Learning Without Scars

S5 E17•June 16, 2025•59 min

The Profitable Path: Transforming Service From Cost Center to Profit Engine

Send us Fan Mail (https://www.buzzsprout.com/1721145/fan_mail/new) What if everything you thought about running a service department was backward? That's the provocative question at the heart of this eye-opening conversation with John Dowling, author of "Service by the Boxes" and decorated Marine. The fundamental misconception crippling most equipment dealerships is seeing service as a cost center rather than a profit engine. "Revenue is vanity," John explains, highlighting how dealerships focus on sales while neglecting the departments that truly drive profitability. The transformative insight? A service job isn't complete when the machine is fixed—it's done when the invoice is paid and the money is collected. This mindset shift cascades through every aspect of service management. From customer segmentation (80% of revenue comes from 20% of customers) to abandoning the misguided "first-in-first-out" approach, John challenges conventional wisdom at every turn. Perhaps most surprising is his revelation about maintenance services—the highest-margin work that dealerships have mysteriously surrendered, with industry studies showing a staggering 95% market share loss. The technician shortage plaguing the industry isn't what it seems either. "If we would have been training people and had apprenticeship programs 20 years ago, we wouldn't be here right now," John observes, pointing to decades of mismanagement and underinvestment. The solution involves restructuring shops with team-based approaches that leverage senior technicians as mentors while maximizing efficiency. For service managers transitioning from technical roles to leadership positions, the challenge is shifting from tactical to strategic thinking. Without proper business and leadership training, even the most skilled technicians struggle when promoted to management. As John puts it, "It's a business unit and some of these business units are 20, 30, 40, 50 million dollar, if not 150 million dollar business units." Ready to transform your service department from a cost center to a profit powerhouse? Email john@servicebytheboxes.com mentioning this podcast for your complimentary copy of "Service by the Boxes" and start the journey toward strategic service management. Visit us at LearningWithoutScars.org (https://www.LearningWithoutScars.org) for more training solutions for Equipment Dealerships - Construction, Mining, Agriculture, Cranes, Trucks and Trailers. We provide comprehensive online learning programs for employees starting with an individualized skills assessment to a personalized employee development program designed for their skill level.

Transcript

0:22

And welcome to another Candid Conversation. We're joined today by John Dowling, author of Service by the Boxes, amongst other things, a decorated Marine. He's starting to get to the same color of beard as I've got, so he's not a bad guy anymore. John, good to have you with us.

0:41

Good to be back, Ron. So too bad I'm stuck in Texas and not Hawaii, but I'll come see you one day.

0:50

You've got enough years to catch up, man. Yeah. John's put a blog out next week that he calls Stop Cherry Picking Work Orders. And I'd like to use this podcast to go over what he's trying to get across with the whole idea. John has a very systematic way of looking at how you run a shop. In fact, broader than that, that he brings. to us from the Marines, also from being a consultant in the industry, and also being a recruiter for Jordan Sitter for a while with Jay Lucas. So the background is deep. It's broad. And with that, I'd like to just start with the statement that the service department's here to make money. It's not a nonprofit. Yeah. What makes you start with that?

1:46

Because... The majority of dealers that I've worked for, that's how it's seen. It's treated like a cost center. A lot of people would say it's a necessary evil. And when I work with dealers, a lot of them will say something to this. They say, you know what? Running a dealership would be great if I didn't have to deal with the service department. And the reason that is is because they see it as a cost center. They see it as support. for the sales department. They believe that the sales department embodies the dealership. If sales does great, the dealership is doing great. But revenue is vanity. Revenue doesn't matter. What matters is profitability and cash flow. And what drives bottom line profitability and cash flow is your product support departments, which is your parts and service departments. And so what I've learned, is that dealerships will sacrifice the profitability in the service department to take care of a customer.

2:54

And so my mindset, to kind of give you a background, you know, like I told you, you know, before I was in the Marine Corps, I was a technician, got out, went to work for a John Deere dealership. And to prove my point, even as a technician, The one thing I did not prioritize in my job, and I was a very good technician. And so three and a half years in the industry as a technician, they put me in a field service truck. So just imagine that, how many people would put a technician with three and a half years experience in a truck. And the thing I did not prioritize was writing up my service report. And that was probably the most crucial thing that I could have done. And my thinking was my job as a technician was to repair as many pieces of equipment for the customers as I possibly can. And that was my job. Machine broken, machine fixed. That's my mindset. Most technicians, that's their mindset. Most service managers, that's their mindset.

