Closing the Gap on Absorption in Fixed Ops

As a dealership, getting as close as you can to 100% absorption through the Fixed Ops department is what you aim for. The higher your absorption rate, the more opportunity you get to sell vehicles at lower, more competitive rates. Being able to sell cars for lower costs brings customers to you which increases your profit margins.

READ MORE: The Road to 100% Absorption Rate (is through the Parts Department)

In order to hit that goal, it’ll be easier for you and your teams if you’re not primarily counting on the sales of new cars to keep your business alive. That’s where the Fixed Ops Department comes in with parts and service. 

Profit & Service Labor Rates

Charging customers the right cost for labor is one of the most important elements allowing a dealership to cover fixed expenses. When it comes to maximizing the profit in your service department, separating labor and trying to match the market average is the way to go.

The National Automotive Dealers Association (NADA) advises that your customer-pay labor should account for 60% of your total labor sales, with warranty and internal contributing 40%. On top of that, the service department should strive for 72% or higher gross retention in every category.

If you’re not able to hit that target, you need to take another look at the average service labor rates of your local competitors. You don’t want to lose out on potential profit just because you’re not confident about the current labor rates. NADA suggests surveying the market every six months or so and bumping the rates up by a few dollars if you haven’t in a while.

READ MORE: How to Protect Fixed Ops Revenue

Expand Your Customer Base in the Service Department

There are a couple of ways to get customers back to your dealership, as well as reach others that may not be in your local area.

When it comes to bringing people back in for service after they buy a vehicle, it all comes down to one word: loyalty. You have to establish relationships with customers so that they want to return to your dealership. One of the best ways to build that trust is by effectively communicating and maintaining consistency. Sending text and email reminders to buyers reminding them of upcoming service needs will increase the likelihood that they’ll return to you.

Expand Your Customer Base in the Parts Department

When it comes to parts, 93% of auto buyers do some sort of research online before making a purchase. Establishing an online parts store grants you access to these potential customers. Relying on sales at your physical parts counter might not be enough to bridge the gap. If you don’t have an online presence, you’re missing out on profit potential. 

Selling online is easier than you think — especially when you partner with an eCommerce platform provider. You can get a virtual parts store up and running in no time! At RevolutionParts, we provide the tools for you to be successful. All you need is parts inventory and the desire to try it out.

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