We have some people from on the other side of the ocean, and we welcome everyone here. This session is about your parts and service revenue potential, and we'll get right into that relating to what we will and will not cover in this presentation. By the way, I will shout out to Doug Jorgensen and Jay Rhodes, both of whom I know and work with in some work that Rebecca mentioned. Let's move ahead here and talk about what we are going to address today. The topic and why you're here is about how to determine your service and parts potential. Are you really getting what you deserve? And you can't manage what you can't measure, so this presentation will talk about some simple calculations to help you get an idea of your market for parts and service. Because unlike whole goods, at least in North America, we don't have an opportunity to really report parts and service potential, so we have to use some derivative measures to do that. Some of these simple calculations will be ones that are based on your branch that you can calculate from your own numbers, and some of them will be external, those that are in the marketplace. One of my favorite phrases in this, which I think applies to this topic, is clearly, it's better to be vaguely right than precisely wrong. If you're only getting 10% of the parts and service business in your market share, does it really matter if it's 10.003 or 10% plus and minus 2 or 3%? We want to get in the right ballpark in terms of where you might be. The focus here is about the numbers, so we're going to get into the what and the how, not so much the how to increase your business, but there will be some ideas that come out of that. We hope that the numbers that are presented here can then motivate you to make some changes in your operation if you feel that you're missing some potential and are not winning with your customers. We're first going to start with service, because arguably that's the most important department in the dealership in general, and particularly as it relates to potential for the parts and service business, more technicians mean more revenue, provided you're getting that profitably, that's a good thing. The focus will really be around techs, number of techs, your share of the labor revenue, and if you configure your labor revenue because a lot of your parts business will be derived from your labor revenue, if we determine service, then we can get a good idea about parts. As it regards to labor, I think it's important to also realize that generating labor revenue and profitably, there are really two numbers that you need to follow only, and this is not meant to talk about how to run the service department, but I think it's important to look at revenue in the business. Here is a dealership who is generating, in this case I took as an example, they're generating almost a million dollars worth of labor revenue. That comes from, in this case as an example, having five technicians, each of whom charges the customer your labor rate $105, the productivity or number of hours that are billed out, you do the math and that's close to that million dollars. To determine whether or not, so that's the labor revenue that we're talking about. So in this case, that's about $185,000 of labor revenue. The two numbers to follow, if you want to make sure that you're getting that profitably, are the wage multiplier, the 3.5, the ratio between the technicians that you hire and pay and your labor rate with the customers, that should be 3.5 or north of that. Many dealers are getting four and higher. The other numbers of the hours that you pay your technicians, how many you bill out, and that should be 85%. So that's why those two numbers are key in terms of running the service department profitably, to start with that and get that 66%, in this case, gross margin. Now the numbers below this are really that connection between labor and parts. So on the right side, we look at per technician. In this case, each technician generates $185,000. If we take a rule of thumb in our business of $1 of parts for $1 of labor revenue, that gets us the $370,000 per technician generated. That one-to-one ratio can vary if you're in heavy equipment areas, and that can be higher than that. If you're not, if you're with maybe in some of the lighter equipment, that might be a little less than the one-to-one, but that connection is important, and you can calculate that in your own business. What is that ratio between parts revenue versus dollar of labor revenue? So that's what's on the right-hand side. As that relates to the gross profit, in this case, the labor gross profit is the $616,000 plus the one-to-one dollar ratio in the red for parts to labor ratio, and we're considering a 35% gross profit in parts. So in this case, these five technicians generate gross profit for this dealership of $940,000. So this fundamental concept, you know, is about profitability, but it's also about the drivers of service and parts revenue in your business. You sell more technicians time, you do that profitably, you have the connection between parts and service, then the parts business will follow. So let's move on to a map that derived from actual data that shows essentially the cost of buying a technician in North America. This is actual data reported from W-2s that you file, and the Department of Labor rolls this up, and it's looking at the job classification for a heavy equipment technician. The darker numbers are where the annual median wage would be over $50,000, so