4:02

And so when I'd go out on a field call, I would fix the machine. I'd look at my schedule and I had two more jobs to hit that day. The one thing that I had to do that would hinder me from completing my task was filling out a service report. I was thinking I could sit here and spend 10,20 minutes, fill out a service report, or I could be driving to the next job, getting more, more, more, more. more customers machines up and running because my mindset was my job is to fix machines. So eventually what happened after about two weeks, you can imagine the service reports that weren't being filled out. Then the service managers like, Hey, it's the end of the month, John, I need to close out all these jobs. You have to come into the shop and I'd have to sit there for a day and just fill out. service report after one. Of course, I forgot what I did.

4:55

I forgot every, you know, why to have so much time on it or, you know, and, but that, that I say that as an example, my mindset as a technician was my job is to get machines up and running. And if that is the ultimate goal for a dealership, or I'm sorry, for the service department, a dealership is get machines up and running. And if that's the culture and it, it, it usually is because usually when the store manager goes, talks to the service manager, it's about, What about so-and-so's machine? Did you get up and running? What about this machine? It's very rarely, hey, why do we have an aged work order issue? And so my point is, is store managers are usually more concerned about getting customers' machines up and running than they are about billing and collecting the money until corporate, you know, sends a nasty gram or something about your AR is way out of hand. And so I was taught by the culture. that my job is to get machines up and running.

5:52

Who cares if we make money, right? As long as we're getting machines up and running, the customers are happy. The customers aren't complaining. The store manager is not talking to the service manager because nobody is complaining to him about machines not down. And what I realized, that is the critical shift. If you're going to be successful or have a successful service department, we have to realize that the purpose of the service department department is to make as much money as possible for the dealership. Then, because what it does then, Ron, is that service report, the job's not done until the paperwork is done. So it doesn't matter how many machines you get up and running. It counts for not. It counts for zero. You get zero points on the scoreboard until you fill out the service report and the work order is closed. And so the shift, that shift in mindset. says you have to close the work order. That's when the job's done.

6:50

The job's not done when the machine leaves the shop or the field mechanic leaves the job site. The job's done when the work order's closed and we've collected money. But when you have that, but you have to have the mindset of our job is to make money. The end goal for a service department is to make money. The way that the service department makes money is by repairing customers' equipment.

7:16

I think the foundation is really valid, and it's very stark when you compare it to a nonprofit. The leadership in dealerships, even today, are primarily out of the equipment side or the finance side, very rarely out of product support. The Caterpillar dealer that I started with, the man who ended up being president and fired me five times, was a bush mechanic. He was a pilot. Hmm. You dirty fingernails. Yeah. That kind of guy. And the reason he fired me was off.

7:59

You said he fired you five times. Oh, yeah.

8:02

One time I actually got home and the phone was ringing. Yeah. What are you doing at home? I said, you fired me. Get your back here. You know what I'm like. And and it was an interesting combination. His name was Rod Wallow. If he was still alive and he called, I'd just ask where he was. I'd be on my way. It was wonderful. Yeah. And there's very few people like that. But what Rod did, he turned that whole equation on its head. The sales department worked for the service department in his mind. Want a machine through my shop? Come talk to me. Yeah. It ain't going to come the other way around. Here's a machine, get it out of here. And when rentals came in, it was even more pointed. But I drive service departments in two things. labor efficiency and quality. And the byproduct of those or the consequence of those is profitability. It's market share. It's things of that nature. And I put quality in there.

9:10

I used to put incentive programs together for every technician, depending on what your labor efficiency was, greater than 90, greater than 95%, what your quality was,99% or whatever, I'd give you money. And it could equal your monthly pay. And everybody's saying, how the heck do you want to do it that way? Or why do you want to do it that way? I said, well, what's the alternative? And he said, well, don't give them that much money. And what I always came back to is if you look at a technician and just use simple numbers, a technician is going to build somewhere between $200,000 and $300,000 a year of labor and another $200,000 worth of money. So we're looking at a guy who's going to generate $500,000 a year of revenue. And revenue means nothing. Let me get to the net income of that. And you're looking at $1.25 to $200,000 net. And then flip it back to an equipment salesman. Okay, a guy sells $5 million worth of equipment at 5% gross.

