The single biggest personnel cost in a farm equipment dealership is in the service department. Of course, most dealerships will have more personnel in service than other departments. But if this cost is more than 20% of your service revenues, you need to closely examine it to determine if some things are out of line.

The major factors that can affect service personnel expenses include:

  • Ratio of technicians to overhead staff;
  • Overhead compensation levels;
  • Employee benefits;
  • Managers performing service work.

Technicians to Overhead Staff

In farm equipment dealerships, a ratio of 5 technicians for each overhead person is normal. So if a dealership has fewer than 5 technicians, the service manager generally performs service in addition to managing the department.

Once the technician count reaches 5, the manager is needed on a full-time basis to organize schedules, dispatch remote service trucks, track productivity, deal with customers, and market the department’s services. We often call this the “3 P’s” of department managers — people, politics and paper.

When the technician count reaches 10, it’s appropriate and often necessary to hire an additional support person. That person may be a warranty clerk, a dispatcher or provide some other support. For example, if service contracts make up a large portion of your business, you may need a specific coordinator to ensure the profitability of those accounts.

This 5:1 ratio should be used as a guideline for assessing the service department. If personnel expense is very high with only 3-4 technicians for each overhead person, examine those overhead roles very carefully. Should a supervisor also work as a technician? Can a salesperson be shared between service and parts sales?

In addition to establishing if you have more overhead staff than necessary, examining technician-to-overhead ratio is useful to determine when you have too few overhead/support people. If you don’t have the personnel to appropriately support your technicians, their productivity will decline.

Field service technicians need support in planning the logistics of scheduled service. For example, if a technician is on an emergency call and there’s scheduled service a short distance away that can be completed while he’s on the road, it may save time and money to route them to that farm later the same day.

All technicians need sales and marketing support to maximize their application on billable work. It’s the service manager’s job to make sure that enough work is being provided for these technicians. Don’t try to minimize costs at the expense of maximizing service revenue and profit.

Overhead & Benefits

We recommend that 20% of service revenue should be allocated to personnel expense — technicians and non-technicians — including all benefits, overhead compensation and wages. Benefits include health, dental and life insurance, company payroll taxes, worker’s compensation, etc. Overhead compensation and wages include all non-technician wages as well as benefits. Non-technicians include managers, salespeople, dispatchers, etc.

Benefits, workers’ compensation and payroll taxes generally equal 20% of all service wages. Therefore, you can break down the total personnel expenses among technician benefits, overhead compensation and overhead benefits.

Correcting Overhead Compensation

If the ratio of technicians to overhead personnel is appropriate but overhead personnel costs are too high compared to the benchmarks, your overhead compensation levels are too high for expected revenue.

There are at least 3 ways of correcting this gap.

1. Target increased revenue without raising overhead compensation or technician wages and benefits. Increasing productivity of the entire service department is necessary to do this. For example, consider adjusting service contracts to improve profits margins.

2. If it’s feasible, share services of personnel and spread out their salaries with other departments. Perhaps two functions can be effectively rolled into one, without sacrificing effectiveness or quality.

3. Reduce or eliminate any projected increase in compensation, and begin altering the compensation system to match the benchmark expense levels.

Beginning a program to identify specific job functions and the needed level of performance (score boarding) will educate the entire department on the results that need to be achieved in to drive specific compensation levels.

More ideas and benchmarking worksheets about service are available in our series “Achieving Profit Potential in the New Millennium,” which is available on Amazon or directly from Currie Management Consultants Inc.