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Sewells best practise: Where’s the profit? Ask an accountant

"Ask an accountant for a sure-fire way of increasing service profits and the advice will be that every pound cut from costs and expenses is another pound in profit.

A visit to a busy service department highlighted this as potentially excellent advice. The place was manic – bookings were strong with eight technicians working flat out. All of this should have been a recipe for an equally strong profit performance, but despite outstanding sales per technician, the direct profit per technician was less than the franchise average, and the direct profit as a percentage of sales was below par.

So, where had all the profit gone? Quite simply, the costs and expenses were well above the norm – perhaps because there were no controls in place. Starting with the costs, we found overtime was running at extraordinary levels – an average of over one hour per day per technician. Not that we have anything against overtime, but at this level it is clearly cheaper to take on another technician if space allows. This dealership did have the space, and the reduction in costs of nearly £10,000 per annum fell straight to the bottom line.

The next area was consumables. Making these freely available in the workshop is likely to create waste. This was the case, and to make matters worse the service manager was responsible for buying consumables and his criterion was convenience rather than price.

The purchasing and dispensing of workshop consumables is now the responsibility of the parts department in this dealership, and in less than six months it has saved nearly £4,000. It made even more by allocating part numbers to commonly used consumables and charging these on to customers.

Overtime and consumables are easy to spot, but then it gets harder because two-thirds of service department expenses are non-productive wages, which probably can’t be cut. Surprisingly the service manager had no expenditure limit. So we issued him with a purchase order book and required that he obtained the dealer principal’s approval for any expenditure over £100. That dealer will make about £20,000 extra profit this year."

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