10:12

Congratulations, it's $250,000. The net is close to zero. And I think a lot of the problem is, or the dilemma, it's not a problem, it's easily fixed. People are afraid of the service department. They don't understand.

10:28

You're spot on. They don't know it. And we naturally fear things we don't know. It's just a black hole for them. They have no idea what it is. And they don't want to be found out that they don't know what they're managing. That's

10:41

right. It's, you know, Donald Rumsfeld and Gulf Warriors. You know, we don't know what we don't know. That's what we don't worry about. Yeah. But the other side of that, that is kind of weird. Everybody says we can't find technicians. I think that's Balderdash. Yeah. They're there. We just don't pay them. And we don't train them. Yep. We don't mentor them and we don't coach them and we don't have apprentices. And, you know.

11:07

And I'll say this. Every technician that is already hired, they do everything in their power to push out anybody new. Or they'll or they expect the new technician. This is what I love this. Well, those tech schools. They don't teach those guys anything. They don't know anything. They come and they're not a mechanic. And so I'll ask that guy, you know the guy, he's been doing it for 20 years,30 years. And I ask him, how much did you know when you first started? Or how many mistakes did you make? Oh man, I made all kinds of mistakes. I screwed this up. I was like, okay. I was like, even a doctor, eight years of schooling, eight years in medical school, what's the first thing they have to do? They have to do a residency because they have to, everything they learned for eight years, they have to put it in practice. And how many times that they screw up? And if they didn't have their main doctor saying, hey, they don't do that.

12:06

That's not, that's not the right medicine. And so we have to have the same mindset. We run technicians off. And I tell people, if you've got a young guy. who's willing to spend $10,000 on tools, who's willing to put up with all the crap from your bad culture of all these technicians with bad attitudes and is willing to be hot and sweaty and dirty every day, like give the guy a chance. Like, why are you going to run that guy out of here and say he can't fix anything? Well, of course he can. He's only been doing it for six months. You know? Anyway, I digress. I get pretty aggravated.

12:40

No, no, no. Passion shows, John. So let's move to the next one. As a technician, you're operating and thinking tactically. And you become one of the best that there is. And the way that things work is you get promoted. Now you're a service manager. And 99% of them still think tactically. They're not leaders anymore. Nobody trained them to be a leader. How the hell do we bridge that gap?

13:12

Well, they read my book. Service by the Boxes is step one.

13:16

Are you still giving complimentary for people that respond to the podcast? Yes,

13:22

yes. Anybody who reaches out to me, email me at john at servicebytheboxes. com. And let me know you watched or heard this podcast, and I'll send you a complimentary book.

13:33

Okay, so let me go up in the helicopter a little bit. As you know, my approach to things is quite different than most. The dilemma that I'm looking at these days is it is very hard to find talented people with skills to hire them. And as time passes, it's going to become more and more and more difficult. Yeah. The technical schools are necessary, but that's one brand. Yeah. And that really only works for John Deere Ag and Caterpillar. Everybody else has to have multiple brands in order to make it work. And that's what was the genesis of our assessments for technicians and job functions, that instead of a technician going to technical school for a week, coming back, and I asked them when they come back, I said, you know, what'd you learn? Oh, it was great. Fantastic. Did you have a test at the end? No. Well, how do you know how you did? Well, I got a certificate. Terrific. And then I wait a month.

14:47

And then I go back to him and said, tell me something that you remember from that class. And invariably, there's nothing there. Yeah. So you got to wonder how that happens, but then move it up to the service manager. You touched a lot of dealers. How many service managers have you been involved with that have had management training?

15:10

No. Ironically, you said that I had a dealer reach out to me this. Yes. Not yesterday, but Tuesday. What is today? I don't know what today is, Ron. Monday. The gray hair in my beard is starting to get to my head, I think. And I can't remember what.

15:26

Welcome to my world. It's going to get worse, my friend.

15:29

Yeah. But anyways, yeah. So this one service manager is doing a great job. And the owner of the dealership, a fairly large dealership, went to like, what are you doing? What are you doing that you're just outperforming? every other service department that we have. Like, you're doing a great job. Customers are happy. You're making money. And you know what he said? Training. He goes, at the other dealerships that I've worked for before I come to work for you, they had training. They had leadership training. They had customer service training. They had management training. He goes, these are all things I've learned through training. And so he reached out to me because the owner was like, hey, we want training. Do you know anybody? And so he reached out to me to see if I'd be willing. And of course, I said, yes. But you're right. Most managers don't have training. They don't. And they just, let me go back to me. I was a technician.

