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income is 25 to 35 percent of the total service department revenues. Let's consider that the annual labor sales of $180,000 stays the same for the coming year. However, you initiate a program that pays technicians a commission on the sales of parts and accessories used to complete a work order. As a result, at the end of this coming year, the ratio for the sales of parts and accessories grew from $20,000 to $40,000. Total revenue for the year becomes $220,000. The ratio of parts and accessory sales, $40,000 to total revenue, is 18.18 percent. Is this doable? Yes, if your current ratio is 10 percent, and your technicians are motivated and engage in the activity. It is a common occurrence that, while the service work is in progress, defective, worn and damaged parts are discovered. An exception to these percentages is the service department of dealers whose major focus is on the sales and service of commercial lawn care equipment, and/ or they provide technical service on large farming equipment. These service departments tend to have a ratio of 40 to 45 percent. The highest ratios we have seen in a well-managed service department were 50 percent of the annual revenue was from labor income and 50 percent of department revenue was from sales of parts and accessories. The objective is more than looking for an opportunity to sell additional parts. It's about completing the repair without overlooking a worn or broken part that could fail during the next few hours, resulting in a rework, loss of efficiency, and having to deal with unhappy customers. The path leading to an unhappy customer could begin with a service work order that simply says, "Engine won't start." We recommend investing time to review a number of completed service work orders, both past and present, to determine your average ratio of accessory and parts sales to labor dollars before you begin the incentive program. Your objective is to manage your service department to the highest standard of "zero defects and no returns." Terms and conditions Technicians must be billing at 60- percent efficiency and above to be eligible to earn commission on parts and accessories. Any technician billing less than 60 percent should be focused on improving efficiencies. If you are not maximizing profits on parts and accessories, you cannot afford to pay commission on parts and accessories. If you need a strategic plan for maximizing overall company profits, contact my company, Jim Yount Success Dynamics (see my contact information at the end of this article). Invest necessary time to confirm gross profit margins on parts and accessories. The combined average should be between 45 and 50 percent; the closer to 50 percent, the better. Also, it is a good practice to review your overall cost of doing business before making the decision. Consider the following guidelines for paying commissions on sales of parts and accessories which were used to complete a service work order. For technicians performing at: • 60-percent efficiency, technicians will earn 1.5-percent commission on parts and accessories. • 65-percent efficiency, technicians will earn 2-percent commission on parts and accessories. • 70-percent efficiency, technicians will earn 2.5-percent commission on parts and accessories. • 75-percent efficiency, technicians will earn 3-percent commission on parts and accessories. • 80-percent efficiency, technicians will earn 3.5-percent commission on parts and accessories. • 85-percent efficiency, technicians will earn 4-percent commission on parts and accessories. • 90-percent efficiency, technicians will earn 4.5-percent commission on parts and accessories. For decades, the service department has been buried in the belief, "A service department is necessary to my business, but you can't turn a profit." That's simply not true. If you invest yourself in this program, implement the necessary changes, and manage for results, you will see your service department turn around. A well-maintained and well-managed service department is central to growing company sales revenues and profits dollars. We recommend technician/service writers spend more time soliciting honest parts and accessory sales. We suggest the technician/service writer be prepared to say, "Mr. or Mrs. Customer, that's a lot of money to spend on your well-worn equipment. Instead of replacing the engine, may I recommend visiting our showroom where we are promoting 'Zero down on new ZTRs'?" Caution: Be sure you've got the details worked out with your finance company before making such an offer. Suggesting your customer visit the showroom is a good way for certain customers to save cash and buy on credit. Automobile dealers make this offer regularly, because it works. In addition to the subject matter I've covered thus far in this series, there are other subjects associated with owning and managing the service department as a stand-alone profit center. Why not get the whole story? These subjects, along with forecasting charts, job descriptions, tips on hiring qualified technicians and service manager and/or service writers, are in our book, Re-inventing Your Service Department from Cost Center to Profit Center. Our book will be offered before the end of this year. Watch for our ad in Outdoor Power Equipment. Jim Yount is the founder and chief executive officer of Jim Yount Success Dynamics LLC. For more than 30 years, he has hired, trained, managed, sold, marketed, and motivated. Extensive real- world experience in retailing, distribution and working with manufacturers, both domestic and international, has earned Jim the reputation as a trustworthy and knowledgeable professional in his field. As a results-oriented speaker, he is dedicated to inspiring groups of 30 to 3,000 to develop their talents and realize their full potential. As a business consultant, teacher and coach, Jim is experienced at challenging leaders to explore their operational procedures and change unacceptable practices that are producing poor results. For more information, contact Jim at jimyount@hughes.net or (903) 796-3094 or visit his website at www.jimyountsuccessdynamics.com. OUTDOOR POWER EQUIPMENT NOVEMBER 2012 19 OPE