Today, a modern shop must have adequate staff and efficient systems in place to be able to provide the superior customer service needed to achieve desired profit goals. Unfortunately, many shops seem to lack the proper support staff and efficiency necessary to make that a reality.
A critical member of any shop's staff is the service advisor. In many shops generating annual revenues of $550,000 or less, the owner typically serves as the service advisor—usually by default. But this can lead to an inefficient operation, since the owner must also perform many other tasks (marketing, staff supervision, etc.) that can detract from the time necessary to properly manage the sales effort.
And in shops that do have a service advisor, many advisors often end up handling some management responsibilities, as well.
In both these instances, the service advisor won't be able to devote his total time and efforts to the specific duties of the job at hand.
Service Advisor Responsibilities
The primary responsibilities of a service advisor are to satisfy customers and staff while maximizing gross sales. Satisfying customers builds long-term relationships, while satisfying staff leads to improved productivity and a smoother operation. In addition, the service advisor is responsible for attaining the industry benchmarks for hours-per-repair order, gross profit percentage and parts-to-labor ratio as described in the March installment of Business Sense. The ability to accomplish these goals requires the service advisor to focus solely on these specific responsibilities, and to refrain from devoting time or energy to any other managerial or operational duties.
Right now you're probably thinking, Gee, I could use a service advisor, because that would give me more time to focus on managing the business. Or, if yours is a large, busy shop with several service advisors, perhaps an additional one would help relieve the existing advisors from work overload. To see just how valuable a good service advisor can be, let's look at a hypothetical situation.
A Case Study
Joe Tech worked in several repair shops as a technician for over 10 years, but felt he could earn more money and achieve greater personal satisfaction if he opened his own business. Thus, Case Study Auto Repair was born.
The new business attracted many new customers based on Joe's reputation for being an excellent technician with the ability to deliver quality repairs at reasonable prices. As customer load increased, Joe hired additional technicians, and now employs three.
Shortly after opening, Joe's wife joined him in the business, answering the phones, picking up parts, shuttling customers and keeping the company books.
It's now Joe's third year in business. The shop is very busy, and Joe and his wife are working very long hours. Joe feels that he isn't earning the desired profits, nor does he have time to devote to growing the business beyond its current size and sales volume.
Last year his shop produced $510,810 in total sales. This was accomplished via 2656 repair orders, with a .72 to 1 parts-to-labor ratio. The company's labor rate for the period was $65 per hour. The gross profit percentage earned was 42% and the net profit was $20,402 (approximately 4%), not enough to fund employment of a service advisor.
In this example, Joe is spending a great deal of time and energy trying to make a profit and grow the business. Unfortunately, the investment of 12-plus hours per day is yielding only a small net-too small to fund growth. He realizes he needs help-specifically, a service advisor. However, the bottom line leads him to believe he can't afford one. His labor rate is competitive and, in fact, on the high end of the scale for the area. Joe feels trapped and discouraged.
Performance Analysis
So how can Joe create enough added revenue to afford the service advisor he so desperately needs? First, let's look at his shop's performance compared to some industry benchmarks. This is illustrated in Table 1 above.
Ratio of techs to advisors. The benchmark ratio of techs to advisors is 2 to 1. If each technician were to achieve the benchmark of 9 billed hours per day, two technicians would then be required to bill 18 hours. If the advisor were averaging 3.0 hours-per-repair order (HPRO), he/she would have to write only six repair orders. In this instance, Joe is writing almost all the ROs and has far too many technicians to work with to do the job properly.
Number of repair orders (car count). To begin with, you can see from Table 1 that Joe is writing an average of 11 repair orders per day, which hinders his ability to maximize each repair order and leaves little time for him to do anything else.
In order to provide excellent customer service in today's auto repair environment, it takes an average of one hour to completely process a repair order from customer write-up through vehicle pickup. In this instance, Joe is handling most of the repair orders, which means his day is mostly taken up with handling customers and repair orders. Each time Joe is distracted from the process to do something else, the amount of time devoted to write-up, estimating, dispatching, procuring parts, contacting the customer and finalizing the invoices is reduced. That leads to increased stress and, ultimately, customer and staff dissatisfaction.
