Published in RVBusiness, June/July 2024
It is neither normal nor necessary to lose money in the service department.
After all, for most dealers the majority of their payroll dollars are spent in fixed ops. Their ability to retail units efficiency depends on it, and their local reputation is often directly correlated with their collective abilities in the shop. In other words, it’s a significant driver of costs, revenue, and the dealership’s overall success – typically half or more of the company’s employees are engaged in fixed ops one way or another. Is it reasonable to expect that half of your employees’ efforts don’t generate net profit for the company? Of course not.
Yet many RV dealers lose money in their service departments, or at best earn sub-optimal profits. Why? Our contention is that this is correlated less to market conditions and more to the attitudes and focus of dealership leaders. When asked, most dealers can rattle off all kinds of stats about their sales operations – everything from door swings to closing ratios to website hits. But ask how many incoming service phone leads were turned to appointments, or hours sold per work order, or labor sales per technician, the average dealer is completely in the dark. ‘Talk to the service manager!” is the typical reply. And while it is certainly proper to allow managers to run their departments, it nonetheless glaringly obvious that most dealers are more (to say the least) focused on their sales department than their fixed operations.
There is some sense in that, of course. Flooring dollars rightfully are a major focal point for dealers and, after all, we are primarily in the business to sell units. Still, in a time of deflating unit margins it only makes sense to divert at least equal attention to the department that can drive significant gross and net profits to the company in any market … particularly when sales are difficult.
Organizing an efficient and profitable service department takes much more detail than we have in this article. But we can cover the first and most important step: making the commitment to creating a true profit center.
The first, essential step is to decide what kind of service department you want to have. There are two potential paths, very different in many ways, but both can be profitable.
First, you can design your shop to be an internally focused, sales department supporting business. It exists to serve and support your new purchase customers. Since there is little expectation beyond sales and warranty related work, this shop requires less physical space, less technician expertise, fewer support employees, and far less specialized equipment. An internally focused department relies on PDI labor, aftermarket sales, and warranty sales as its primary revenue sources. By definition, its revenues are lower than a fully realized, public serving department, but properly run it can still deliver 15% to20% net profits.
The other type of service department is one that is by design essentially a stand alone business that not only serves internal customers and warranty but actively seeks and performs work from all sources. This shop requires much more physical space, likely twice the number of support employees. investment in specialized equipment, significantly higher skilled technicians, and a commitment to continual training to stay in front of evolving equipment and aftermarket trends. This is a much more complicated business to run, balancing the seasonal needs of the sales department as well as managing a continual flow of street work. Having said that, a dealership that successfully develops this type of service department reaps the benefits of more stable total company profitability and a better flow of incoming prospects through the enhanced service operation.
What doesn’t work, though, is indecision about these two possibilities or attempting to develop an external facing business in an undersized or poorly equipped shop that won’t support it. Both of these paths lead to angry customers, frustrated employees, and – usually – significant red ink.
How deliberate are you in your service operation structure? Have you clearly decided who your primary customers are and how you will serve them? The answers to these questions are the beginnings of building a profitable service department.