that would be in the range of $24 to $33 an hour. So those areas of the country are where it's more expensive to pay for a technician. So here in Boothill of Missouri, there's a high cost around the Chicago area, along the East Coast. In the oil patch, you tend to see higher cost for technicians. So they would have to pay more, and therefore their labor revenue would be higher than areas where the numbers are lower and the colors are lighter, and it's almost a two to one difference between the lowest and the highest, which means that there's no prescribed number for revenue per technician. It is generated by what's happening in your local area. So the number I showed of $185,000 was assuming that a $30 rate for paying for technicians and that $105 to the customer. You'd have to do your own math to figure out the revenue per technician and the knock-on effect of parts from that. So that sets us a context about the business in service, the connection to parts, the revenue potential per technician, which is going to be, again, a local number. So when we're thinking about technicians and what is the benefit of adding technicians and what is the revenue potential, we're going to look at five different ways to calculate how many technicians you might want to consider adding. And again, some of these will be internal to your own business. Some of these will be related to the marketplace. So we'll just go in order, demographics, new business, lost business, best practices, and machine population. First, you can look at your own business and look at the status quo, but the status quo isn't static. In this case, we're taking an example and looking over the next 10 years in your own business. If you've got 10 technicians now, how many are going to retire, kind of an orderly transition, or might leave for another job? That might be tough to calculate, but that happens. How many might change positions? You might promote them to maybe a foreman or some other position. Some might move to sales or get involved with your telematics business. And others just need a change. So look ahead and get some idea of what you project your change in your number of techs might be. And it might be around probability. None of these are 100% certain. In the example I took here, this dealership knew that there's going to be a technician that retired. They had a good probability that they would probably lose another person with 50% probability to each of these. And they're going to say, well, over the next three years, we're going to need to replace at least 20% of our technicians just from the changes in the business and the changes in the number. So the idea of looking ahead is I ought to start looking for those replacements now. So demographics is just looking at your current business and looking forward in terms of number of technicians. The second opportunity of looking at number of technicians to add and how that can increase your labor revenue is looking at new business opportunities. And this is the ownership cycle of a piece of equipment going around the cycle of ownership. So starting at the bottom with the sale of equipment, the first thing to sell, which many of you do, is extended warranty and guaranteed maintenance. Then moving around the circle is moving into loop services for contractors doing the service inspections and now more and more getting into the area of telematics. As dealers look at being able to change their business from a reactive to a proactive business and adding telematics, often that is a person that is a technician who is assigned that responsibility of monitoring those machines and getting into that area and adding technicians may be an opportunity for you to look forward in terms of adding people to be able to serve new customers. Some of that could be relatively low-tech business like the loop services and some of it can be really high-tech like the telematics. So that would be important about the mix of your technicians. As you continue around the traditional type of business is time and materials or flat rate or job cost quoting for repair services and then as the machine gets older, then you're into the more lucrative areas of component rebuilds, certified remands. Obviously things on the right-hand side of this chart are more lucrative from the parts business so part of this opportunity will be around the equipment that you're servicing, which is more older and more likely to require repair, rebuilds and remands. So part of the potential demand will depend on the mix of machines in your marketplace. The opportunity here is to look ahead for new business opportunities with new businesses. Now we're into starting to look at the external business and that is how much business are you losing to your competitors? Assuming there's a lot of competition and I'll show you some of those numbers, what business are you losing now? And some of it can be anecdotal. Maybe your shop's too big or you're doing...or too small, I mean, so you have to pass up some work or you're doing a lot of internal work for delivery of machines or you just don't have enough techs. There are several reasons why you may be losing business because you just don't have the capability. But you can also be losing business because your competitors are getting more than their rightful share of the business. So we're going to talk about ways to...a simple way to try to get an idea of technician's market share and figure out what your rightful share of the business. The