It's scary to think of the number of customers that have been chased away over the years because of a $20 fee for “shop supplies” on the repair order.
When I was a service manager, we charged that fee, amounting to 5% of the labor sale amount (not to exceed $20 per customer repair order). It was to recoup the cost for the supplies we used in the vehicle repair.
Sometimes customers pointed to the fee on the bill and said, “What's this?” Our cashier would tell them in her authoritative tone through the voice hole in the glass panel, “It's a charge for rags, nuts, bolts and other things we used in fixing your car.”
If the customer replied, “All I had done was an oil change!” and persisted, the cashier would click on the intercom and (in her “you're-wasting-my- time” tone) summon the service advisor to the cashier's window.
The advisor would know instantly it's a potential “heat case.” When he arrives, the customer again questions the charge with more intensity. The advisor would listen, then remove the charge for the sake of customer satisfaction.
Yet the customer would likely leave feeling the dealership tried to rip them off, got caught and backpedaled. So much for a satisfied customer.
If this sounds familiar, you have two options.
Remove the supplies fee from the repair order completely or continue to separately state it on the repair order. Let me give you some ideas that may keep those customers coming back to your dealership.
Remove it from the repair orders
Most service advisors are uncomfortable explaining the charge for shop supplies because they do not believe in it. How effective can you be selling something you do not believe in?
Given the choice of removing it from the repair order with an increase in the labor rate or leaving it and developing a process to help explain it to the customer, service advisors would hands down pick the first option.
But service managers don't want it removed. They are focused on one issue and that's profitability.
Even so, many dealerships have elected to remove it from the repair orders, either by choice or otherwise. Many dealer associations are recommending the removal.
So how do you recoup the lost revenue, keep your customers coming back and have satisfied employees? One option is to remove the charge from your repair orders and increase your customer pay effective labor rate to recoup the lost revenue.
Let's use the following numbers as an example:
| Customer Labor Sales per Month | Customer Pay Effective Labor Rate | Monthly Customer Flat Rate Hours | Monthly Shop Supplies Expense |
|---|---|---|---|
| $115,240 | $62.98 | 1,829.8 | $4,260 |
You need to recover $4,260 from customer pay repair orders for monthly shop supplies. How much do you increase your customer pay effective labor rate to recover $4,260 every month? The calculation is, as follows:
| Desired Monthly Revenue | ÷ | Monthly Customer Flat Rate Hours | = | Increase in Customer Pay Effective Labor Rate to Recover Shop Supplies Expense |
|---|---|---|---|---|
| $4,260.00 | ÷ | 1,829.8 | = | $2.33 |
You will need to increase your customer-pay effective labor rate to $65.31 ($62.98 plus $2.33).
Have your office manager/controller make a manual entry to reclassify the revenue from customer pay labor sales.
For each customer flat rate hour produced, $2.33 is credited to the shop supplies revenue account. Don't credit it back against the shop supplies expense account. This just covers up the total amount and everyone has a tendency to just blow by it. It needs to be managed just like any other revenue account.
Keep it on the repair orders
If you continue to separately state it on the repair orders, be careful with the amount you charge. Set a limit per repair order. The going rate is 5% to 10% of labor with a maximum of around $20 to $30 per repair order.
The words that your advisors use to explain the post-diagnostic repairs are very important. The advisors must be trained to include the words “shop supplies” (or whatever you term them) in their presentation.
The explanation should go like this: “The total price including parts, labor, taxes and shop supplies is $452.21.”
Do not allow them to run from it. During the active delivery, they must use the words again. You do not want your customers to only hear the words when they ask to review their bill.
A customer may ask your advisor, “What are shop supplies fees?” The advisor must have a ready response. If the advisor hesitates in the explanation, the dealership's creditability is at question.
Consider this explanation: “It's a small surcharge we assign to all repair orders to recover the costs for parts and chemicals we used in repairing your car that do not have part numbers.”
It's important that your managers do not allow anyone to remove the fee from the repair order because of potential legal issues. Contact your legal advisor for guidance.
Additional considerations
Controlling the usage and purchase of the shop supplies should be a managed process. The service and parts managers must develop a written control process. The purchase and inventory of the actual supplies should be the responsibility of the parts department.
Inventory shop supplies just as you would any other type of part. Charging the service department expense account when supplies are received will cause wide fluctuations, making it difficult to accurately forecast expenses for the month.
Upon issuing shop supplies, the parts department should receive a reasonable mark-up for their role in controlling the supplies. When a technician needs an item, the parts department should charge it on an invoice in the technician's name.
The service manager needs to approve all charges to the shop supplies account, just as they would any other expense. By measuring the usage by technician, the service manager has the ability to complete a detailed review of usage for comparative analysis.
You can't allow your staff to bury their heads in the sand on this issue. By not managing the expense, you lose profits. By not proactively explaining the expense, you lose customers. Don't chase your customers away over a $20 fee?
