How to Increase Dealership Service-to-Sales Profitability: Tips on Running a Service Department
Even before dealership inventory shortages, consumers were waiting longer than ever before between new vehicle purchases – the average age of a car on the road in the U.S. has risen from 9.6 years in 2002 to 12.1 years in 2020.
Coupled with ongoing inventory shortages, refining your dealership’s service department process to generate more revenue can make a critical difference in your dealership’s bottom line.
In this post, we’ll share how dealers can improve the profitability of their service department and discuss:
- Why the service drive has become a key component in dealership revenue and the importance of service drive loyalty.
- How to grow service revenue and loyalty with actionable tips.
- How to dedicate a sales team member to the service drive – and equip them with the right tools.
Why the Service Drive Has Become a Key Component in Dealership Revenue
As vehicles get older, they require more maintenance, representing a growing opportunity for dealers. Pre-pandemic, service department sales were on the rise, increasing from $50.4 billion in 2015 to 62.6% by 2019.
While this number declined in 2020 to only $51.9 billion, 2021 bounced back to pre-pandemic levels, totaling $60.4 billion by NADA’s mid-year report in June. Amid continuing inventory shortages, this trend will likely continue as rising prices and limited availability push some customers to hold onto their vehicles longer.
Of course, service revenues are not only key to a dealership’s bottom line. Service loyalty also drives sales loyalty. In fact, Mastermind data finds customers who service at the dealership are about 2.5x more likely to purchase their next vehicle from the same retailer. For dealers who want to grow their share of both revenue and loyalty, below are some simple data-driven suggestions on how to run a dealership service department in today’s competitive landscape.
Plus, as limited availability pushed pre-owned auction prices to historic highs, the service drive represents a prime opportunity for dealers to acquire in-demand trades and flip existing inventory all from their service drive.
But with service customers typically not yet in-market and dealership loyalty at an all-time low, it is critical dealers get ahead of their customers and competition to profitably acquire vehicles, grow service revenue and promote customer loyalty.
Get the Guide:
30-Question Quiz for Maximizing Revenue in the Service Drive
How to Grow Service Revenue & Loyalty
Don’t be afraid to combat them on cost.
For one reason or another, many consumers believe the dealership is the most expensive place to get their vehicle serviced. This is one of the many reasons why customers stop visiting the dealership service drive once their warranty expires – or worse, well before it expires.
To avoid any comparison-based shopping, dealerships have typically avoided putting transparent pricing on their websites, prompting customers to make their own assumptions and service elsewhere. But for dealers to combat customer concerns, they need to address them head on.
While industry data does show a price differential, it’s also usually less than customers expect – and that difference can be tied directly into the needs and desires of today’s consumer. For instance, dealers have direct access to the quality benefits of OEM-certified technicians and genuine parts, but for customers with late-model vehicles, sometimes it’s just about getting anything done.
Dealers should utilize predictive marketing campaigns that connect the perceived benefits of OEM people and parts to the customer’s desire to have their vehicle performing at a high level as long as possible. Instead of being afraid to compete on cost, messaging should focus on your service department’s advanced knowledge and abilities as compared to the more generalized service shop down the road.
For instance, consumers approaching the end of their warranty and not yet ready to return to market may be more open to messaging such as, “We have the expert technicians and factory-quality parts to keep your car or truck running great for years to come,” and more sensitive to suggestions that they would be sacrificing quality and long-term dependability by entrusting their vehicle to the low-cost competition.
Treat service business as a local business.
Rather than trying to reel in conquest service customers from far away, dealerships should focus on marketing to existing local customers and audiences. Research regularly finds consumers are unlikely to travel more than 20 miles for a car service, and almost three quarters of vehicle service visits take place within 10 miles of a customer’s home.
An inner 10-mile radius is likely the prime territory for your service drive marketing campaigns, beginning with local same-brand owners who have purchased their current vehicle from a dealership other than yours, eventually expanding into other similar owners whose vehicles your technicians are prepared to repair.
Today’s social media and digital advertising platforms have powerful geographic capabilities, and your service drive marketing campaigns should be taking advantage of them to ensure you’re not spending marketing dollars trying to sell service visits to consumers who are outside your local market. Leverage the data in your dealership’s CRM, DMS and sales platform to hyper target your messaging, prioritizing the customers most likely to visit your service drive.
Transform part of your department for touchless deliveries and time-sensitive services.
Many consumers believe independent mechanics or specialized franchise tire, lube, air conditioning or brake shops are much quicker than dealership service drives for standard maintenance services or state safety inspections. Now that many brands have adopted self-self and contactless service models, offering a convenient customer experience is more important than ever for dealership service departments to stay competitive.
To keep your existing customers and effectively conquest others back from competitors, dealers need to offer a quick and convenient service experience. Review how each kind of order is handled within your dealership service department process and consider setting up a dedicated service drive or repair bay for those kinds of repairs and marketing it directly against the competition on speed, cost and, above all else, the OEM touch.
How to Integrate Service and Sales
Service conversion, when done effectively, is a tremendously powerful and efficient method of sales prospect generation. A properly managed and data-driven service-to-sales strategy affords numerous opportunities to build revenue in the service drive, including customer lifetime value, dealer loyalty and service drive sales profitability.
This requires not only ensuring your service drive is providing an excellent customer experience, but also having the right people and processes in place to connect your service and sales departments so you’re taking advantage of that connection.
Ask yourself: What tools have you provided that dedicated person to identify the best prospects, and how much do they know about the people who will be showing up in your service drive that day? Do they have the right resources and authority to structure an offer and close a sale?
Building a data-driven service-to-sales strategy
To capitalize on the opportunities in your service drive, you need a data-driven sales strategy tailored to and evolving with your dealership’s needs, plus the tools, people and processes in place to support that approach.
While there’s no one-size-fits-all approach, to develop a strategy for optimizing the profitability of your service department, consider:
- How many service drive RO’s are you doing per month?
- How many people are needed to support selling in the drive?
- What is your current market share?
- What service conquest marketing are you doing today?
- What is your service conquest marketing ROI goal?
- What are your YoY dealer and brand loyalty sales growth goals?
Finally, task your team to review any upcoming service appointments with the goal of identifying prospects who are out of warranty, over lease mileage or driving a highly profitable pre-owned vehicle. Engage these prospects before their service appointment with personalized messaging including actionable sales offers that include F&I figures. Taking a similar approach with Mastermind, our dealer partners report converting service customers into new car buyers at a 4x higher activation rate.
Get the Guide:
10 Steps to Identify and Prepare for Service Drive Engagement
Dealership service drive is a very important department that should not be ignored. How can you increase service drive profitability?
- Use messaging to your advantage
- Treat service business as local business
- Offer a convenient customer experience
- Use data to turn service to sales
- Identify possible prospects from service appointments