other question to ask is looking at your marketplace and trying to get an idea of the independent repair shops or shape tree mechanics, as we call it in the industry, who are perhaps buying parts from you or buying parts somewhere and servicing the equipment that you sold or could be an opportunity for you to service that equipment. So the idea here is taking some time to look at the number of those people in your business because they are certainly competitors of yours and taking business away. So this whole area of lost business and thinking about that is an opportunity of doing some thinking, doing some analysis, try to get an idea of how much lost business you have with the idea of if I'm going to get that back, I've got to have the capability to do that. So I'm going to need to begin hiring and training technicians now. So let's go to the second point here, technicians and market share. Like I said before, we don't report parts in the service business. We can build it up from the machines, but there's a relatively straightforward way to figure your technician's share and that is simply counting the number of technicians that are servicing equipment in your area. It is surprising when I've done this with dealers how relatively easy it is to learn the number of technicians that your competitors have. Sometimes it's as simple as a couple clicks on their website and they'll might even show you the names and the pictures of the technicians they have in their shop. Apart from that, just asking and dropping by or asking other people who know your competitors will give you an idea of the number of technicians they have. Again we're talking about counting the numbers of people because the dollar volume is going to be relatively the same considering the wage rates and the labor rates in your area. So it's simply just counting the number of people. So here we've got four different competitors with number of techs. Remember to count the independent repair shops that might be in your area and the number of techs that they have. That might require a little bit more digging. So you get up to 70, you add the 15 we've got in our own dealership in this example, you do the math of my R15 into 85 technicians and you realize I'm getting about 18-20% again vaguely right versus precisely wrong of the technician's share in my marketplace. So it requires a little bit of work but it does give you an idea and when dealers that I work with have done this and they spend the time to do this, it does open some eyes about how many people are out there working on equipment and opens some eyes in terms of opportunities to take business away but also opportunities to hire technicians where you need that because you'll begin to identify the pool of technicians in your local area. Obviously there's the size of the trade area's difference and there's other ways that you can poke holes at this relatively simple way of calculating share but I think you get the idea that this is a simple way of trying to get an idea of where you might stand. Another way to look at a business that you can generate from your own business is looking at who in your trade area buys parts but not whole goods. That could be an independent repair shop or people that buy parts and whole goods but not service which could be an opportunity. You can get this information from your dealer business system. I know this is tough to read but this is an example of an actual report from a dealership. This is whole goods, parts, and service. Let's kind of simplify it and I took four different examples. When you do this and you do a descending sales list, meaning highest number at the top in terms of most demand for whole goods, rank the same thing for parts, rank the same thing for service, you start to see some opportunities in this again straightforward process of where there's opportunities to gain business and realize you might be losing business. So the way you read this, here's the customer number, this Rose 01. They've bought $3 million worth of equipment over the last year. That means they're number five in the dealership in terms of rank and whole good purchases. They're number 17 in the rank of parts and number 20 in the rank of service so they're in the ballpark in terms of buying parts and service in proportion to their whole goods. Customer Cam 11 bought $1.3 million worth of whole goods but their parts rank is much higher, 244, and they do do some service with you but it's obvious that they're buying parts from someone else because their rank is so much higher than their whole goods or their service rank. So an opportunity there to find out, dig into, losing business in the parts for that particular customer, clearing an opportunity for your parts department or a PSSR, a parts and service sales representative, if you have one, to call on that customer and to learn where they might be buying from someone else and then you might learn some things about your own parts and service business by doing that. So then we've got Customer Ever 02. What do you think they are? They're 244 on parts, they're buying almost $20,000 worth of parts but they don't buy any whole goods, they don't buy any service. They're probably an independent repair shop, a shade tree mechanic who's buying parts from you but they don't buy anything else or else they're doing used equipment and they're doing their own service. But it's worth investigating if in fact they are one of those competitors you have in your marketplace that