16:28

Like you said, best technician gets promoted. I had no idea what I was doing. Now, I know how to run a shop. In the Marine Corps, I was a sergeant, so I knew how to get things in and out. I knew how to get things done. But I had people above me were telling me, get this done, get that done. Whatever you got to do to get that done, get it out of here. So I knew what to do. And I struggled on prioritizing. So the first day I was looking down, I was like, I got all these tractors. Which one do I work on first? Which one is the priority? And I'm an honest guy. You know, and I, you know, mechanics or mechanic shops, we've always get this bad rap of we screw over the customers and we lie to them. We take all their money and we run. And I was like, I'm not going to do that. I'm going to be above board. I'm going to go above and beyond and I'm going to be ethical and honest.

17:20

And and so I came up with this idea that most service managers do a first in first out, which is not ethical, which is not right, which is not business savvy, which is. You know, it's counterproductive because you have a guy, for an example, you're having to say a guy brings in his tractor and all he does is mow his two acre yard and that's it. And then you have another guy who has a skid steer down and he has a whole crew of people not working that week. And so there's people, there's husbands who can't afford to buy groceries for their families because he's not working because the skid steer is down and the job shut down. So how would it be ethical to say, well, this guy's machine came in first, who doesn't need it, it's just a hobby, to work on his machine and prioritize his repair over somebody else who's trying to feed their family? So it really kind of got me going down this thought of like, how do we prioritize jobs?

18:24

And it continues to grow to more strategic level as well from there.

18:30

What becomes interesting with that is now all of a sudden you're into a category called market segmentation. And I'm going to base that on the value that that customer brings to me as a dealership, the value that customer brings to me in a computational sense as an influencer in the marketplace. And service managers don't have any training on that.

18:55

No. No, I remember years ago I was reading a business book. I can't remember. At some point you read so many books, you don't even remember what you read, where, by who. But he talked about the Pareto principle, the Italian financial guy, whatever, in Italy. And he realized that 80% of the land was owned by. by 20% of the population. Of course, that principle, we know it as the 80-20 rule, and it has grown, and it's a principle, so it's not 100% 80-20, but it is amazing still today. 80% of the wealth is held by 20% of the population. But almost every business, and I'm not telling you anything that you don't know, but 80% of our revenue, from customers only come from 20% of our customers. And so really what I, when we've talked about prioritizing our workflow is that we need to focus on the customers who pay our bills.

20:02

We need to focus on our customers who are invested in our dealership, in our brand, you know, that, that are partners with us versus the customers who come by every two or three years and want something done fast, but really cheap. And so I think teaching that to service managers, for them just to understand that, that not every customer is equal and we need to prioritize our top customers or you call them our key accounts is very critical for us to do that.

20:38

I take market segmentation and I put it into, I think it's six different categories. It starts with machine population. It goes then to the relationship that you have with your marketplace, with parts, with service, with rentals. Then it goes to the loyalty. How long have they been a client of yours? Then it becomes how do they pay their bill? Then it becomes how influential are they in the marketplace? So I got this six-digit code that I want to put on the system so that anytime anybody calls up that customer record, they're going to see that code. Yeah. And they're going to be trained on what the heck that code means. And if this code shows, I want you to get the champagne out and treat this guy with meek love to him. If this guy comes, help him as much as you can, but he's down the pile a bit. And that's alien. It's strange for a service manager because here comes a machine. I'm going to fix it.

21:48

The only thing that they're concerned about, as soon as the machine is repaired and it's out of there, their job's done. Their job's not done until the money's received, as he pointed out. But that's also a concept that's alien to them. Here comes an interruption. I've got 20 guys in the shop. Let's just stay in the shop. They're all busy. And they've all got jobs that's going to take them all day. And here comes a salesman, and he wants his machine in here right now because that guy's going to buy this machine this afternoon. And I'm going to tell him, sorry, I'm full. I'm the service manager. How long do you think I'll have a job?

22:29

Not very long.

