You need to own the idea that you have home field advantage. But how those customers are trained, how they feel about us, what they're scared. They perceive that your prices are too high. They perceive that, you know, like Michael, it's a joke, right? He buys a new Toyota and just a simple recall for a safety item.

It's a huge hassle. You're in the business of being lubricant in the process and constantly figuring out how you can improve the customer experience. Because that's the future. The customer experience is the future.

Well, and think of this too. So in Michael's case, that service advisor, if he's, if you have the wrong culture in your service department, this is going to lay it out for you. The service advisor is looking at Michael's ticket like, oh, it's not a big ticket, right. So what's the effort that that advisor is going to give that particular ticket? They're going to let the system kind of deal with it. Okay, he goes to 10,000 miles, it comes back in, it's another small service. 15,000 miles? 20,000 miles? 25. So now the first time that Michael's really deep in to the experience of the dealership is at 30K. And what does the service advisor try to sell him immediately when he shows up? A big ticket. So we've got to get our focus off of the dollars and cents and the paycheck and put it on the experience and realize it's the lifetime value of that client that's going to pay us, not necessarily the transactional value.

I see your point, but I would make a counterpoint to that. That people will pay for a good experience.

Oh, absolutely.

I believe that dealerships aren't losing customers so much because of price, because we do a lot of work with independence, and it ends up. The independents are more. In a lot of cases, the independents are buying the parts from the dealer and selling them for more than the dealer sells them for. As in, you do that every day.

What's wrong with that?

But I'm just saying it's customer perception.

There's no doubt. So I think the big thing is that when I think about independents versus dealers, is in Michael's case, he's working harder to service his car at that store than the store is working to.

Service him when he has to, because it's warranty. And so the dealerships take advantage of the idea that you have to go there, but they lose them as soon as you don't have to go there. 80% of them go somewhere else.

Right. And the magic happens after the warranty period. Right. But we think we've got this at the dealer side. We've got this captive audience. But the beautiful thing is, on the independent side, they're recognizing that, and they're capitalizing on the dealer customers. Before the warranty's out, they're already starting to get them to pull for regular maintenance. And you go where you're used to going and where you perceive the value.

Right.

And I think that that's the difference.

Yeah. And with retention, too, I think consumers have shifted, and definitely where society's at today, people's patience, definitely shorter. People are kind of agitated. So you have to execute perfectly during that transaction. And you've got to use every bit of technology to deliver that to the customer. There's a number of things that they could have done to hit a home run for him. I'm just curious what he would rate them right now on a scale of 1 to 5.

A 1. The thing, too, that in this whole thing is lost is Michael's, like, the sweetest guy that would do the right thing. Just want, like, if you. If you said, like, hey, could you come back in an hour? He would. He's not trying to impose his will on anybody. He just wants it to be fair. That's it. He's not. He's not, you know, like, now the voice of God. He would probably stand on a desk and throw stuff at people. But lightning you're talking about. When that sort of stuff happens to somebody like Michael, it, like, makes you Want to fight? Because it's just such a waste of time.

And, you know, the sad part of this is, the actual fault of this is the parts department's fault. It all boils down to parts department, man.

I didn't think that before, but you're starting to win me over with the conspiracy.

There it is.

But they have the guns, so we need. We need to be friends with them because we're gonna need the gun.

Now.

Do you think that they're going to take the cores and make them into ammo?

Absolutely.

Or will somebody else make it?

Primers, brass, all that stuff, all of it.

Do you think they might load them a little hot?

Absolutely.

The third one on this list, shop efficiency. It's. It's incredible that you.

Are running a factory and you have no idea what the factory produces.

It is crazy that the monkeys most of the time have the keys to the zoo. Like, there's two questions that can tell you how good somebody is at their job. What's your nut to gross? And what's your shop efficiency? And when you say, what's your net to gross? And they're like, I don't know. And then you go, what's your shop efficiency? And they just look at you. You're like, it's a production facility. It's a production facility.

If I.

If I go up to a plant manager in a Pepsi bottling company and I go, how many cans? They'll be like, we made. We bottled 3 million cans yesterday.

Yeah. And their waste was probably 0.02%. And they know the efficiency.

You go into an American Express phone room and you're like, how many calls? We had 3,000 customer issues, and 1750 of them were solved within three minutes.

Nice.

And it's probably posted on a board somewhere for.

No, it's on a tv. Like, the idea that your shop doesn't have the numbers posted, that you're not judging your shop on production and your shop is. Is running you. You're not running your shop is a recipe for disaster. It's suicide.

The missing link there, the hardest part of this efficiency boils down to human behavior. And we have to be able to manage our employees and, you know, our team members to help them get results. I used to say, you know, that every hour, every day counts, then every minute. And then when I really broke it down and say that every second of your day counts, efficiency went through the roof.

Yeah. This is kind of getting morbid. It's making me think, what did one casket say to the other?

Oh, wait, I know this. I know this.

Hold on.

Is that you coughing?

Is that you coughing? Nice job.

Good job. Good one, man. That was awesome.

I wrote that down. Thank you so much for watching this clip of Service Drive Revolution. Now you can catch the full episode of on YouTube, iTunes, or Spotify or wherever you consume your podcast. If you have any questions, go ahead and post them in the comments below. Make sure you subscribe and hit the bell icon so you're notified when we post new episodes. I'm Chris Collins, and you can find me on Facebook and Instagram at Chris Bulldog Collins. And I'll see you again on the next episode.