IN OUR recent article about service remaining the backbone of the dealership we analysed service profit from 2020 to 2025 for an average metropolitan dealer, the key findings were:

• There has been a minimum of 17% operating expense increase 2025 v 2020 
• The break-even labour rate per charged hour has risen from $158 per hour in 2020 to $185 in 2025 to cover all service expenses including rent and share of dealership administration.
• As the required labour rate has increased, the mix of capped price service work has also increased thus constraining the dealers’ opportunity to lift their average labour charge rate.
• In 2025 an average non luxury metropolitan dealership that is achieving an average labour recovery rate of $165 is $20 per hour short of covering total service operating costs.
• Rental costs and share of administration costs in 2025 account for approximately $60 (or 32 per cent)  of the average required $185 breakeven labour rate.
• Dealers overestimate the percentage of technician’s hours that are sold with less than 75 per cent of a technician’s time being sold in an average dealership.

Given costs such as rents, technicians, insurance, technology and supplies will only increase it is time to re-think service structures and drive asset utilisation to sustainable levels.

To put it simply, dealers must sell more hours per work bay whilst embracing a “cost out” approach as this is the only way to reduce required labour recovery rates to achievable levels.

Here we examine four initiatives that are happening now and the impact on profit. 

1. Target 20 per cent of work bays to be multi-tech bays (2 technicians per bay)
2. Overtime is not a cost, it’s imperative – 2 hours per week per technician across the team
3. Replacing one advisor with a dedicated costing clerk (in effect a service sales manager)
4. Move to 40 per cent multi-tech bays plus utilise technology to reduce advisor stress and workload.

The impact of each scenario on average charge rate v required labour recovery rate will be examined but first let’s establish the current position in terms of the average charge-out rate.

** Each tech is at work 80% of the time and the dealer charges 90% of the hours the tech is at work.

Currently the average dealer is approximately $20 short of breakeven per charged hour given labour mix and charging efficiencies as above.

Strategies to Drive Service Profit

Following are four strategies which dealers need to be implementing. In this analysis we track the individual and cumulative impact of each strategy on profitability. There is not one simple answer and a long-term committed strategy is required.

Craig Rowney

Strategy 1:  Minimum 20 per cent Multi Technician Work Bays

Increase a 10 technician 10 bay workshop to 12 technicians on 10 bays with 2 bays now “multi-technician”.

Charging efficiency for the 4 technicians on the multi-tech bays will be 75% and thus the overall charging efficiency will fall from 90% to 85% across the entire team.

Result: Charged hours increase by 13%, with expenses rising by 5.5% for the extra 2 technicians.

The impact is the required recovery per hour has reduced by $13 or 7% by multi-techs on 2 of 10 bays.

Strategy Part 2 – Drive Overtime to Drive Profit by selling more hours per work bay

Have the 12 technicians deliver 2 hours each per week = 24 hours per week x 4.2 weeks in a month = 100 hours per month on 100% chargeable jobs.

Costs increase 100hrs x 1.5 x $35 prime cost = $5,250

Decreasing our required recovery by $22 an hour by utilising overtime 2 multi-tech + 2 hours overtime per technician per week.

Strategy Part 3 – Replace or move one advisor into a dedicated RO costing role.

This 12-technician workshop now redeploys an advisor into a dedicated costing role in addition to the 2 multi-tech bays plus the 2 hours over time per week per tech.

A costing clerk normally improves charging efficiency and in this case we will assume a conservative 3% overall improvement.

There are no extra costs associated with this initiative as we have merely reassigned an advisor to a costing role.

We are now back at $159 required recovery per charged hour, a reduction of $26 from our original position of $185

Strategy Part 4 – Install a Service kiosk to take pressure off advisors plus multi-tech 2 more bays

We now have 14 techs – 10 bays of which 4 are multi-tech bays

The additional cost for the 2 techs is $10,000 per month (an apprentice + an experienced tech).

The Service Kiosk costs $3,000 per month

Our overall charging efficiency lifts a further 2% to 90% on the back of continued improvement.

We are now back at $140 required recovery per charged hour on the back of these 4 initiatives.

In the past we have spoken about the $1,000,000 per annum profit gap for a 10 bay workshop and our analysis clearly shows the reason this occurs but importantly we have now shown you a sample of the actual initiatives required for a dealer to maximise service profitability.

By Neil Dowling