BUSINESS MATH SERVICE MANAGERS

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1 BUSINESS MATH for SERVICE MANAGERS presented by With Ray Branch, President, KEEPS Corp Moderated by Mike Bowers, Editorial Director, DealersEdge 1

RAY BRANCH - President Vernon R. Branch ("Ray") has over 30 years of Professional Automotive Industry experience. Currently President and CEO of KEEPS Corporation located in Raleigh, NC.

2 RAY BRANCH - President Vernon R. Branch ("Ray") has over 30 years of Professional Automotive Industry experience. Currently President and CEO of KEEPS Corporation located in Raleigh, NC. KEEPS is an acronym for "Key Employee Evaluation and Planning Systems". The KEEPS Corporation is a fixed operations business management and marketing consulting and training company. Ray is the founder of The KEEPS Corporation and also the inventor, designer and builder of the highly acclaimed ROAMS program. This program is the Automotive Industry's new Fixed Operations standard for measuring sales and net profit improvement performance in retail dealership service and parts departments across the country. ROAMS is a copyrighted and trademarked product. Ray started in the automotive business, as a lot of technical people do, pumping gas and changing oil in a full service station while going to school. His automotive experience includes: Technician, Professional High Performance Engine Designer & Builder, Service Writer, Service Manager, Parts & Service Director, Factory DSM, Professional Seminar Designer & Trainer, Vice-President of Fixed Operations for an 11 Dealership Group, National Director of Fixed Operations for the Eleventh Largest Dealership Consolidator in the USA, Service Field Consultant for JM&A Group, and now Founder/Inventor/CEO for The KEEPS Corporation. Ray can be reached by phone at (800) or by at vrbranch@aol.com 2

3 AGENDA 1. Fixed Absorption 2. Net to Gross Profit Ratio 3. Gross Profit (Dollars and Percentages) 4. Cost of Sale (COS) 5. Effective Labor Rate (Customer Pay) 6. Mark-Up Factors 7. Personnel Expense 8. Repair Order to Service Consultant Ratio 9. Repair Order to Tech Ratio 10. Tech Value 11. Semi Fixed Expense 12. Fixed Expense 13. Parts to Labor Ratio 14. Service Consultant Share Value (ALL Repair Orders) 15. Customer Pay Hours per Repair Order 16. Putting It All Together/Work Exercise - What does it take to be at 20%+ Net to Gross Profit Ratio 3

4 FIXED ABSORPTION Be Careful Here Several Absorption calculations floating around It is easy to be talking apples and footballs and not know it 4

5 NET TO GROSS PROFIT RATIO Mostly a service department calculation and includes parts transfer When this number is right you are really good at your game 5

6 GROSS PROFIT (DOLLARS AND PERCENTAGES) Cost-of-Sale is biggest issue here and Must be defined Hint Its not your service consultants 6

7 COST OF SALE (COS) Now we will get to the exact details 7

8 EFFECTIVE LABOR RATE (CUSTOMER PAY) Much more than meets the eye Lots of discussion regarding the one ELR you must know and track Now we can put the numbers all together 8

9 EXAMPLE: WATER PUMP REPAIR Tech Tech Pay Labor Parts Total Labor Rate Job Water Pump Hours for Job 2.5 ELR COS GP$ GP% Math Results ELR

10 MARK-UP FACTORS Now you can discover the sales price with your profit margins built in (protected) Lots of GOLD hiding in this discussion 10

11 PROFIT MARGIN MARK-UP FACTOR TABLE GP% Desired Mark-Up Factor GP% Desired Mark-Up Factor GP% Desired Mark-Up Factor GP% Desired Mark-Up Factor GP% Desired 10% % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % 4.35 Mark-Up Factor 11

12 CALCULATING AND USING MARK-UP FACTORS 100 Standard - Minus Gross Profit Margin % desired = Division factor needed to find mark-up factor 100 Standard Division factor = Mark-up factor needed to find retail selling price X Cost of item Mark-up factor = Retail selling price that will produce the desired gross profit margin % 12

13 PERSONNEL EXPENSE Let s make sure we are counting the heads correctly Techs not included you re kidding!!! 13

14 REPAIR ORDER SERVICE CONSULTANT RATIO CSI is hiding within this calculation MORE is not always good!!! 14

15 REPAIR ORDER TO TECH RATIO Now we can talk work mix Think LOF tech vs transmission specialist 15

16 TECH VALUE Usually calculated Monthly Forecasting Gross for your Dealer just got real specific 16

17 SEMI FIXED EXPENSE You have more control than you think Are you walking around with a list of last months expenses in you pocket? It s that important 17

18 FIXED EXPENSE You can HELP reduce fixed expense Give it some extra thought You will be surprised how you can influence this area 18

19 PARTS TO LABOR RATIO Oldie but a Goldie and still relevant Let s discuss why a $1.40 parts to $1.00 labor ratio is not good 19

20 SERVICE CONSULTANT SHARE VALUE (ALL REPAIR ORDERS) New term and critical to CSI We must think Work Load 20

21 CUSTOMER PAY HOURS PER REPAIR ORDER Its important But is it really?? What does this number really measure? What makes it tick? Deep Dive into the behind the scene math 21

22 SERVICE DEPARTMENT WHAT DOES IT TAKE TO BE AT 20% + NET TO GROSS PROFIT RATIO ANALYSIS Step 1 Your Net-to-GP% GOAL (should be 20%+) - Current Net-to-GP Ratio (ROI) (*if positive subtract from goal, if negative add to goal) = Your Net-to-GP% needed to hit your GOAL Step 2 Average Month Total Gross Profit Dollars X Your Net-to-GP% needed to hit your monthly GOAL = Additional GP Dollars needed monthly to hit you GOAL 22

23 Step 3 How many more Customer Pay Gross Profit Dollars per Repair Order do you need to hit your Net-to-GP% GOAL Additional GP Dollars needed monthly to hit your GOAL Average Month Number of Customer Pay Repair Orders = Additional CP Gross Profit Dollars per Repair Order needed to hit your Net-to-Gross Profit % Goal. (Is this believable & achievable?) Step 4 How many more technicians Do you need to hit your Net-to-Gross Profit % Goal Additional GP Dollars needed monthly to hit your goal The value of ONE technician in Gross Profit Dollars (for one month) based on your Service Department s ELR, GPM%, & # of days open etc.) = Number of Technicians needed to hit your Net-to-Gross Profit % Goal. 23

24 Step 5 How many more flat rate hours do you need to produce to hit your Net-to-Gross Profit % Goal Additional GP Dollars needed monthly to Hit your Goal Your Current Average Gross Profit Margin % Across Customer Pay Warranty & Internal Labor = Additional Labor Sales Dollars needed monthly to produce the GP$ to hit your Net-to-GP$ % Goal Your Current Average Effective Labor Rate Across Customer Pay Warranty & Internal Labor = Number of additional FRH s needed per month to hit your Net-to-GP$ % Goal Average number of service days per month = Number of additional FRH s needed per day to hit your Net-to-Gross Profit $ % Goal Number of Flat Rate Technicians in your shop = Daily Average FRH improvement needed per technician to hit you Net-to-GP$ % Goal 24

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Dealership Financial Statement Analysis: The Advanced Course

Dealership Financial Statement Analysis: The Advanced Course With Ron Sompels, CPAstrong Moderated by Mike Bowers, Executive Editor at DealersEdge Thursday, February 27, 2014 1 2:30 pm ET Ron Sompels,