Since 1818, there have been over 1,000 documented sightings and countless legends regarding the existence of the creature known as “Bigfoot”. However, there remains no real proof of his existence. Yet, people continue to search for him!! In the Service Department, an equally elusive creature is the concept of a Perfect Repair Order. In this legend, there is an interaction between Service Department personnel and the customer that results in a transaction that perfectly addresses the short-term and long-term needs of both parties. What does this look like and how can it be achieved? The starting point is understanding what it looks like. So then, what is the perfect repair order? The perfect repair order combines two concepts – the Perfect Content and the Perfect Price. Let us explore each of these.
What is the Perfect Content?
The Perfect Content is the work that the vehicle needs at this time, after the owner’s plan for the vehicle has been considered. This is a tricky concept that requires further explanation. Suppose you have two customers with identical vehicles in the same condition both with 60,000 miles. The only difference is that one of these customers plans to trade their vehicle in within the next 30 days and the other customer plans to keep it for another two years. Would the Perfect Content be the same in both cases? The answer is NO! If you want to incorporate the customer’s plan for the vehicle into the equation when determining the work that should be recommended – that is what creates the Perfect Content.
This factor – the customer’s plan for the vehicle – is seldom considered when recommendations are formulated. Why is this the case? It is because whatever processes and technology we have to help handle the customer experience does not support the asking of the “magic question” and the recording of the result for future use. The “magic question” is simply asking the customer “what is your plan for this vehicle?”. The answer should be noted on the repair order as a comment or a line item.
For example, “customer states that this vehicle is leased, and the plan is to turn the vehicle back at the termination of the lease”. In this case, the appropriate recommendations would be OEM factory scheduled maintenance along with repairs that the customer would be responsible for as part of their lease obligation. This should be reviewed at each visit and changes should be noted. For example, two years later, the customer may decide that their plan has changed and that they now intend to purchase the vehicle on the expiration of the lease. Knowing this, you would be in a position to change the strategy for the Perfect Content.
4 Elements of The Perfect Content
The first element is the work that the customer requests when they call for a reservation or arrive in the service drive. This could be work in one or more categories such as a request to fix a symptom they are experiencing. For example, the vehicle may be running roughly. This category will require diagnosis to determine the needed repair therefore it is vital to get a complete and accurate description of the symptom and the conditions where it appears. Another category is a request for scheduled maintenance. A third category is a request to fix a known problem such as “my water pump needs to be replaced”. This typically occurs when the vehicle was in a shop recently – yours or someone else’s – where a diagnosis resulted in this needed repair being identified. A fourth category is a request to have a recall performed on the vehicle. This is typically triggered by the customer receiving a recall notice from the OEM or dealer.
The second element would be any items identified during the “walk around” that is part of the write-up process. This may vary by car line and how the dealership is set up, but typically these include, tire or tire related services like rotates, balances and alignments, and items such as light bulbs, wipers, possibly a battery or belt, or fluid fill or exchange.
The third element would be items not requested by the customer but identified as being due based on the vehicle’s history and the time and mileage of the vehicle. These would typically include recalls, currently due OEM scheduled maintenance, past due OEM scheduled maintenance, dealer recommended enhanced maintenance, previously declined repair recommendations, and wear items that were identified as “yellow” during an inspection at previous visit.
The final element are items that are identified in the shop as a result of the diagnosis of a customer concern or the technician performing a multi-point vehicle inspection. These would be identified as additional service requests, presented to the customer and either approved or declined. In either case, these would be noted on the RO as part of the Perfect Content of the Perfect RO. Having the Perfect Content is half the battle on the search for the Perfect RO. The other half is charging for the work you did at the Perfect Price.
What is the Perfect Price?
It is the price that is not so high that it impacts on customer retention or so low that it leaves gross profit on the table. This is not a simple proposition since there are numerous factors that determine the Perfect Price. The main two are the type of work being performed and the type of customer who is paying for the work. The type of work can be classified into 3 categories based on job complexity, skill and tools required and the competitive environment for the type of service.
