There’s a simple question the boat dealer struggling to keep his or her dealership afloat may want to try to answer: Am I in business to sell boats or to make money?
There are a great many dealers who don’t seem to understand the difference. They focus like a laser trying to sell, sell, sell, while neglecting the many other moneymaking opportunities that owning a dealership can offer.
And nowhere is that neglect more obvious at most dealerships than in the service departments.
Though improving, marine dealerships still fare poorly in customer satisfaction surveys when compared to dealerships in other industries. J.D. Power’s 2005 Boat Competitive Information Survey gives the marine industry a service satisfaction score of 7.44 — compared to a service score of 7.99 for the motorcycle industry and 8.55 for the auto industry.
J.D. Power says it considers any score under 8.0 to be low.
“A whole point behind is pretty substantial,” says Todd Markusic, J.D. Power’s director of powersports research. “When [the auto industry is] at 8.5 and boating is at 7.5, that’s substantial. It’s significant. If you are .2 or .3 away you say you are getting close, but if you’re a full point behind, there is a lot of room for improvement.”
At some dealerships, statistics that offer proof of the industry’s lagging service are greeted with two simple words: “Who cares?”
Many of the dealerships that don’t provide the customer with a good service experience see their service departments as a necessary evil, a hardship they must endure in order to continue to selling boats. That’s a shame, because not only does that attitude reflect poorly on the entire industry, it is also misguided.
A strong service department doesn’t just make the industry look good and keep customers from scuttling the lifestyle; it can also be a cash cow for dealers.
The numbers illustrate that point. A marine dealership makes about 15 percent profit on the product it sells, yet it typically makes only 2 percent (total) on the bottom line. By comparison, an automobile dealer makes about 5 percent on the product but 12 to 15 percent total profit. The automobile dealership’s ability to make money on its ancillary products and services is obvious, as is the boat dealer’s propensity for losing money in most of its other departments. And the service department leads the way when it comes to missed opportunities.
The Yamaha University Strategic Dealer Management Symposium manual suggests that in excess of 75 percent of all marine service departments actually lose money for a variety of reasons, the primary being efficiency. Yamaha University lead instructor and former dealer Noel Osborne says the average marine service department bills out about 40 percent of the paid hours in its shop, while an average automobile dealer bills out in excess of 100 percent.
“So what does that tell you?” asks Yamaha Marine Group President Phil Dyskow. “The dealer is losing a lot of money because he is not understanding how that piece of his business is functioning. We believe that the boat and engine sales are one component of the dealer’s profitability. Service is another.”
In a typical three-technician service department, the difference between a shop that is 40 percent efficient and one that is 60 percent efficient — which service experts believe is the absolute minimum efficiency a service shop should achieve — is more than $70,000. That’s revenue that a dealership could add to its bottom line by doing nothing more than simply creating a minimally efficient service department.
Joe Lewis, president of the Marine Industries Association of Florida and owner of the Mt. Dora (Fla.) Boating Center & Marina, says one of the biggest problems dealers encounter in trying to run a profitable service department is the way in which they bill their work. For the most part, billing the sales department for rigging a new boat sale is just an accounting measure, allocating funds to work completed in the service department. But it can also be a very important step to take if that department is to demonstrate profitability.
“Many dealers can’t comprehend that the sales department should be paying the same thing to have that boat prepped and the accessories put on as what they would charge a retail customer,” Lewis says. “Until they make that leap, their service departments will never be profitable.”
It’s a shift in mentality and in the way billing is handled between departments. For example, Lewis says, some dealers have two different service rates for customers. Customers who bring boats in to be serviced are charged the full retail rate, but new boat buyers are charged less for the work a tech does to prep or otherwise modify those boats before they are delivered. The more time technicians spend working on new boats, essentially discounting their time, the harder it is for service departments to make money.
“It makes it very difficult for a department to be profitable when it can only bill out half of its time,” Lewis says. “And really with a service department, the only thing it has to bill out is its time. That’s the only asset that it has; that’s the only inventory that it has — man-hours.”
Lewis says dealers should bill their full rate for work done to prep boats and pass those costs along to the buyer in the selling price of the vessel.
