Performance Strategies that Maximize Service Absorption

Service Absorption has long been a crucial metric in the automotive industry, yet there’s still variation in its calculation. Using the formula from NADA 20 Groups, it’s defined as the percentage of a dealership’s Total Expenses less New and Used Variable Selling Expenses that can be paid for by the Total Fixed Operations Gross Profit. Last year, NADA reported the national average for Service Absorption at 59%. Moving towards 100% Absorption should be the goal for every dealer and fixed ops manager in the current automotive landscape.

To achieve this goal, let’s explore strategies tailored to the retail service customer, as they present the greatest opportunity for increasing gross profit. It all begins with the perception of how the Service and Parts departments should be structured and managed. Do you foster a culture of administration or one of sales? This is reflected in the roles of Service Writers vs. Service Advisors, the percentage of 1-Item Repair Orders, customer pay repair order count, CSI rating, and more.

To aggressively pursue the goal of 100% Absorption, a Fixed Operations Director must adopt effective sales management strategies similar to those used in the front end by the General Sales Manager. Metrics like Hours per Repair Order, Service Advisor’s Closing Ratio, Parts Inventory Turns, and Technician Parts Fill Rate are crucial indicators of success.

Unfortunately, there’s often a disparity in the standards applied to Sales Management and Fixed Operations Management. It’s time for Fixed Operations Directors to commit to measuring performance metrics rigorously. Get involved in the daily operations, observe technician inspections, conduct Daily Sales Meetings with Service Advisors, and actively engage with customers in the service drive and during active delivery.

Every day in fixed operations should focus on managing sales opportunities to increase gross profits and net profit. Technicians should conduct thorough vehicle health checks with every Repair Order, while Service Advisors should actively seek sales opportunities during vehicle walkarounds and review of repair history. It’s imperative to emphasize advising customers on their vehicle’s repair and maintenance needs while maintaining integrity and never recommending unnecessary services.

In today’s competitive aftermarket, where over 70% of parts and service industry sales go to aftermarket competition, it’s crucial to take bold actions. Set ambitious sales goals for all departments, establish a plan for implementation, and hold everyone accountable by measuring performance daily. Lead, coach, and train the fixed operations team to remain focused on their goals and processes. Underachievers should be replaced with individuals who possess strong sales skills.

Achieving 100% Service Absorption may take time and concerted effort, but with a shift towards a Fixed Ops Sales Team mindset and strategic implementation of sales strategies, it’s an achievable goal in today’s automotive market.