22:30

Not very long. Somebody's going to come down with a thunder or thorn and say, get out of here. Okay, so I'm going to come back the other side. I said, okay, I'm going to put you in here. I'm going to disrupt my schedule, but you're going to pay overtime rates. Well, that's not fair. It's during the day. I said, yeah, but the guy that I promised the machine to that's in here that I'm going to displace. I'm going to have to work on him tonight. I can't charge him overtime because you got bumped in. Yeah. So you're going to pay for it. Oh, it's like I took their oldest child. It's a business, man. It's not playtime. So it becomes really interesting. And technology can help us dramatically. Yeah. So I segment my customers. I also segment my technicians. On skill levels. And I do it the traditional way with engine, powertrain, hydraulic, electrical, categories, and a general. Yeah. So I know who my best guy is.

23:32

And I schedule my best guys to my higher segmentation priority customers. And I have a schedule. So now I get into a box that what's an acceptable backlog? Customer calls up. He's got a machine down. I'm sorry, it's a two-week wait. And you go to the large Komatsu Caterpillar, those typically one to two weeks in the shop is pretty common. Three to five days in the field is pretty common. If somebody calls and it's in the field, I want to be there in 24 hours. Boom. That opens me up to another opportunity. Mr. Customer, would you like to get a priority rating? Here comes Amazon. Amazon Prime is $139 a year. And it's free freight. And they start tracking what you buy, what you don't buy, and they start interfering with how you work. Why don't we do that? Yeah. We're going to give you a priority. I'll guarantee you a 24-hour response in the field. Yeah. Guarantee you a 12-month warranty on repairs. Yeah. On and on and on.

24:41

And I'm only going to charge you $149 a year or whatever the number is. It doesn't matter. Again, getting the service manager to think from a leadership perspective instead of tactically. As a manager of people, meaning that you are only as good as the people that you're leading. And that's alien. You're the conductor of the orchestra. Your back is to the customer. But the other real deal is having every customer that you have this year be a customer for life. The Japanese taught us that in the 80s. We lose customers every damn month. Yep.

25:17

Yeah, I like the marketing term lifetime value. And I think if so, I mean, let me say this. So one issue that we're having is we're promoting or hiring the wrong candidate to be a service manager. We need a business minded person who understands what we're discussing. Not saying that a technician can't grow into that because I did. Right. I was a technician and I tell people I did. I did everything. I was a service manager for seven years. The first three and a half years I did everything wrong. And I was like, I'm tired of losing. I'm tired of getting my butt whooped. I'm tired of losing money, tired of everybody mad at me. And I started to look at everything I did. And when I'd get in the bad situation, I like, how did I get here? And I would backtrack until I realized this is what I did wrong. I shouldn't have done that. But I mean, that was a lot of hard work. And so we need to get, they need training.

26:11

You know, if you have a technician who you promoted into service management, they need training. Take, Take your assessment, you know, understanding what they need, what they need help on. But we really moving forward, we need to realize we need a business minded managers to manage. It's a business unit. And I think that's one thing kind of our opening conversation. I try to drive to dealership owners. It's a business unit. And some of these business units are 20,30,40,50 million dollar, if not 150 million dollar business units. A guy in there who doesn't understand a P &L, who doesn't understand marketing, who doesn't understand lifetime value of a customer, you know, who doesn't understand the reasoning behind, you know, to set the segment, your, your, your customer base. And then they're wondering, why is this not working? Why am I not making money at, at, at, at, at my dealership? So anyway, it went on a range. It, I kind of.

27:14

No, no, you're good. That crazy service manager, the president of the company, Rod, firing me. We hired MBAs or engineers as assistant service managers. They were the administrators. They were the business people so that we could have a combination of good technical skills and good business skills. And if you think about sports, just to use a simple analogy, and you think about superstars. Yeah. The Michael Jordans, that crowd. How many of them turn out to be good coaches?

27:51

Not many.

27:52

One in my mind. And it was Bill Russell. And he won the NCAA championship at San Francisco. The last two years he was at university. He was NBA champion with the Celtics. Every year he was a player. When he became player coach was the only time he didn't succeed and win the championship. But the next two years where he was player coach, he'd figured it out. Then he did. So only once like you experienced. Yeah. Like he didn't know there was nobody gave him a manual, but I can't think of anybody else. It's like that. And why is it? They have such discipline. They have such desire that can't be given to other people. Yeah. You either have it or you don't. Motivation is something I used to tease people. I can't motivate anybody, but I can devotivate every single one of you. It's easy. So here comes the technician. Every morning, they have eight hours of labor if they're in my shop. And they can go home when they finish that eight hours of labor.

