Tuesday, September 4, 2018

September 2018: Building Service Menus: "What's The Parts Manager's Role?"

For over 30 years I have trained and coached in well over 200 dealerships throughout the U.S. and Canada and I have to admit that one of my most "dreaded" visits into dealerships was "Service Menu Week". I knew I was in for a brainstorming week with both the Parts and Service Managers.

I also knew that this "Service Menu Week" would require lots of research including manufacturers' service and maintenance recommendations, local area recommendations and the dealer's sales and gross profit needs.

Most importantly though, bringing the Parts and Service Managers together and agreeing on "one size fits all" Service Menu.

Building the "right" Service Menu requires many elements including; recommended service intervals, maintenance recommendations, service labor times, proper effective labor rates and yes....parts!

We not only have to choose what parts to include at what intervals, we also have to determine the right price for so many different part numbers.

Before we get started building our Service Menus, I want to mention that as we move through this exercise, those of you who have the benefit of V.I.N. Specific Service Menus already have much of the research, or "homework" taken care of up front by the vendor.

Vendors who provide these V.I.N. Specific Service Menus "dial into" each vehicle manufacturers' specific year, make and model to labor time guides as well as part numbers for each interval menu service. The only items left to be installed are labor times, effective labor rates and the parts selling prices.

For most dealers though, these V.I.N. Specific Service Menus can be quite expensive which means creating and developing these Service Menus falls upon the Parts and Service Managers to do all the leg work. Often times, this is where we may be called in to assist the managers in creating their Service Menus.

We will go through each step of the Service Menu Development Process from start to finish which will of course include the Parts Manager's role. In my opinion, both the Parts Manager and Service Manager need to keep it simple when developing Service Menus.

Without a doubt, they can be quite cumbersome, complicated and could end up getting way out of hand.

Let's Get Started!... 

Step One: Competitive Market Survey

One thing that we have to consider is what our overall "out the door" pricing should be. Comparing other dealers Service Menu Pricing is extremely important as we don't want to price ourselves out of the market even though we don't necessarily want to be the cheapest.

The focus should be on value and providing the interval service that replicates the manufacturer and local area recommendations.

Choosing the right combination of the manufacturers' and local area recommendations could be the difference in overall menu penetration. Too little can be too little and too much can be too much when it comes down the final pricing decisions.

In comparing prices in the market, we have to make sure we are comparing "apples to apples" and not "apples to oranges."

Step Two: The Right Combination At The Right Interval 

When we talk about the right combination, we are referring to the right combination of manufacturer and local area recommendations at the proper intervals. In my opinion, this is one of the most important decisions that both the Parts and Service Managers have to make.

This decision will determine the overall menu penetration and proper sales and gross expectations.

Service Menu Packages should first include the manufacturers' recommendation, whether in severe or non-severe climates. Additional recommended services such as power steering fluid, brake fluid, fuel induction, transmission fluid, coolant and wheel alignments are often added to the manufacturers' recommendations.

Although, it's great to see many manufacturers now recommending, (once again!) brake fluid replacement, transmission fluid and coolant back in the rotation. For a while there, we were told by these manufacturers that some transmission fluid and coolant were considered "lifetime" fluids.

Many owners manuals maintenance recommendations leave much up to chance with phrases like "inspect and replace as needed or required".

This phrase leaves the door wide open to varied menu package prices from dealer to dealer. Proper verbiage on service menu packages is crucial in NOT misleading customers on their service maintenance needs.

Most manufacturers Owner's Manual Maintenance Recommendations only suggest the very basic maintenance operations such as oil changes, tire rotations and maybe engine and cabin air filters. They leave the area recommendations up to the dealer and local climate conditions.

This in itself is very important in explaining to customers the difference between what their Owner's Manual states versus what the dealer may be recommending. Quite simply and for example, I'm sure that more air filters are replaced in Arizona versus Alaska.

Due to these variances in the Owner's Manual and local climate recommendations, educating the customer along with Service Advisor Service Menu Presentation Training on the Features and Benefits is extremely important.

Step Three: Parts Pricing

Here we go "Smart Parts" Managers!...

First and foremost, all Service Menu Parts Prices need to be "flat priced", unless a V.I.N. Specific Service Menu is being used. Service can't be changing their labor fee amounts around different parts prices on cabin filters for example. Weighted Price Averaging is the way to overcome all the different parts prices on the same type of part.