These categories are:
- Lube Oil and Filter (LOF)
The customer purchasing the work can be:
- A retail customer
- A dealership employee
- A fleet customer
- The OEM for warranty work
- An insurance company for extended warranty
- The dealership for “internal work”
The LOF is the most common service performed on vehicles and it is available from numerous types of providers ranging from full-service operations, such as dealerships, to specialty shops such as Jiffy Lube. It is frequently advertised, often as a “loss leader” so the customer is usually aware of what is considered an appropriate competitive price for this service. The job requires a relatively low skill level so the personnel cost to deliver the service is also relatively low. These factors all need to be considered in establishing the price for this service.
The price for the LOF often drives the customer’s perception of your overall pricing so you should be aware of this when you set the price. While you do not need to be the least expensive in your market, you should be proud to post your price for this service on a “dare to compare” board as a statement of your value proposition.
The Maintenance category represents the “middle of the road” in the pricing continuum. There is significant competition in this segment which limits your pricing flexibility. However, it is often the case that competitors are often not offering “apples to apples” comparable services in this category and clarity on content – including parts quality and warranties – can be helpful in positioning your price for these services. Maintenance services are usually “menu priced” with a total price for the job being quoted.
For an OEM, the Repair category of service is where they have the greatest edge. This is the highest skill work and often requires tools and training that competitors cannot match. Consequently, this is the area of greatest flexibility and opportunity. The price for a repair job is most often “assembled” by determining the labor hours from a labor time guide and multiplying this by the appropriate labor rate from a labor grid and then adding the parts charges by determining the cost of the parts and then applying the appropriate markup from the parts grid. Any other job-related fees, such as hazardous waste, shop supplies and taxes are then added to determine the total price for the job.
The second factor, the specific customer buying the service, must also be taken into consideration. The amount being charged to a large fleet customer may involve pricing concessions on the labor rate, parts markup, or both in order to get and keep the account. This would result in the fleet customer being able to buy the exact same service as that being bought by the retail customer but at a reduced price.
If the customer is the OEM reimbursing the dealership for warranty jobs an entirely different set of factors apply. The labor times for the job are derived from a warranty labor time guide, the labor rate and warranty parts markup are established though an application process governed by OEM and state rules that can be reviewed yearly. Being “on top” of these rules and filing for increases in a timely manner can have a major impact on the price of warranty services and consequently the Service Department and overall dealership profitability.
Finally, the Used Vehicle department is often a customer of the Service Department when it comes to work associated with reconditioning pre-owned vehicles. This can potentially lead to requests from the Used Vehicle manager for pricing concessions from the Service Department, or having the work sublet to another shop or having the Used Vehicle department employ several technicians on its own. This is done with a view by the Used Vehicle manager to improve their department’s financial performance by reducing the reconditioning expense. At the numerous 20 group meetings that have covered this topic, the view is that the dealership will maximize their overall profit through a policy of all reconditioning work is performed in the Service Department and charged at the retail customer rate. Where this is the dealership policy, it is incumbent on the service manager to provide the quality and cycle time of service to justify this favorable treatment.
Overrides and Hidden Discounts
Careful and ongoing analysis of the competitive environment and the establishment of policies that deliver the Perfect Price across all categories of work and all customer types is necessary to get to a Perfect RO. However, this is not sufficient. There are some cases where the most careful planning by service management gets thwarted by the frontline staff – typically Service Advisors and Technicians – in the way they execute the quoting and billing functions. In most dealership’s DMS systems, there are ways for staff to override the labor time, labor rate, or parts markup to reduce the price to the customer. These “hidden discounts” are often well intended but have been shown to be very costly. It is recommended that the dealership adopts a discounting policy where a discount must be visible to the customer and to service management. Just modifying the elements that determine the price does not comply with this policy and needs to be eliminated.
Now that you know what the Perfect RO looks like, what do you need to do to “make it happen”? This will require a review and rework of all of your customer handling processes to make them more effective for both you and your customers. Let Dynatron Software help!