28:59

If they finish in five hours, congratulations, you can go home. Yeah. Another three hours. I'll give you three more hours. I'll pay you for 11, but you're only going to work eight. Holy. And the young guys on Thursday afternoon or, you know, Friday for the weekend, they see all these experienced technicians leaving at noon. And intrinsically, they think to themselves, geez, I'd like to be like that when I grow up. So they're motivated to get better at what they're doing. And they start asking questions. They go to these guys. How do you do this? Why do you do that? Which is part of the coaching culture. And we've lost that. We don't have apprentices anymore.

29:40

No.

29:41

We hire you out of a technical school. What the hell do they know? We have a community as a helper. I used to have one helper for every two technicians. They ran for the parts. They cleaned the parts. They cleaned the bay. You know, leverage the skills of people.

29:57

Yeah. Yeah, we had a conversation a couple of years ago, Ron. I don't remember. We're talking about the military. Marine Corps, we have a fire team. So every squad is made up of like three to four fire teams, which means you have three people, then you have a fire team leader. So you have a team of four, you know, and really that's how I think it should work in the shop. I think you and I are on the same page of this, is you probably need one senior tech. and three younger techs that can do majority of the diagnosis. The younger techs do majority of the heavy lifting on the machines. But as they're working on those machines together, they're being taught how to diagnose the equipment, how to use the electronic manual, or if they still have a paper manual. And then you probably need a shop foreman over like four, like a squad leader over four or five fire teams. You have another manager who, who, who managed that.

30:52

But my, I think what happened, what went wrong is you have a lot of smaller dealerships. Let's just say non cat, non deer, you know, the ones that have to have multiple lines and stuff is they make a lot of their money on, on the sell side of the business. They see service as a cost center. And so what they've done, they're like, we don't need multiple layers of support because that's just added cost. Every technician needs to be billing out X number of hours. And they see it as a purely way of cutting costs, like cutting payroll. They don't see the long-term issue. And so most of these dealerships, and a lot of them I have worked for, do not see the long-term benefit in investing in that. in that technician role. Now, where we are at today in a technician quote-unquote shortage, we didn't get here overnight. If we would have been training people and had apprenticeship programs, you know,20 years ago, we wouldn't be here right now.

32:01

We're here because mismanagement, bad leadership. from the executive level of our industry, who has devalued the technician and says, you know what? They don't need a service rider. They're just grease monkeys. If they can't fix it, fire them. We'll find somebody else who can. Versus saying, hey, let's bring in these young people. Let's have a senior tech. you know, mentor them. Let's do an apprentice program. Let's reach out to a tech school, a tech colleges to interns with them. And it's really invest in our parts and service, but they didn't really see it as a long-term, you know, way to long-term to drive their business. They're saying, Oh, we got to have it. We need to hire some people who can fix equipment, but the equipment got more and more complex. And you're just not going to learn this stuff overnight. And another thing is manufacturers, the fastest way to sell a new model.

32:53

So a manufacturer, if they want to gain market share, they come out with a new model. That's the easiest way to sell it. So now we're coming out. We used to have the same model for like 10 years. You know, so technicians would know everything about that, that, that backhoe or, or that, or that bull bull bull bull bull bulldozer because they worked on it for 10 years. Now they're coming out with a new model, a new series every two or three years. It's not technology being overwhelmed with new systems and they need a support staff like they can't do it by themselves. They need that fire team to support them.

33:31

And we've got God. We can do this critique or evaluation on every department in every capital goods industry. Yeah. Washing machines, lawnmowers, whatever. It doesn't matter. They're all the same. Yeah. And. So leaders in the manufacturing side, example, washers and dryers in your home. I don't remember what brand it was, but let's say LG just to pick one. I could go to the front of the dryer and I could talk to the machine. And the machine would reply to me. It said, how's your filter? You got a lot of lint in the filter. Do I need to clean the filter? And it would come back and tell me. things aren't as clean as they should be. Is there something wrong with the washing cycle? And they go back with an answer. And if there was something wrong, they said, give me the instructions. And they walked me through the repair. Now, if you look at the equipment that we're dealing with, I started in 69 with a Caterpillar deal.

34:43

At the time, I think there were 286,000 part numbers. Today, the Caterpillar dealer is dealing with over 800,000 part numbers. How the heck do you do this?

