| Autologica Blog


Calculate your Absorption Rate and Learn to Improve it

How was your business performance last year? Did you meet your goals? Have you already decided how to face the new year? 

Making a summary of the past year can help you understand the performance of each department and detect which might have lower productivity in order to implement measures. If this analysis leads to a new objectives for the new year, you will be able to strategically focus on meeting your goals.

One of the most important indicators that successful dealers measure is the Absorption Rate, which shows how Aftersales profit contributes to the dealership’s fixed expenses.

Why is this indicator important? Because in periods of low sales the dealer must be able to stay afloat with just workshop and parts sales.

How to calculate it?

Aftersales Direct Profit / Total Overheads

A good Absorption Rate is 1… this is a hard to reach value because it would mean that fixed costs can be covered by aftersales profit. A more reachable value for dealers who are just starting to measure this indicator is between 0.60 and 0.75.

What to do if the value is lower than ideal

Some strategies implemented by dealers who are looking to improve their Absorption Rate:

Perform a follow-up of pending parts so as to satisfy customer requests as soon as possible and avoid billing delays. This task, which is sometimes overlooked, may affect purchases, sales, and customer satisfaction.

Invest in infrastructure. Receiving more vehicles in the workshop is not profitable if there are not enough resources to perform the jobs. The dealer must ensure that incoming jobs are completed without delays due to lack of parts, infrastructure, or tools.

Train advisors and technicians periodically. This will avoid mistakes, unnecessary downtime, as well as improve customer satisfaction.

Foster sales skills among Service Advisors. Every contact with a customer is a sales opportunity, so it would be ideal if each repair order contained as many jobs as possible. For this to happen, the Advisor must be trained to detect preventive and maintenance jobs that they can offer to the customer and attain more sales.

The process that starts with the vehicle arriving at the workshop and finishes with the vehicle being delivered to the customer must be as efficient as possible. Advisors must be ready to receive the vehicle, go through the checklist, and request the necessary parts, and the technician must receive the parts together with the vehicle in order to start working immediately.

Detect immobilized parts and initiate campaigns and offers to sell low-turnover parts. This will help reduce storage expenses, improve sales, and avoid having dead capital invested in parts that are constantly losing value.

Improving the Absorption Rate not only avoids depending on vehicle sales, but also makes the workshop more profitable, productive, and efficient.