you're selling parts to. And when dealers do this, they find out that there is a competitor and in the best case, I've seen cases where an independent repair shop in an area that's been identified through this process, the dealer is actually in effect bought out the competitor by hiring that technician and putting into work doing work on their own equipment rather than being a competitor buying parts away. So this data mining in this example of using this ranked sales list is a way to begin the process of analysis that could lead to other things. Not necessarily an independent repair shop but it could be and it's worth digging into. Then the last customer, they're fairly high, they bought a million dollars worth of equipment. They do some good service but it's clear that that customer is buying parts somewhere else because their numbers are so high in terms of the rank of parts. The other thing that we find doing this type of ranked sales list, we might find customers that are doing, it's all service and very little parts and no whole goods. This could be in your own accounts, you might have internal customers and they show on your customer records where the shop is selling services to the whole goods department and doing service for setup or delivery or demonstrations. And it's interesting when those pop out on the list, you start realizing that in your own customer list, you've got some internal customers where there's all service and no whole goods or parts. So as you start looking and using this, you'll find some other things as you get smarter about the data. But the point of this, discovering the lost business that you have, putting the actions in place and once you find that there's some lost business, people buying parts away or not doing service in your place of business, the last customer might be an example of that. And then putting the actions in place to recover that lost business simply by using your own internal records. Now let's continue with some more internal measures of looking about what ought to be the service business and the parts business based on your own numbers. This is a format that we feel familiar to a couple dealers on the call. What we have here is this is a dealership that is selling on the upper right-hand corner about $20 million worth of total business for the dealership. You can see of that $20 million in service, they're doing $1.8 million worth of service. So they're doing about this service or labor sales, better said, portion of the total business is 9% of the total dealership business. The target we'd like to see is for service sales contribution to be in the range of 10-15%. So in this case of this dealership, we would say there is an opportunity to grow the service business and if you want to get an idea of what that could be, is to take that 9% now of $1.8 million, let's say the target is to get in the middle of that range of 10-15%, let's say 12.5%. So take 12.5% of the $20 million you get, you could be aiming for $2.5 million of labor revenue to be in that range. So there's a gap of about $700,000 in service sales revenue. You divide that by the $185,000 per technician and that says you'd need about four more technicians could get the service sales contribution in the middle of that range. So it gets you some idea of a way, again, using your own numbers of a way to look at growth opportunities in service and then, of course, the knock-on effect from parts. Trying to triangulate here, so these could be a bit of an overlap but this is all based on industry norms and the standards for target sales contribution. AED publishes numbers that show this type of contribution for dealers that report through AED. The work that we do in the industry is 10-15% is a good solid percentage that there should be sales contribution. So that is the driver in this type of analysis. Again, I'm always open to any questions and Rebecca is online. As we're going through this, because there's a lot of material, this is a lot of material on this slide because it's used for looking at the expense ratios by department and dealership. But if you have any questions, please don't hesitate to write in the chat area in the lower right-hand side, type a message, and Rebecca will get it and can pass it on to me. All right, we've gone through... George, we just had one question come in. Yes, Rebecca. Refer to slide number 12 using the rank sales list, what do you think that how often this compares to what it should be in term of time interval, every six months or yearly basis? If you've got... It almost depends on whether or not you have a robust data mining capability in your dealership. Some dealerships actually, and this is probably the extreme, but do it monthly because they are looking for movements and the dealership executive management is putting pressure on the departments to actually go out and follow up with customers. So they might go do it more often than... I would... Then the direct answer is about every six months is probably the optimal six months to a year. But dealers that do it monthly, they'll shorten up the report and they might look at the whole goods over a long period, but then they'll say, let's look at the parts and service business over the last quarter or the last half year and it's a little bit more sophisticated and therefore complicated way of analyzing it, but it gives you some more immediate feedback by the executives in the dealership trying to see whether or not the parts department or the