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Achieve 50% GPM in Service

11 Aug, 2008 By: Editorial Staff imageSource

Achieve 50% GPM in Service


What are greatest challenges that service managers face when striving to
achieve 50% gross profit margins?

Jack Duncan - I have seen all shapes and sizes of dealers trying to
make the “Model” fit.  Sales sets the service pricing for maintenance agreements
at the street price or what they feel the market will bear.  This is done
without regard to current cost per copy to operate the equipment they will be
servicing. Too many times the true cost per copy is not known by the dealer and
they use what I call “Rumor Cost.”  The results are often a revenue stream that
is depressed to begin with and will never support the making of a 50% gross
profit margin. 

Ronelle Ingram - In most metropolitan and rural areas, the cost of
getting a service technician to the equipment is the most expensive part of any
call.  In most cases, the travel labor time and vehicle cost exceed the cost of
repair labor, parts and supplies. 

 Jim Kahrs - Many service departments are not able to properly
evaluate and drive their profitability because they have not implemented a
service department profit and loss statement, also referred to as a P&L or
income statement.  Of course to achieve a goal it is critical to have a method
for evaluating it.  How can you raise something you’re not tracking?

Where are they going wrong & losing money?

Ronelle Ingram - Most dealers are not appropriately managing travel
time.  They are not taking into consideration the time required to actually get
to the specific serialized piece of equipment they are servicing.  In most
enterprise size companies, immediate walk-up access to networked equipment is
rare.  Frequently, the tech must wait to be escorted to the equipment, taken to
a different serialized piece of equipment, and the person who called in the
service request may be unavailable so they are turned away if there is not an
alternate contact.  Service managers should consider this “find time” to be part
of travel time.

Jack Duncan - Service departments are not getting every possible
productive hour out of their field staff.  Their rescheduling too many service
calls because they don’t have the right parts in the right place at the right
time. Many service departments don’t realize they are losing one hour per tech
per day due to time falling through the cracks. This increases the Burden Rate
by as much as $10 per hour! We need to ensure that our First Call Effectiveness
maximizes every service call by cutting recalls that cause us to go back where
we have already been.

IS: How can service departments strengthen their focus?

JK - They need to use their own P&L to track and drive their desired
results.  The service manager should be looking at the P&L regularly and using
it to determine strategy.  Senior management should use the service department’s
P&L as a tool to incentivize the service manager.  This gets everyone on the
same page and pulling in the same direction. 

JD - Service departments must monitor all costs, productivity levels,
and service technician proficiency to keep their expenses at proper levels. They
need to compare operating cost per copy to national levels on like products to
ensure that costs are within recommended limits. If maintenance pricing is set
simply as a margin above costs, dealers will most likely price themselves out of
the market. 

RI - Technical managers must look at the big picture and factor in all
the labor time and other costs, including profit that must be recouped in the
price of service agreements.  They must not depend on the manufacturer to
determine your cost per copy. 

As consultants, how can a software program (such as e-automate) help service
managers achieve 50% GPM?

JD - As industry consultants, we’ve created a custom report for use in
the e-automate software that gives push button access to vital technician
statistics, such as Daily Productive Time, Efficiency Percentage, Response Time,
Inventory Turns and more, in one concise, easy-to-run format. Fields can be
clicked on to “drill down” to more in-depth information. 

JK - Service departments can create their own customer report in this
program and they can run it at will.  There are some important things to
consider when starting this process. All revenues and expenses must be properly
categorized at the transaction level.  This may take a little set up in
e-automate and some minor changes in processes but it’s well worth the time
invested.  It will allow you to get an accurate service department P&L without
asking your people to jump through hoops. 

RI- The e-automate software has a module called Remote Tech that goes
a long way toward eliminating both “find time” and travel time by empowering
field technicians to send and receive information in “real time” through their
hand held mobile devices.  With Remote Tech, the technicians are able to close
1-2 more calls a day, create new calls, prioritize call information, and
accurately track mileage.  Remote Tech also gives reports of overall service
efforts that measure and track a technicians speed and quality of service.

imageSource understands that this software is geared towards pointing service
managers to the goal of achieving 50% GPM, and “that doesn’t seem elusive at all
with this reliable product.”

Digital Gateway,
.; Ronelle Ingram (BTA)
ronellei@msn.com; Jack Duncan,
Jim Kahrs, jkahrs@prosperityplus.com.

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