As a dealership, getting as close as you can to full absorption through the use of Fixed Operations is what you aim for. The higher your absorption rates, the more opportunity you get to sell vehicles (and at lower rates). Being able to sell cars for lower costs brings customers to you when they need one, increasing your profit margins.
Fixed Operations is just a fancy way of categorizing your Parts, Service, and Body shop under one umbrella. Your absorption rate is calculated as the percentage that these departments are able to cover their operating expenses in addition to the costs of all the other aspects of the dealership (including fixed expenses and dealer salary).
The closer you can get to an absorption rate of 100% – the better for your dealership. A rate of above 100% is even better. Think about it this way – if your absorption rate is at 50%, that leaves you with 50% of your dealership expenses needing to be paid through other departments – vehicle sales, primarily.
Of course, if you’re reading this, you’re probably wondering how to get to a 100% + absorption rate. It makes things easier for your dealership if you’re not primarily counting on the sales of cars to keep your business alive.
Cost of Labor
When it comes to maximizing the profit in your service and body departments, separating labor costs and determining a target number to match the market average is the way to go.
According to Automotive News, the National Automobile Dealers Association (NADA) advises a standard rate of retail profit from labor sales should be 73%. If a customer gets charged $200 for labor, this would mean that $54 of that is used for the technician’s wages and $146 is left as gross profit.
If you’re not able to hit that target, you need to take another look at the average service labor rates of your competitors. You don’t want to be losing out on potential profit just because you’re unaware of the current labor rates. NADA suggests surveying every six months or so and bump the rates up by a few dollars if you haven’t in a while.
The cost of labor is one of the most important elements allowing a dealership to cover fixed expenses.
Expanding your Customer Base
There’s a couple of ways to get customers to come 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 they will want to return to your dealership for any issues or maintenance, rather than looking elsewhere.
One of the best ways to do this is by communicating effectively. Scheduling a service appointment immediately after the initial purchase is something you can easily do – and offering a discount (or even a free first service) is a great bonus to the customer.
Maintaining communication is extremely important. Sending text and email reminders to buyers reminding them of upcoming service needs will increase the likelihood they return to you.
Now, when it comes to parts, 93% of auto parts buyers do some sort of research online before making a purchase. Establishing an online parts store allows you access to these potential customers.
If you don’t have an online presence, you’re missing out on profit potential. Relying on sales at just your physical parts counter might not be enough to bridge the gap.
Selling online is actually easier than you think – by partnering with an eCommerce solution, you can get a virtual part store up and running in no time. Here at RevolutionParts, we provide the tools you need to be successful. All you need is patience and the desire to try.