service department is actually moving the needle with customers where they're losing the business. So the direct answer is six months to a year, but I've seen dealers that do it more frequently than that when they're really trying to change the behavior and follow up with these customers. Rebecca, don't hesitate if there are other questions that come in to stop me and pop in. Thank you for that. Another internal way is looking at the ratio of employees. A number that we're using in the consulting work that I do, which is an aggressive but achievable target, is to look at the total number of employees you have in a dealership. The target is to have 50% of your employees be technicians. This is part of another target that we say that 75% of your employees ought to be revenue producers. Whole goods sales people, parts counter people, parts and service sales people. But the importance of service in a business, the best run dealerships have a very high proportion of their revenue producing employees are technicians to the point that because service is the most expensive department to run in a dealership, it takes the most area, has the most number of employees, has the highest gross margin, should have the highest net profit. The more you can drive service revenue, the more that you can have a good bottom line benefits. So this target of 50% is what we're driving for. We're starting to track this in the dealer groups that we have and have these types of discussions about how many might be needed. So in this case, if the dealership has 20 employees of which 8 are technicians, 50% of 20 is 10, that says probably could add a couple more technicians to grow the business. There are also ratios that say, as you're looking at it, that as you add technicians, how much support people are needed and that's the ratio at the bottom of 5 to 1 technicians to non-technicians. So as a dealership grows or a branch grows and gets up to about 5 technicians, we suggest that you do need to add a support person, maybe a working foreman. By the time you get to 10 technicians, you clearly need a full-time service manager who's 100% devoted to managing the department versus pulling wrenches part of the time and as you grow beyond that, you may start adding in this ratio of 5 to 1 for other support people, service writers, warranty writers, those types of people. The other number to look at is that your service personnel cost ought to be 20% of your service sales revenue. So as you're looking at best practices and your service personnel costs are higher than 20% and your technician to non-technician ratio is 5 to 1 and you're out of line on that, do you cut the support people and cut the personnel costs or do you add more technicians and leverage the, in effect, the overhead you have for that support people and personnel costs. Many people would choose to add more technicians and keep that support cost about the same. This comes back to the capability of your service manager, the processes you have in your dealership, but these are good ratios to follow. George, I have a couple of questions that came in based on this slide. Do you want me to stop you now or? Yes, stop me now. Okay, so how realistic is 85% productivity for technicians? Very. Do I have a slide here? So let's look, the 85% says that, just make sure we understand, this is of the hours that I pay a technician, how many hours are billed. Some of that is a function, and differences are a function of internal productivity of the technicians. You will have technicians that, A-level technicians that are well above that. You might have some newer technicians that are below that, so that some of that will depend on the mix of your technicians. Some of it will depend on the processes between the parts and the service department, the idea of the parts department feeding the technicians and making sure they have parts and can continue work. Some of it may also be your internal policies. Do you have flat rate and are you quoting based on flat rate and the technician is billing out more hours than they're actually being productive, which is a good thing. Are you billing out and picking up hours on travel? So the direct answer is that is very achievable, 85% productivity. That is a good benchmark and pretty solid. Okay, the next question is, how do you allow for the cost of the technician to carry out repairs on the rental equipment compared to the billable service work? So this comes back to, if you go back to the number earlier, you have the, of the rental department, you've got some issues related to the internal billing policies and the productivity numbers should be part of that calculation. It also may look at some best practices between the rental department and the service department, considering the rental department should be a, you know, record, be considered an internal customer of the service department. What some dealers do to make sure that they are on top of those costs is actually to do a service contract on rental equipment. Just like the service department might sell service contracts to customers, instead of having a, this tension between the rental department and the service department to maintain the rental equipment, actually to have a contract between the two departments that says, we're going to, this is the cost to maintain the rental equipment from the service department. Here's what we're going to do to maintain it. Here's the cost and that internal charge in the, within the dealership gets