The warranty debate
No discussion of service department profitability would be complete without including the debate over warranty work reimbursement. This age-old dispute has at times seemed that it might never be solved. In order to maximize profitability in the department, however, it may have to be.
On the engine side, Yamaha’s Dyskow suggests that it is only proper for manufacturers to pay the full-shop rate for dealership warranty work. “If you think about it, on the engine side, who is the biggest customer of the dealer?” Dyskow asks. “It’s not necessarily the end consumer. It’s the sterndrive manufacturer, the outboard manufacturer.”
Yamaha pays full-shop rate on warranty work. The problem, to be candid, isn’t found with the engine manufacturers. It’s more a boatbuilder issue. Most of those suppliers don’t pay full-shop rate. And even among those that do, there are often strings attached.
That is the case with two of the boat manufacturers Lewis does business with. He says that if his customer satisfaction index scores drop below 95 percent, the amount the manufacturer will pay drops $5 per hour off the shop labor rate. If it drops below 90 percent, $5 more per hour comes off.
The result is that one particularly upset customer can have a significant impact on the amount of money a service department can generate. Lewis experienced that with one customer not too long ago.
“Out of three surveys that were turned in last quarter, one guy just rammed us, and it cost me $5 an hour on our CSI,” Lewis said. “In this particular situation, we were waiting for parts from [the manufacturer].
“Now we could have been communicating better with that customer about how, ‘We haven’t forgotten you, we haven’t gotten those parts in yet,’ but that makes [the manufacturer] look bad. You don’t want to be telling a guy who just spent $35,000 for a new boat that the manufacturer he chose to do business with isn’t supporting him. So we could make ourselves look good, but it would be at [the manufacturer’s] expense, and I just don’t think in the long term that that’s a good idea.”
Lewis says he has no problem with a dealership taking a CSI hit when it makes a mistake. But if the manufacturer plays a role, there should then be some leeway with regard to the consequences. However, J.D. Power’s Markusic believes manufacturers don’t have enough influence over their dealers, because the dealers don’t represent just one manufacturer.
“There are so many dealerships and it is so complicated in boating because they are representing so many different brands,” he says. “If you look at the brands that do best in overall satisfaction, I think you’ll find they have the best dealers. But there are a lot of bad dealers out there, and it’s how much control the manufacturers have over the dealers, especially when they represent four or five different brands.
“It’s not like auto, where you’re a GM dealer and they have total control over that. It’s a lot harder for [the manufacturers] to control the dealers.”
Technician shortage=Profit shortage
The shortage of qualified technicians is another major issue when it comes to service profitability. At the Conference on Marine Technical Training, held last February in Fort Lauderdale, Fla., one of the dealers in attendance said technicians were in such short supply that he was willing to settle for “a warm body that’s trainable.”
It’s a nationwide problem. Figures used at COMITT illustrate that fact. Long Island, N.Y., is said to be short some 300 to 500 technicians; thousands are needed in North Carolina and Washington state; more than 1,500 are needed in Florida.
Compensation is often cited as one of the main reasons for those shortages. Joe De Marco, president of the Association of Marine Technicians, told those gathered at COMITT that technicians are the “nuts and bolts of the industry” and that until their value was recognized and they were compensated accordingly, the discussion about why they are in such short supply would continue.
Skip Burdon, the president of the American Boat & Yacht Council says putting a system in place that recognizes that providing technicians with a career path and a sense of pride in the industry is not only important, but vital to the health of marine service.
“For every new boat that’s being sold, it will be a used boat three and four times over,” Burdon says. “And there is no doubt that there are X number more used boats than new boats. They are going to have to be re-engined, refitted and are going to have to have a lot of things done to them.”
Many dealers say they cannot afford to pay their technicians more because they don’t make enough money to do so, and it’s difficult for them to justify pouring additional money into a service department that they already believe to be a waste of money. But many of the most successful dealers know that turning around an unprofitable service department doesn’t have to involve sweeping change. Oftentimes a combination of little changes can add up to a much greater whole.
