Fixin' For Profits

During the past couple of years, I have had the pleasure of visiting several service departments throughout the United States. Some have been able to grow and prosper, while others continue to struggle. I have often heard dealers refer to their service departments as “the necessary evil,” or “the black hole in the back that we don’t like to talk about.” It makes me wonder: Why would anyone want to stay in the service arena with that mindset? However, this is a state of mind that is very easily changed once the most common obstacles to a profitable service department are overcome. These ill feelings toward the service department can taint a company’s morale and prohibit the service department from ever being seen in a positive light.

The smart thing to do is to start at the beginning. Ask yourself, “Do we really want to be in the service business in the first place?” This is the beginning or the end to the rest of the story. There is no way a service department can succeed with a partial commitment from the owner of the company. Period. Setting up and running a profitable service department requires a commitment to succeed, much like a marriage. If your answer to this question is, “Yes, we want to be in the service business, and yes we will make the commitment to do so,” I congratulate you. How do we then take that next step? The answer to that question is not an easy one and involves several steps.

The first step to a successful service department is a dedicated service department manager. This person must have the knowledge and experience needed in our industry, with decision-making ability that doesn’t require a board meeting each time. That person’s only goal should be to develop and run the service department. It is a formula for failure if he or she is expected to drive the delivery trucks, run shipping and receiving, do all of the equipment purchasing, or any number of other unrelated tasks. Running a successful service department is a full-time job and then some. Expecting your service manager to wear more than one hat is unrealistic and will hinder the service department’s ability to grow in the way it should.

Some of you might be thinking: “Give up control and let someone else make some decisions?” Yes. This doesn’t mean that you won’t be a part of the decision-making process of that department. It means that you will allow your service department manager to do the job you hired them for and allow them room to get the job done without smothering them.

The second step to success is understanding that it is very important to devise a business plan for the service department. This is what I call proactive management. This is where the service manager will have an outline in hand of the expectations, limitations, and the guidelines by which they can run the department. The plan should answer the questions: Where do we want to be at the end of the year? How about after 5 years? What service area would we want to grow into? How many technicians will we need at each stage of the plan? These are just a few of many issues that should be addressed before putting this plan into motion. It is rare for a service department to succeed without a master plan to guide them.

The third step in this process is to ask yourself, “How can we track the progress and success of our service department?” This question is very easily answered: separate profit and loss statements (P&L’s). That is one thing that puzzled me during my travels. How can you run a successful service department and not know what your true costs are? Are you losing money? How much? Where are you losing it? How can you reduce overhead? What is your break-even point? Are you making money? How much? These questions and so many more can be answered if your company creates and maintains a separate, real, and complete P&L statement for your service department. This is the only way to truly judge the success or failure of the service department. Without this separation, some company owners are misled into thinking they have profitable service departments. Many think they are making money when they see their gross sales in parts and labor, but the rest of the picture is lost, including the cost of doing business, vehicle expenses, service department employees, etc.

Instead, consider your service department to be a separate company within a company. It should be a stand-alone profit center with monthly accountability. It should have categories that include rent for the square footage of building used, utilities, insurance, vehicle expenses, and any other overhead costs associated with running a service department. These P&L’s need to be shared with the service manager so they can look at where the money is coming from and going so they can better control all areas of the monthly activities.

A final point worth mentioning is that there must also be a system set up within the company to allow internal billing. Too often, a service department is looked upon as a facilities maintenance division or a means of prepping equipment for sale. This takes valuable time away from the primary function of the department — repairing equipment. If a service department is set up as a separate entity within a company, managers can track what it’s actually producing.

Brad Fields can be reached at (510) 582-7800.