34:54

How the heck do you manage that? When I talk to service managers, total side note here, and they bitch and moan, excuse my French, about why can't we stock this part? Why can't we stock that part? I tell them there's hundreds of thousands of part numbers. Like, do you expect him to type in each number? And so I like to bring them in. Like, sit down, Mr. Service Manager. Tell me what part number you want us to stock. Well, I don't have a part number. Okay. We can't start unless we have a part number. And let's go through the sales history on every single part number. Well, then you multiply that time a million or 800, whatever the number is, like you can't do it. It's impossible. And we expect these parts guys to have every part in stock for every unit. Anyways, I totally.

35:42

No, but again, take that same stance. Let's go to get in a plane and we'll run around to 100 different dealerships. And we'll find at least 90 of them where the technician leaves their bay, walks to the parts department and place an order for parts. Yep. Yep. Why the heck don't they stay in the bay? I had people with headsets in the parts department in 1970. You know, the mechanic never left his bay.

36:07

Because the management says, well, I'm not going to pay for that new computer. He doesn't need a laptop. He can just walk his lazy butt up there and order his parts. Okay. The most valuable, highest margin product a dealership sells is in technician hour. Yep. And why the heck are you going to pay $165 an hour, $200 an hour for a technician to walk, to go get a part, when you could pay somebody $14 an hour to bring him the part and buy him a $500, $1,000 computer? Like you're instant. You get that investment back in a month or two. And but that's they don't see that. They're saying, well, why am I going to buy him a thousand dollar computer? Well, why are you going to spend ten thousand dollars a year to pay him to walk back and forth and not get reimbursed for it?

36:57

Yeah, we have you're one of them, but we have a bunch of contributors to write blogs and get involved with podcasts with us, et cetera. And I call them thought leaders. experienced executives, and revolutionary reformers. And thought leaders are very rare. They typically get shunned. Like you said, somebody's coming in from the outside and the group bands together and say, well, we don't want you around here. The revolutionary reformers are really rare. And with the delay of transition of leadership by a full generation that's been going on, A lot of the men and women that were 50 to 60 that would have been the leaders today, they gave up. They got impatient. I'm not going to hang around. So I'm leaving this. And we can't afford to lose that talent. Yeah.

37:51

Walked right out the door.

37:54

It's, you know, there's computers when they started, it's a switch. It's a zero one. And now I had a chat this morning. We're talking about artificial intelligence. And the guy said, well, it's not artificial intelligence. It's just we're having the computer. think for us. That's why it's called artificial, but that data is there for us to do. We just never had the time to look at it all. And if you, if you look at the repair of a machine, we have basically rebuilds, repairs, and maintenance. And which of those three is the most important? What would you say?

38:37

As in value, like creating profitability and value or? uptime for profitability for everything maintenance maintenance so

38:47

why is our market share on maintenance only five percent because

38:52

we're we're thinking like a technician or we got this false sense of pride of saying well i'm not going to change oil that's a that's a that's a whatever job that's not a i'm gonna manage i'm gonna rebuild an engine um i guess and just to your point um uh, revenues vanity. And so I remember when I was a service manager, I got like the $60,000 engine job. And I was so excited. I called it, I called the director of product support, man, I just closed the $60,000 engine job. And you know what? I lost my butt on that job. I don't think he even made money. I had this big revenue number, right? But I didn't make anything. I make more money and change in oil. And I tell that to dealers over and over again. Hire a young guy, teach him how to change oil. That's your highest profit margin product in the service department is changing oil. And everybody does it. Everybody understands they need to change the oil.

39:51

But service managers don't care about focusing on that business. They're concerned about the engine job that you don't make any money on. But you get this big vanity number, though.

40:01

I was in the industry when that became an issue in the 60s. Almost every manufacturer, actually post-World War II. Going into World War II, basically there were seven major companies making equipment, and it was all tractors, bulldozers. Coming out of World War II, people started broadening the base. They were rubber-tired loaders, excavators, black loader, back of blah, blah, blah. But as a result of that, we had to have more skills. And something had to give. And the first thing they gave was maintenance. Don't have time for maintenance. I got to get after this repair. Don't get better. The customers that were smart, and there's many of them, decided, well, I still need maintenance because it saves me money. It keeps the owning and operating costs down. And I'm going to hire somebody to do that for me. And where do they go? They come to the dealer and they take somebody from the dealership and they hire them.