Reeves Marine in Shreveport, La., for example, added $52,000 net to its bottom line without spending a dime. How? The dealership began using a labor-rate grid system, similar to menu-style pricing, to quote customers a certain price for a certain job and bill them accordingly. So although the posted labor rate at the dealership was $76.99 per hour, bigger jobs allowed the dealership to bill more than that.
“If you bring your boat in and say you want your water pump changed, gear lube, new spark plugs and some other stuff, we tell you how much that’s going to be up front, and we go by this grid,” says Brad Reeves, who operates the dealership. “Although our labor rate is posted at $76.99, we averaged an $85 per hour labor rate because of this grid.”
The dealership also changed the way it paid its technicians, rewarding them financially for finishing a job in less time than what is billed on the labor rate and penalizing them if a serviced product has to return for further repairs.
Lewis has found that an incentive-based pay program, which rewards technicians for their productivity, has also worked to increase efficiency in his service department. Technicians there work on a commission basis, earning 33 percent of everything they bill out. The more experienced techs in his shop are able to make a good living. Lewis says he has a tech who makes about $60,000 annually.
However, he is feeling the tech shortage as well, so much so that the dealership now uses a mentoring program that brings in people with little to no experience and trains them to fix boats and engines. But the mentoring process can take years, and Lewis says that less than 30 percent of those who come in to the program actually stick around long enough to become proficient.
Customer service starts at the top
There are a number of other keys to turning a service department into a profit center.
One of the most important is having an organized, knowledgeable service manager who can create the efficiency needed for service departments to turn a profit. Proper scheduling and preparation can do wonders for a shop.
A service manager who has the right boat in the right place at the right time, and also has the parts and tools on hand that are necessary for the technician to complete the repair, can help turn a sloppy operation into a finely tuned machine.
Those dealerships that can’t afford to hire a service manager should make sure that whoever is in charge of their service shop realizes that organization and planning are absolutely vital if it is to turn a profit. And dealers must never forget the importance of customer service in the overall service experience.
Time spent communicating with customers when they first bring their boat or engine in for service can save time later in trying to diagnose or replicate the problem they are having, and has the added benefit of showing concern for their problem.
Having the boat cleaned after repairs are done, to give it back to the customer in a better condition than when they brought it in, and any other quick fixes the technician can perform — even something as simple as tightening a few loose screws — are valuable little touches that help build customer loyalty.
Follow-up is also very important. A phone call after a couple of days, or at the very least, a post card, to find out how the repaired product is performing not only helps further build loyalty it also gives valuable feedback that can be used to improve the service experience.
“Until you start to measure what’s happening, you can’t ask certain questions and make different changes to improve,” Lewis says.
But large-scale change will never come if dealers don’t first recognize the need for it. There’s nothing wrong with a consistent focus on sales, as long as that focus doesn’t ignore an even more fundamental goal, which is to make money.
Give a service department the attention it deserves, and it will pay you back in more ways than one.
Tips for turning a profit
Several manufacturers now offer their dealers training sessions at various locations around the country in order to provide advice and tips to help them run a more profitable, successful business.
One of the leaders in dealer training is Yamaha, which offers nearly 40 training courses a year under the umbrella of its Yamaha University program.
Yamaha offers its dealers several important areas on which to focus if they are to run profitable service departments. Here are a few.
1. Education and Training — If your people are properly trained they can diagnose and repair problems quicker than those who aren't.
2. Tools and Equipment — You cannot expect your employees to perform without the proper tools and equipment. They are an investment in your future. Make sure you have all of the items required for your people to get the job done right.
3. Availability of parts — You must have a complete accompaniment of 'most often used parts.' Interrupting the repair cycle to order parts you should have in stock, results in lost time and efficiency.
4. Proper planning and scheduling — Make sure your technicians and riggers can get on the job and stay on the job. Pulling them off for another crisis will ruin your efficiency level. This is where you realize the importance of a qualified service writer.
5. Efficient shop layout — Make sure you have air hoses where you need them and parts are available close to the service department. One access door for three service bays does not work.
6. Employee feedback, recognition and rewards — Motivate them properly and keep them informed of their performance and you will be amazed with the results.