calculated and now there's an incentive for the service department to beat that flat rate, essentially, and do that work just like they would with a customer. So this is, that's a great question. It gets into the concept of internal billing. It gets into the concept of how you can lock in the costs. It also gets into the idea of how you drive incentives for each department to do what they do well. The rental department should not be in the business of looking through work orders to make sure that they are right. They should be out selling the rental business. Likewise, the service department should be maintaining equipment and not worrying about hassling with the internal charges with the dealership within, through the rental department. Let me stop just a second here. Some of you are in the Apple world, you see the dreaded spinning wheel of death, which is a problem in my computer right now and I'm going to have to stop right now and figure out why that's happening. Can I ask you some questions while you're doing that? Yes, go ahead. So does the service sales define only the labor hours sold or the whole department revenue of the service department? Say again. Say again. Does the service sale define only the labor hours sold or the whole revenue of the service department? Alright, so let's go back to the slide. Are my slides back? Yeah, they are. So when we look at this chart here, the revenue of the service department is the time of, should be the time sold to the technician and the cost of goods sold should be the hours in terms of wages paid to the technician. Sometimes a dealership, if the trucking department, for example, or transportation is managed through the service department, sometimes the service department revenue will include other things other than technician's time, but that's the, in a pure sense, it should be, the revenue should be selling technician's time and the cost of goods sold should be what you pay the technician. If I didn't answer that question, whoever asked that should come back to it. Let me expand it just a little bit more and look at this slide here. Look at the service department. In this case, the sales revenue is the $1.8 million. The cost of goods sold to the technician is the $847,000. The personnel cost in the service department are the service manager, service writer, other support people, and the benefits of the technicians. That is what we advise. In some cases, the benefits of the technicians are also included in the cost of goods sold, but if the question is about where the technician's time is and how pure that number is, you can see that there's two places for paying people. One is the technicians and the cost of goods sold. All other people in the personnel line. Just back to that technician slide. Someone also asked how you measure the proficiency of technicians. I don't have a chart in this presentation, but what we like to do is to take apart this productivity number that cost this $20,080, which is 52 weeks a year times a 40-hour week. No overtime. You look at the 1768, the billable hours. What we like to do is to break that into two items. One is what we call efficiency of the work given to a technician. How many hours of work orders do you lay in front of technicians? Let's just take an example. Let's say that I put in front of a technician 1,700 hours of work orders, but they actually bill out 1,768 because they are billing out, they're beating flat rate, they pick up hours in other places. Some dealers measure the technicians on their efficiency. Not the 85% productivity, but of the hours of work that we're giving you, productive hours that you have, how many do you actually bill out? We call that efficiency. That is within this productivity calculation. Then it's up to the service manager to make sure that they are laying productive work orders in front of a technician. We want to see technicians efficiency, the first number, to be in a shop 95% to 100%. You will have some technicians that are over 100% efficiency. They are billing out more hours than they are of work orders that are being given. That's the efficiency. Then we look at application. How many productive work orders are laid in front of technicians to work on? That's the service manager's job. That should be in that range of 85%. The service manager should be having enough work developed to keep technicians busy. This will come back to the mix of your technicians, A-level techs and C-level techs. That's how some dealerships measure technicians. Don't measure them on just productivity or not at all. Measure them on efficiency. How much billable hours out of the total hours of work orders put in front of them. By the way, Rebecca, if there are some follow-up questions like this that get beyond the scope of what we're talking about or this discussion I just had, I'd be glad to send some slides that back up what I just talked about and explain it. I'm doing it verbally now, but I'd be glad to pass through you and send some backup to this for people that ask that question. That sounds good. I have a couple more questions, but why don't you continue with the presentation and I'll ask them at the end. Probably the most typical type of analysis of potential has to do with looking at machine population in the area. This requires a lot more work. In some cases, in the U.S. at least, we look at loans and look at so-called EDA data. There might be in some countries a registration where you can get some idea of the number of machines