Under our 2018 theme of ‘Developing Human Capital,’ this article focuses on the right perspectives and practices to develop and engaged employees who create repeat customers profitably. It is written by one of my Machinery Advisors Consortium Colleagues, Bill Hoeg. — George Russell
Why do car dealers get less parts and service business after the warranty expires? Why are there so many independent repair shops to fix your car?
Our industry is not the car business and we need to avoid some of their practices in order to build value and keep as much parts and service business as possible post-warranty. So what can we learn from the car business?
Remember who really pays our wages and salaries — the customer. We need to provide great value that keeps the customer coming back to the dealership, yet earn enough profit so we’ll survive and thrive in the future when the customer needs us the most. Everyone in the dealership’s focus needs to be on both value to the customer and how we do that in a profitable way — and not just profit.
Figure out what is really causing your profitability issues and fix those first. In our experience with hundreds of dealerships, there is 20-25% inefficiency in both parts procurement and technician time to bill. Let’s translate that: For every customer whose machine is in your shop for 2 days, they’re paying $500-$600 more than the value they received. And if the tech had to stop to wait for parts to be ordered, then the number doubled to $1,000-$1,200.
To compensate for these inefficiencies and lack of profitability, many dealers add fees on to each work order. Unless there is true value, these fees plus the challenging economic times in farming, it’s no wonder customers seek other sources for parts and service.
For every 5 techs with these inefficiencies, the average dealership location is losing $12,000 of tech time weekly — plus the related parts sales of about $12,000. On average, a dealership loses $500,000 worth of pure cashflow annually due to service and parts inefficiencies while also hurting customer value.
Don’t let your accounting system communicate your value. Presentation and perception are very important, and we often fail to read what we put on the invoice and how the customer perceives it. Of course you need to track, manage and account for every expense through a very good and transparent cost accounting system. But don’t take the lazy way out and directly transfer the language of the general ledger into the words on the customer invoice.
Remember, the work order and invoices are two separate things. Scrutinize each line on the invoice. Teach your team to take the customer’s perspective and use words on the invoice that demonstrate and show the value they provided. Aggressively (and accurately) market what you do and the services you provide. The invoice has nothing to do with your cost to provide the service but has everything to do with the benefit and value the customer receives from you. If you’ve set up your customer communication and work-order estimates properly, the customer has already agreed to the work you are doing. The invoice then simply provides proof that you’re trustworthy and credible.
Words are important to establish value. When you invoice special fees as part of repairs, use words that demonstrate value. Again, we can learn from the car industry. Car dealers first began adding the ‘Electronic Hook-up Fee’ to diagnose the car’s condition. When these words set the value of the special tool, it exposed that fee to competitive evaluation and political criticism.
Instead they (and our industry) should instead use ‘Diagnostic Fee’ which includes more value than a “black-box” hook-up. This description also covers the skill and art of understanding what the tool is telling the technician. Other examples:
• Not “Shop Supplies” but “Miscellaneous parts to complete the repair”
• Not “Oil Disposal” fees but “Required Environmental Protection fees”
How you say it is as important as what you say. You don’t have to show all fees separately. You can include them in totals and use the description on the segmented work-order and invoice.
Attitude is paramount. There are people on your teams who are bored, who think customers owes them, and that they’re doing them a favor when they help. Surveys show about 30% of employees are disengaged. Another third of your employees can be coached to have the right attitude toward customer value and profitably.
The name of the game is “customer value” that is “perceived” as customer value. The challenge is to find the balance between profitability and behaviors of your team that create repeat customers. These are the lessons.
1. Fix your inefficiencies first. Don’t create customers issues with fees to overcome profit gaps.
2. Develop engaged employees whose perspectives and attitudes are customer focused.
3. Market your value to show customer the benefits that they received.
Doing these will demonstrate the real and perceived value of your dealership, and lead to both repeat customers and better profitability.