Hours-per-repair order (HPRO). Here, you can see that Joe is averaging 1.72 hours-per-repair order, with the benchmark being 3.0. The reasons leading to this shortfall could include one or all of the following: a lack of selling skills; a lack of processes designed to increase HPRO (such as vehicle inspections); too many repair orders (vehicles); a lack of time to devote to the process; and, of course, being understaffed. Experience has shown that an average of less than two hours-per-repair order on today's vehicles usually means customers are not receiving the full service value they deserve.
Parts-to-labor ratio. The low parts-to-labor ratio shown in Table 1 could mean that Joe is not getting the proper gross profit on parts, which is a selling skill deficiency. Another reason could be that the diagnosis, repair and maintenance job mix is skewed. This is a function of scheduling, one of the service advisor's most critical duties. In this case, part of the problem is that there are simply too many vehicles scheduled each day to adequately control the mix.
Overall gross profit percentage. The low overall gross profit shown in Table 1 is also usually the result of a lack of selling skills. Often, when a shop owner does double duty as a service advisor, he has difficulty charging the full value for the products and services provided. This is another reason to hire a service advisor!
Net profit percentage. The low net profit could be a problem in the expense area; however, we noted that the overall gross profit was 18% lower than the benchmark, which, if recovered, would mostly slide directly to the bottom line, taking net profit to the 19% benchmark or even higher.
Table 2 above indicates the calculations used for determining some of the performance results for Case Study Auto Repair.
How to Pay for a Service Advisor
It's obvious that Case Study Auto Repair definitely could benefit from having a qualified service advisor. But this advisor should be capable of achieving the benchmarks mentioned, or at least making significant strides toward them.
Let's assume the salary requirements for Joe's newly hired service advisor to be between $35,000 and $45,000 annually. Although that's nothing to sneeze at, it would give Joe more time to manage the business, with the new advisor handling at least 50% to 60% of the existing vehicles. Between Joe and his new advisor, they'd both be handling approximately five to six repair orders per day. That figure would be in line with the benchmark mentioned.
To improve the overall gross profit percentage of the business, Joe must require that his new advisor aim for the gross profit benchmarks for each income stream so as to achieve the overall gross profit percentage benchmark of 60%.
If Joe used an improvement goal of increasing the overall gross profit performance by adding just 10% (from 42% to 52%) gross profit to existing sales, it would increase gross sales to $561,891. That would provide an increase in gross profit of $51,081-certainly close enough to hire the advisor without cutting into existing profits.
Joe's new service advisor should also be required to improve the parts-to-labor ratio by focusing more on what type of work is being scheduled. This effort alone would not lead to affording him, but it would certainly contribute.
In the Case Study example, two advisors would have enough time to properly handle the repair process from write-up through vehicle pickup. The additional time freed up would allow for working closer with technicians to implement repair order building processes, such as vehicle inspections. The additional time available would also enable Joe's service advisor to fully estimate the needs of each vehicle and present them to customers, ultimately leading to a much improved hours-per-RO figure.
For example, if the service advisor improved the HPRO by .78 to 2.50 (from 1.72), and we leave the gross profit percentage at the existing 42%, the parts-to-labor ratio at the existing .72 (both in Table 1), the repair order count at the existing 2656 (in Table 2) and the labor rate at $65 per hour, the result would still be an additional $97,289 in gross profit-which would more than compensate for funding the service advisor's salary! Table 3 (above top) reflects the calculations that lead to that determination.
I mentioned earlier that you also need to satisfy staff. As a side benefit, Joe's technicians would earn an additional 2.8 hours per day, taking them to 8.8 hours (close to the benchmark of 9)! I'm certain they'd be very pleased with the increased wages if they were on some sort of incentive or performance-based compensation plan! Table 4 (above bottom) reflects how we arrived at the increased hours.
Conclusion
Increasing gross profit takes only a pencil and a mind change, while increasing the hours-per-repair order figure takes teamwork, efficient processes and adequate staff.
As you can see, these are two simple methods to quickly achieve changes—without capital investment—that would enable you to afford an additional service advisor. So if you need one, why not go for it today?
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