in your trade area. But this requires some work and some external numbers typically. If you want to go beyond just your sales that you've done. You can look at your own sales records. In some cases, the OEMs have reports based on warranty of what has been sold in an area that you can access to get an idea of machines that are in the area. But then there's also the variable of the use of machines. Are they used extensively? Are they in a lot of ground engaging work like dozers and other equipment that uses a high use of parts or a lot of hours versus low use? And then the other thing to look at is the potential of customers. Typically 40% of the potential comes from a very few number of customers. This is a graphic that kind of illustrates that. If you take this descending sales list and take the biggest customers in an area and count down number 1, number 2, number 3, number 4. If you get to 40% of the business in your area, that's an A-level customer. You count down to the next 30%, that's a B-level customer. Then you count on down to where the smaller business. The actual number of customers is reversed. Typically the top 40% of the business is a very small percentage of the customers. 2-3%. The A-level customers as well. In this case, this is about 12% of the accounts represent 70% of the business. So it's even more tighter than the 80-20 rule. Then you get a large number of accounts that count for a small percentage of the business. Now I talked about calculating potential in an area. If you're trying to calculate A-level customers, all you've got to do is count the number of machines. It's interesting how this actually works at a retail level. If you go into a contractor's project site and you get an idea of the number of machines they have on site, and you count up to 25, quit counting. You know that you are in a contractor that's in that A-level area. Then 11-25 B-level and so forth. Sometimes you can just count the number of machines and keep track of that. It will give you some idea of the size of the fleet and the potential of what you're looking at. This is numbers that is actually calculated from reconstruction business where they actually looked at customers by fleet size based on dollars. You can look at the fleet size in terms of an A-level customer being greater than 10 million. That represents the 3% of the customers. You get to the smaller customers. They are still required to be in your mix in your customer relations management because sometimes they subcontract to the larger contractors. In some cases they are people that buy used equipment and maybe high parts purchasers. You need to count them all, but this gives you an idea of the distribution of potential by fleet size. Here's an example of one of these large A-level customers, what their demand could be for parts and service. Let's take that rule I just said of 26 machines. I took an example of some machines in the construction equipment machines that's worth about $2.5 million worth of sales. This complement of machines will use about $100,000 worth of parts per year. If I take that same dollar of parts to a dollar of labor and go the other way, I'm going to say if this customer consumes and needs $100,000 worth of parts, what is the labor potential if I could do the service work for those machines? I take that $100,000, I divide by my labor rate and that gets me 1,200 hours of service or almost 3 quarters of a year of one technician to do the service on that A-level customer. They may have their own tech to service those machines, but maybe you go in and you have a resident tech or you have an agreement to do all the work on their machines. The idea we're doing is opening up the potential for technicians for you to do work with these A-level customers. This math is pretty straightforward. Again, it's big numbers, high level, hypothetical, but it gives you an idea of the potential with these A and B customers. All those things we looked at before, demographic changes that you're having in your own business, new service business opportunities, maybe you look at the others, lost business, the best practices, the machine population. As you're looking at how many additional technicians you might need, in this case I come to these five technicians in this hypothetical dealership that I'm looking at from the simple analysis we did and I come back to this same chart we had before. If I could add five more technicians and I achieve these benchmarks of 3.5 and 85, wage multiplier and 85% productivity, then I'll get that gross margin and the knock-on effect and have this good contribution to the dealer's profit line by adding those technicians. As you're calculating your service and parts opportunity, do it different ways. Again, vaguely right rather than precisely wrong, meaning it should be directional. Make sure you know that the parts opportunity will follow the labor potential. When you're looking at the population of machines, don't just look at your machines. Look at other brands and start to do work on other machines. As you get into this, walk before you run, so refine your calculations over time and your OEMs can help with some of that as you get further refined. Go for it. The service opportunity, the service department is the most important department. There are clearly service opportunities there and when you start figuring the potential that's there, it's always a good thing to add technicians profitably and go after the business. Let me stop there and see