Missed Profit Opportunities
There is real profit to be found in doing thorough inspections on each customer’s RV and making recommendations for additional maintenance.
In the pursuit of additional profit opportunities in your service department, you must focus on maintenance of the RV unit and its appliances. This is a missed opportunity for many RV dealers who do not perform complete and thorough inspections of their customers’ RVs and do not make recommendations for preventative maintenance based on time, mileage, local conditions, etc. The missed profit opportunities here might surprise you.
To begin with, let me ask you this question: “What percentage of your customers take delivery of their new or used RV and then, once they get home, remove that gigantic loose leaf binder with all of the owner’s manuals and warranty booklets so they can review and study their required and recommended maintenance services?” I don’t know the exact answer, but I’m pretty confident the answer is “not very many.”
I’m talking about the hydraulic systems and filters on diesel pushers, transmission filters on both gas and diesel power trains, filters for the air conditioner, how and when to lubricate, clean and adjust slide-outs, changing engine oil, generator oil and the list goes on and on and on!
Next question: “Are all of your customers mechanically inclined and can perform all maintenance services on their RV themselves?” Chances are many, if not most of them, can’t even spell wrench let alone know how to use one.
Customers Rely on You – The Expert
My point here is that most customers rely upon someone with knowledge of their RV to provide recommendations for the proper maintenance and service on their RV. It’s kind of like going to the dentist, who performs an inspection of your teeth on each and every visit and makes recommendations to you based upon the time since your last visit and the condition of your teeth. You rely upon a professional to help you maintain healthy teeth.
An RV customer is no different. They rely upon a professional – your technician or your service advisor – to properly advise them on how to maintain a reliable and safe RV, which of course in the long run provides a much more enjoyable RV experience. There’s nothing worse than taking a hunting trip and the first night you discover that your furnace is not working, right?
OK, so let’s look at the profit potential regarding this process of inspecting every RV and making recommendations to your customers for additional maintenance. In working with RV dealers all over the country, I have found that a complete and thorough inspection will produce, on average, an additional two hours of labor per retail work order. Let’s use the following assumptions when calculating the profit opportunity in our model dealership/service facility:
1. Retail labor rate of $90 per hour
2. Retail labor profit margin of 75 percent (Techs are paid $22.50)
3. Parts to labor sales ratio of 1 to 1 ($1 in labor sales = $1 in parts sales)
4. Retail parts profit margin of 35 percent
5. Average 100 retail work orders per month
By performing complete and thorough inspections of all 100 RVs we find, on average, two additional hours to sell at $90 per hour equals $180 in labor sales, at a profit margin of 75 percent, produces additional gross profit of $135.
At a 1 to 1 ratio, our parts sales would also be $180, with a profit margin of 35 percent, producing an additional gross profit of $63. Add the two together and our total additional gross profit equals $198 per work order multiplied by our 100 work orders and the result is an additional gross profit of $19,800 per month, annualized comes to $237,600 for the year for every 100 work orders.
Now ask yourself this question: “How many additional RVs do I need to sell to produce another $237,600 in gross profit?” If your average gross profit per unit is $5,000 this equates to 48 additional units. Does that get your attention?
Parts & Service Should Cover Fixed Expenses
The point is, you need to start looking at your service and parts departments as true profit centers that can not only stand on their own, but actually generate enough profit to cover all of your dealership’s fixed expenses. This means you have less dependency on new and used unit sales to make a net profit, which becomes a huge benefit during a soft market, high interest rates, high cost of fuel, bad weather and a whole lot of other ills.
In far too many RV dealerships, the service and parts departments are simply there to provide support for the sale and delivery of new and used RVs. Their secondary role is to take care of all the warranty repairs and last of all, if time permits, they will write a retail work order for cash business.
I’ve actually been in an RV service department that had a sign above the service counter that stated: “Our service department’s priority is to service RVs for our sales department first, warranty customers second and retail customers last.” If this philosophy makes sense to you then welcome to the Dark Ages!
As you can imagine, this dealer was losing money in his service and parts department in numbers that would take your breath away. Would you want to be a service advisor or service manager in that store? It’s worth noting that the turnover in those two positions exceeded 300 percent per year!
Why would you want to operate any department in your RV dealership at a loss to support another department? I believe it makes a lot more sense to operate every department as its own revenue center that works with the other departments to maximize performance and net profits for the dealership. It’s called return on investment.