Home ARTICLES Here's a better performance metric than service absorption

Here’s a better performance metric than service absorption

Revenue per unit in operation measures how much service business your dealership is capturing. To calculate this rate, take the number of vehicles you have sold in the past six years. Let’s say you average 100 car and truck sales per month. Over six years, that’s 7,200 vehicles.

Now calculate the total service revenue you have generated from those vehicles in the past six years — not conquest customers, just units in operation. Divide your total units-in-operation revenue by 7,200. The result equals your current revenue per unit in operation. This metric immediately gives you a measurable benchmark for improvement.

More important, revenue per unit in operation:

  • Represents the true service potential for your dealership. What percentage of service business from units in operation have you captured? Most dealers capture just 20 to 25 percent of revenue potential from their units in operation. That leaves a lot of room for improvement.
  • Gives dealers a better view of strengths and weaknesses. Are you having a problem retaining service customers? Are you maximizing service yield from every vehicle? Perhaps you’re having trouble getting customers to come in for their first service visit, or retaining their business after their factory warranty expires. Revenue per unit in operation allows you to identify problem areas.
  • Facilitates meaningful cross-dealership comparisons and diagnostics. In a group, comparing revenue per unit in operation can identify problem stores. Are underperforming stores not seeing enough unique vehicle identification numbers? Are they not seeing them often enough? Are they not yielding enough revenue per VIN scan?
  • Encourages scrutiny of all revenue leakage points. Revenue per unit in operation shifts a service department’s focus to providing superior value and convenience to customers. It encourages dealers to engage in meaningful dialogue with customers, change processes and take advantage of knowledge about vehicle service needs.
  • Provides better data on return on investment. New investments in service marketing, service lane technology and loaner vehicles are no longer measured as an expense, but against their impact on incremental service gross profit.
  • Perhaps most important, revenue per units in operation creates a fundamentally different strategic and operating mindset, in which the dealer does not concede any revenue to the aftermarket.

The good news for dealers is that since 2012, the combination of increased new-vehicle sales and a 13 percent reduction in the number of dealerships has created the highest ratio of units in operation to dealers in industry history. The bad news is that a continued reliance on service absorption is preventing dealers from taking advantage of this opportunity to increase market share and service department revenue.

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