Gross Profit Retention

[warr_wiz]

Our gross profit % seems to be a little lower than what I would like to see. Nothing major but it is just under 70%. So I am trying to figure why and what can be done. One thing I have been looking into is customer pay reconditioning. Right now we pay a tech 10/hour so it shows as a cost to the ro. For example...the clean is charged out at $129 and the tech is paid 7.5 hours at $10/hour. If I show the cost as a sublet repair, will this have any affect, good or bad. It seems to me this would not change much of anything other than the sublet account. It would be charged the same amount but not shown as a tech being paid. Anyn thoughts or theories. I am still looking into other areas to see if I can see anything. Thanks for any suggestions.

[Michael White]

To start, I am confused on what "customer pay reconditioning" is. Are you putting used car recon in C/P?? If you are paying a tech 7.5 hours to do a job that gets only $129, you are only getting $17.20 per hour. If this is tru, you work cheap. If you were closer, I would sublet my work to you and get a nice markup. Are you talking labor gross only or are you talking department gross? I guess it is importnat to know if you are sharing any parts gross as well.

I would assume you are a flat rate shop and therefore efficiency is not a issue with gross profit. This means you either hire cheaper labor and distribute your work to the cheapest person per qualification, or raise your labor rate. One thing you are probably not doing is getting retail for used car recon. When we started this, we found out gross profit increased in our used cars. We are getting $89.50 per hour for used car work. We are a hourly, union shop.
Maybe you could give us some additional info on the type of dealership you have and some additonal info on size, labor mix, etc. Have you tried matrix pricing or variable labor rates??
Mike

[Doug]

I'm not sure if I understand the example you've mentioned...maybe you could clarify a bit. Anyhow......

A couple fo key elements in maintaining a good GP% on labor are 1) having a good mix of technicians so you are not having your highest paid techs doing the simple, heavily discounted "competetive" work (which low paid techs can do) and 2) having a good mix of work so that you have lots of high-porfit repair work to balance out the discounted work. 3) On repair work and hi-tech stuff, DON"T be afraid to charge out lots of labor at a high rate. Much of this is captive work that nobody else in town has the training, desire, or equipment to do.....so, don't give it away ! 4)If you can get your advisors to focus on GP% on labor (I pay extra for high GP%), then give 'em a labor matrix chart/pricing grid to work from
.....it works !

[warr_wiz]

OK I see after reading my own post where all the confusion comes from. This time I'll sit here and finish before getting dragged away. First, the recons are done by an outside company that uses our recon bays. If a customer asks to have a recon service while the car is here, they are charged $189.95. The recon company charges me $75. On the RO we show the company as a tech and pay them 7.5 hours @ $10/hour, showing the cost as $75. My question is if I put the cost as a sublet repair, will this have any affect on GP%. My feelings are that the only thing to change will be the sublet account. The cost is still the same.
As for the correct mix of repair types and techs...we do what we can. We are a small shop with only 4 full time techs and 1 part timer. The 6th tech is strictly a used car tech and does not usually get involved in any customer pay work.
Used car recons are not put into c/p. That is all internal. And yes we do use a matrix price guide. The internal rate is about $10/hour cheaper than our C/P rates.
I realize this will not solve all my problems, I couldn't be so lucky. But the question was asked by the guy with his name on the sign out front so I figure I better look into it. Anyway, I hope I helped clear some of the confusion. I better go unlock my door now, they are lining up out there. Thanks everyone for your help!

[Doug]

OK, strictly speaking, you have a sublet vendor performing this work, right ? When they present you with an invoice for payment where is THAT amount being posted ? If it is being to posted to any place other than your labor cost-of-sales account then your repair order is being over-costed and naturally your gross profit percentage will drop. In other words, you may be showing the $75.00 cost twice....once on the repair order and then again in some other account. Find out where the $75.00 cost is being put when your business office pays the invoice.

You could, I guess, put the COST as a sublet and show the $189 as a labor sale at 100% profit. This will naturally skew the numbers to show an overall increase in labor profit, but not departmental profit. A little odd, may raise an eyebrow or two, but you could do it. However, now your sublet will show a drastic negative profit. It is not customary to show cost in an account completely unrelated to the sale.....I'd bet that your business manager would not let you do it.

So far, though, we're just talking about moving numbers around, not really increasing any actual profit. Why not hire your own detailers? I have a crew of 5 detailers and pay each guy a flat $50 per car....any car, any size. I retail the complete detail job for $139-$179. Easy money and the detailers can usually do 2 cars per man, per day. They are the highest paid detailers in town but boy, do they crank out the work...everybody walks away happy.

Straying a bit here but what the heck. Why focus just on customer pay labor sales when looking at your labor profit ? The overwhelming trend these days is to charge RETAIL on internal labor (used car reconditioning, for example). If your dealer and sales manager resist just tell them that, historically, this method has had NO ill effect on vehicle grosses but sure does help the service department !

Another area where some guys leave good $$$ sitting on the table is Pre-delivery Inspection. This is gravy work which could and should be done by a lower priced person.
I have 85% gross on inspection labor. Its all part of the overall departmental picture, right ?

[hipi]

Doug, what is you g.p % for your detail dept.? Our retailer is asking us to stay around 70%. A majority of our work is internal. We charge the NCD and UCD for cleaning cars. We pay our detailers flat rate.

[Doug]

Right now almost all of our detail work is internal and the gross is 60% ($125 flat rate to UC Dept, any car, and $50 labor cost)which really hurt our overall internal labor percentage. But we a geared up to do 150 details per month which would give us 25-50 jobs done "customer pay" at $139-179....this would obviously move the percentages.

I can't believe my advisors have not been selling more details....talk about a gravy job and easy sale ! You can lead a horse to water....

Hopefully, when spring comes, more customers will be interested in this type of work and my advisors will make a go of it. Till then I'll just have to hammer those boys !