what other questions came up, Rebecca. What is an industry average labor rate? We've already seen a variance of $85, $250 in this presentation alone. Yes, so that's why this chart with the map says it depends on where you are. It depends on what it costs you locally to hire technicians and you are competitive with other industries. It's not just construction equipment. The oil patch in North America has driven a lot of demand for people with mechanical skills and have that technician mentality and there's a demand all over for people with that technician, even in other industries. I mean, look at the copier repair person that comes into your dealership. Ask them what their, well you know what their labor rate is but it's well over $100 and so they're an example of that as well. There is no standard for labor rate. It depends on the wage rate for technicians and where you are in the country. Do you agree that the internal transfer of manpower between service department and parts department on a management level will be beneficial for the equipment dealer? If the question is should the internal rate be charged, well, should one department be charging another, yes. A dealership is composed of four separate but interdependent businesses all under one roof. The whole goods department sells complete machines, new or used. The parts department sells components, not whole goods. The service department sells time of people, the technicians. The rental department sells time of machines. Each one of those is a separate business but they are interdependent but for them to for each department to understand what their true opportunity and cost is, you A, should have internal charges and B, those internal charges in best cases should be at the market rates, not discounted internally. Some dealerships do discount internally. Our advice is if you're going to discount internally, do at the maximum what you would do to your best external customer. Let's see, another question. Can you explain service amortization rate? No, absorption rate. Let's go back to this chart and look at the idea of absorption is in this case with this dealership has 3.8 million dollars worth of expenses, the number on the lower right. On a simple case, the parts, service and rental departments gross profit should absorb, should total up and exceed the expenses of the dealership. Service absorption is to take the service department's gross margin and divide that into the 3.8 million. That's the simple way to calculate it. Some manufacturers, some dealerships take out the sales personnel expense. That's what we do in the consulting that I do. We take out and saying that the sales people, the sales people ought to at least sell enough to pay for their own salaries and commissions. Sometimes we take out out of the total dealership expenses we take out the sales personnel expenses out of the calculation and then figure the absorption that will drive the absorption higher. Service absorption itself is the 1 million dollars worth of gross profit divided by the expenses of the dealership. How important is the role of PSSR for improving service sales business? The PSSR, we've seen them work very well. We've seen them crash and burn. The difference is that PSSRs need to be managed very closely just like any other sales people. They need to have defined targets, what it is they're selling, what customers they're calling on, A and B customers, are they existing customers, are they conquest customers, are they selling the service department as well as the parts department, so are they out there being able to quote repair jobs or selling maintenance contracts. For PSSRs to be successful they need to be closely managed just like any sales people. So that's the lesson. Okay, one additional question. I'm pretty sure you answered this but just to regroup so I can ask the question. How do you measure the parts and service potential in a market? The high level one is this looking at machine population. If you had perfect knowledge you would know every machine in the area, every customer in the area, you would know their usage, you would know their parts demand. That is a long way from that is the theoretical way of understanding the potential in a marketplace. We can get close to that by looking at some other external data and it will depend on your ability to understand and survey the customers in your area in many cases. There is no easy external way to buy that data. It's going to require work on your part to look at information that can be assumed to give you some idea that you're in the right area. That is why the focus in this presentation has been a lot on what internal simple measures can I use to determine my opportunities to grow. You cannot pay someone to give you an exact number. You can pay someone to give you an approximation of what the total revenue potential is for parts and service in your area. George, right now that's all the questions I have. Are there any other slides that you wanted to show at the end? No, I thank you all for your time and attention and I'll just say again if there's any other follow up questions you can route them through Rebecca and I'd be glad to follow up. Thank you for your time and attention today. Thank you everyone for attending and George thanks for a great presentation and hope everyone has a great day.

revenue potential

parts department

service department

dealership

technicians

demographic data

business opportunities

service sales

parts sales