Updated: Feb 8, 2022
Do you like negotiating with car dealers? Most people I know do not. Why? Because it can be uncomfortable. Often it takes research and multiple interactions to get the best deal possible. If you don’t like “haggling”, pay the dealer price like some do and be done with it. No matter what price you agree to, the dealership will make most of their profit from service and parts, and not from the sale of the vehicle. According to the National Automobile Dealers Association (NADA), new vehicles represent 58% of the dealership’s total sales and 26% of the gross profit. Used vehicles represents 31% of sales and 25% of the gross profits. These numbers include finance and insurance products sold on the vehicles.
Service and parts represent 49.6% of a dealership’s gross profits!
What does your company’s service and parts revenue and profit stream look like? Is service considered a cost center for your business? If it is, you are missing out on a substantial opportunity to increase both your top and bottom line.
Optimize your Service sales channels
When you optimize all the potential service revenue streams and service sales channels, the impact to revenue and profit can be significant. Service revenue generators include, but are not limited to, service contracts, aftermarket parts, repair and maintenance, upgrades, installations, training, technical support, preventative maintenance, consulting, subscriptions, IoT services and more. To optimize service revenue, all your sales channels need to be engaged, incentivized, aligned, and organized. Outside sales, inside sales, field service technicians, customer service, manufacturing representatives, distributors, third party sellers and agents can all be effective service revenue generators. Each sales channel should be
“According to the National Automobile Dealers Association (NADA)… Service and parts represent 49.6% of a dealership’s gross profits!”
assigned to the part of the sales pipeline that makes the most sense to your team and to your customers. Field sales should sell a service contract with the new equipment just sold. Inside sales should be assigned service contract renewals and targeting existing customers that are not on a service contract. Field service technicians should sell a service contract to a customer after a costly repair, demonstrating how much they could have saved had they been on a service contract. Aftermarket parts should be sold by all sales channels. The key is to ensure that each channel is in alignment with the overall sales strategy so that they are not in competition. The fastest way to lose sales team mind-share is to create a situation where your sales channels are in competition.
Focus on Customer Satisfaction (CSAT)
The most important metric that will impact your service profit line is CSAT (Customer Satisfaction). If your customers are not happy, it is usually for good reason. Poor service is often the result of an inefficient, under-resourced, under-appreciated, and poorly run customer service operation. The negative hit to your top line will also be a negative hit to your bottom line. Think about that the next time you take your car to be serviced. If you have a bad experience, on top of other bad experiences, how likely is it that you will be bringing your car back? Customers almost always have other choices of where to take their service business.
So, as you optimize your service revenue channels, make sure you have invested in your service delivery operations as well to ensure that your customers keep coming back.
Optimize Service profitability
Service profitability is impacted by pricing, operating efficiencies, product mix, product quality, service delivery methodology, resource availability, training, field service technician utilization, warranty costs, cost of sales and organization churn, among other things. It can be complicated! Financial and operational key performance indicators (KPIs) aligned with benchmark data that would represent your service delivery running at peak performance is critical to optimizing service profitability. DMAIC principles (Define Measure Analyze Improve Control) play an important role in managing this process.
A healthy Service business can pay big dividends during a recession
During the Great Recession in 2008 and 2009, manufacturing at the company I was with was negatively impacted for months by the economic downturn. There were reductions in force, spending cuts, furloughs, mandatory vacations, and salary decreases. To “keep the lights on” we needed to generate cash. A robust service revenue stream was the solution! During this period when equipment sales decreased as much as 35%, service revenue decreased by only 10%. Customers needed to keep their production equipment running and maintained. To skimp on preventative maintenance and repair was a risky proposition in a severe recession. A catastrophic failure would mean replacing the equipment, which for many companies was not an option they could afford.
So, like the automotive dealerships know, selling and delivering exceptional service is a true competitive differentiator, and a way to create satisfied and loyal customers. Now there is a great way to increase your top and bottom line!
Patrick Sandefur is the Founder and Managing Director of Bass Harbor Group / Customer Experience Solutions. His 30+ year career in Customer Service, Sales, Marketing, Product Management and Business Development has given him a unique perspective of what customers want and expect when interacting with a brand.
Read more from Patrick Sandefur by clicking on recent posts below.