Weighted Price Averaging simply works by combining five or more of the most popular part numbers of the same type of part and combining all of the piece sales collectively. Once the collective piece sales of all five part numbers are tabulated, then we would divide the total piece sales by the total cost to get an average piece sale cost.

Example: Cabin Filters

 Part #                 Unit Cost          Annual Piece Sales          Total Cost       
123456                  $4.56                       512                          $2,334.72
654321                  $7.88                       345                          $2,718.60
123123                  $10.65                     112                          $1,192.80
321321                  $12.35                       54                             $666.90 
987987                  $14.12                       21                             $296.52

                               Total Piece Sales:  1,044   Total Cost:    $7,209.54

                               Average Piece Sale Cost:                              $6.91
                               Mark Up % (40% Retained Gross)                  1.67

                               Cabin Filter "Flat Price":                           $11.54

Even though there is a negative gross profit on the two least popular and most expensive cabin filters, the most popular cabin filter has a retained gross profit of over 60%, far exceeding the negative gross, with almost ten times the overall sales of the bottom two.

Most often times, the part that sells the most is usually less expensive.

The biggest "gross killer" for Service Menu Labor is the inconsistent parts pricing on Service Menu Labor Operations. Even though the Menu Labor Fee could have had a "backed in" Desired Effective Labor Rate, labor overrides due to part pricing inconsistencies tends to drive the Service Menu Labor Effective Rates down.

Oil and Fluid prices that may have varied quart or litre quantities utilized can also cause a problem for "out the door" Service Menu Pricing. The best way to overcome fluid quantity pricing is to go to the top right out of the gate. 

In other words, if quart or litre quantities range from four to six, allow for six in the Service Menu Pricing. Customers don't mind if their Service Menu Package was a little less than quoted as opposed to being more than quoted. 

Another way to overcome varied application usage is to provide the right comments, or disclaimers such as "includes up to 5 quarts of oil, add for additional". Either way, keeping it simple is always the best way to go and makes it much easier for Service Advisor Presentations.

Step Four: Service Menu Labor Pricing

Coming up with the right Service Menu Labor Pricing can now be added to the overall "out the door" package price. Now that the parts "flat prices" have been established, it's time to look up, or establish the proper technician times to each menu package and "a la carte" Labor Operations.

Combining each individual Labor Operation within each Service Menu Package is required to achieve one combined labor time for each package.

Once the labor time is established, the Service Manager needs to determine the right Customer Pay Effective Rate that will retain the proper gross margins while maintaining an overall competitive "out the door" Service Menu Price.

It is not uncommon to make compromises on Customer Pay Effective Labor Rates and Parts Markup Percentages in order to remain competitive in the marketplace. Most important is to eliminate overrides and advertise professional service and value.

Step Five: "Lock 'Em In"!!!

The last step in Building Service Menus is to lock everything in as far as Operation Codes, Flat Parts Package Amounts, Labor Fees and Technician Labor Times. If possible, depending on which D.M.S. is used, these labor operation codes should be password protected, thus eliminating any chance for overrides.

Overrides should only be allowed by the Parts and Service Managers Once overrides are allowed, that's when gross profit and menu penetration percentages start to go downhill. If "accepted" overrides are becoming more frequent, then maybe we need to modify the Service Menu Package, or "a la carte" service maintenance operation.

The Parts Manager's role in the Service Menu Building Process is crucial and plays an overall major role in the success of any Service Menu. The success of any Service Menu Program can only be determined by how well the Menu Presentation and Penetration Percentages are tracked and maintained.

I've often been asked by Service Managers....

"How do you like our Service Menus?"

My answer is always a question and quite simple...

"That depends, what's your overall Menu Penetration and Retained Gross Percentage?"

"The Service Menu is only as good as how well it was built in the first place, performing to the levels expected with at least a 35% Menu Penetration with 100% Customer Presentation. Lastly, if priced correctly with the right "backed in" gross amounts, the answer to this Service Manager question would be obvious."

Dave Piecuch is the Vice President of Automotive Consultants Group Inc. and is the Head Coach for Smart PartsTMThe only "Results Based" High Return Training, Coaching, and Consulting company in the world!  Dave can be reached at Cell 786-521-1720 or E-mail at dave@smartservicetraining.com Vist our Website at www.smartpartstraining.com