A FOCUS on fixed operations management (vehicle service) still provides the best opportunity for dealership profit improvement. 

This is because the gap between the most efficient non-luxury workshops and average is $65,000-plus per technician net profit per annum in labour alone.

In this article, we provide a simple analysis template allowing dealers to assess how their service department is performing based on actual expenses, resources, charge rates and operational efficiencies. Then we will provide five simple non-negotiable service activities that will help maximise service profit in 2025.

To start, view each hour paid to a technician as being one unit of labour inventory costing approx $35 an hour (prime cost). If we sell it for $160 we make $125 GP @ 78 per cent margin. But remember on average only 80 per cent of hours we pay techs are available to sell so the $160 per charged hour delivers $128 labour revenue per hour of labour inventory bringing the gross per paid tech hour down to 73 per cent.

Critically, unlike vehicle or parts stock, each hour of labour inventory unit effectively self-destructs on the hour. That may sound dramatic, but it should make us think differently about unapplied time, workshop scheduling and workshop efficiency.– Craig Rowney

Now what’s the cost to run a workshop, what do recovery rates need to be and what does this mean for the skill level and leadership acumen you need in Service?

To get a precise picture of required recovery rates we calculate the following:

1. The total operating expenses to be recovered each month including rent, share of administration, technician wages, non-productive wages, and any other costs associated with the service department.
2. Required Effective Labour Recovery Per Paid Technician Hour. This is simply your monthly service operating costs above divided by the number of hours (inventory units) you paid your chargeable staff for the month. On average it’s 165 units of inventory per tech per month that you pay for.
3. Effective Labour Recovery Per Paid Technician Hour. Now divide actual labour sales by the hours (or inventory units) paid to chargeable staff for the same period (we suggest utilising a 3 month period).

If Effective Labour Recovery (ELR) is less than Required ELR you are not making a profit in Service on Labour which is where many dealers are heading.

Following is a table based on an average metropolitan dealership for 2025. 

We suggest you use your own numbers to calculate your current position.

What this means for dealerships?

The above average dealer needs to sell 80 per cent of total paid technician hours @ at an average charge rate of $166 per hour to breakeven on service labour. But dealers normally sell between 65 per cent and 75 per cent of total technician time depending on franchise, work mix, technician skills, advisor skills, internal controls and leadership. These are the areas that create the significant profit gap that we see across dealerships and it’s linked to processes, resources, skill levels and leadership.

The dealer must recover $133 service sales for each hour they pay their techs but what happens to profit when expenses increase and charging efficiency fluctuate?

With each 1 per cent movement in charging efficiencies or expenses being worth $1.33 per hour the impacts are exponential across 10 technicians.

Where does your dealership sit on the table below, remembering this example has required recovery rate per hour of $133, yours may well be higher?
The potential annual performance fluctuation is $657,020 ($262,800 v – $394,212) or $65,700 net profit per tech per annum in labour profit alone. 

We continue to work with dealers to alleviate profit leakage in fixed operations and here are our TOP 5 SERVICE OPERATING NOT NEGOTIABLE PROCESSES.

• Avoid fixed quoting on repairs – always quote a range
  Every quote or estimate is given as a range except for CPS or basic servicing which is simple and can be set.
  “The estimated cost will be between $500 and $600. We always quote a range to allow for any small variations. In the unlikely event of this occurring, we will contact you immediately for guidance on how you want us to proceed.”
  Why do this, because 90% of the time the cost of the job is the lower end so“We did quote in the range of $500 to $600 and the good news is we have managed to fix the issue for $534”
• Any labour discounting from RO to invoicing can only be approved by either by the service manager or nominated senior staff.
  All labour discounts must be explained and reviewed as the time can never be recovered. Ten Technicians with a five per cent average labour discount on $165 per charged hour = $130,000 per year on the bottom line if this is alleviated.
• Set a limit on Capped Price Servicing hours to be sold each day based on your required mix of work to achieve your required recovery per hour rates. Also create a separate labour and parts code for CPS work so you can track the profitability on both CPS and non-CPS work.
• Every retail job must be confirmed by midday the day before, just sending a text reminder is not sufficient, we must have confirmation as no shows are normally replaced by internals and we lose external revenue.
  If we reduce no shows by 3 per week and replace them with retail jobs with an average of $250 labour revenue and $75 parts gross, we will generate an extra $50,000 per annum net profit. It’s worth someone getting on the phone to confirm every reminder that didn’t answer yes!
• Maximise your labour inventory by ensuring technician numbers do not decline and overtime is utilised to take advantage of lead times. Each hour of overtime generates a minimum of $100 labour profit + parts profit. Overtime is not a cost it is a profit generating opportunity. Ten techs averaging two hours per week 100% on efficient overtime generates and additional $100,000 net profit whilst allowing the technicians to earn more.

We urge all dealers to dedicate some time and understand their required recovery rates, at the very least it would be useful exercise to complete the analysis for your operation as this provides a foundation to develop a sustainable service strategy and for you to review and monitor processes to maximise service profitability.

Craig Rowney is a member of the motor industry services team at Pitcher Partners.