40:59

And all of a sudden, we don't want to lose the maintenance work. We lose the low technical skill required work. And that cycle has been going on forever. And I'm not joking. AED used to do surveys, I think it was every five years. And it was invariably 94%,95%,96% market share loss for maintenance. And there was a follow-up question. If the dealer charged you the same amount as you would pay, would you have them do the maintenance? And the answer was invariably yes. So that brings us back to the other side. Instead of having a maintenance rate, we charge for the changing, dropping fluids and changing filters the same price as we'd repair a hydraulic hose. And it's nuts.

41:47

Yeah, because the dealership's saying, well, why on earth am I going to lose money? Well, you're not going to lose money because you're going to charge for five hours. And if your technician is good, he's going to do it in like two and a half hours or three hours. And you're paying them. $20 versus $40 an hour. So you're not. You're still making, that goes back to that business understanding. And I hate to say you got to have somebody with an MBA to be able to explain this, but it's profit. It's profit that counts. It's not revenue. And people are just hung up on revenue. And that's why they go out of business or get bought or close the doors.

42:24

But let's go in a different direction. The service manager's in the office. He goes there all day and he stays there. He very rarely goes out to the field. Parts manager is the same thing. I used to require the service manager and the parts manager to spend one half a day a week in the marketplace with the customers. It was like pulling chicken's teeth to get them to do it. That's where the fun is, John. But get better at what you're doing. If you're in front of the customer and they start talking with you, they find out really quickly whether you've got value for them or not. It's a real test. And again, it goes back to leadership at the dealership. Yeah. A customer focus, a customer retention focus, a customer service focus, not a profit focus. Yeah. And, you know, people, I started in consulting in 1980 and everybody said, well, you went into business to make money. I said, no, you don't go into business to make money.

43:25

Making money is a byproduct of being in business. People don't understand that. It's a very weird world. And it's getting more and more complicated as time passes. The blog is interesting. The tactical thinking from the technician and strategic thinking for leaders, I think, is one of the most powerful statements in that blog. Identifying the different... markets that you're serving, used equipment, rental equipment, new equipment, down machines, field shop, et cetera, is powerful. The message is clear. And the dilemma that we have is a lot of people read, nod their heads sagely. That's a really good idea. Yeah. Then tomorrow comes and nothing changes. If you can figure out how to make that happen, man, you'd make a fortune.

44:25

Yeah. I'm trying to figure it out, but it's, it's, you're, you're right. You can tell them when you tell them when you tell them. And, um, I was talking to Sarah, my wife, we celebrated 21 years this last month.

44:40

Yeah.

44:41

Yeah. We've high school sweethearts. She was my best friend and who still is my best friend, a little sister in high school. And it's funny. I used to, I used to call it when Larry's my best friend's name. So I knew Larry wasn't. wasn't home. And so I would call his house and ask for Larry and Sarah would answer, said, no, Larry's not here. And we would just start talking. And it wasn't until like, like two, two, two years ago that Sarah realized that I knew that Larry wasn't there. And I was just calling to talk to her, but I didn't have enough guts. So I was like, Oh, is Larry there? And so anyways, yeah, we dated for 12 years before we got married. So you had the 12 and the 21, we've been together for a long, long time. But anyways, that's what I told her. So I love consulting. I love helping people. I've had great mentors in my career. And I really appreciate the relationship I have with you, Ron. You've been very helpful to me.

45:41

I don't know if you know that or not. So I really appreciate that. And so I really like to give back. And I think that's really what's life-giving. You know, like you're saying, did you go in to make money? No, I could probably go make a lot more money running a dealership somewhere. But what's life-giving, I want to help. I want to give back. And there's so many things that they just don't see or they weren't trained on. And, you know, I was working with a dealer here recently, and they're like, man, we do a really good job at service. We just can't make money at it. And, and it's like, okay, let's, let's, you're, you're in the right spot. You're in the right mindset. Like we're, we, we take care of our customers. We just can't figure out how to make money. And, and he realizes that's how, like, he's tired.

46:26

He's tired of making enough money to make it, to, to keep the doors open for one more year to work another 12 months to make enough money to keep the doors open. He's like, this isn't worth it. Like, what am I doing? But I will tell you this. my biggest frustration and I could probably get some wise counsel from you is, is you can tell them to do it. Like, like you can lead a horse to water, but you can't make them drink. And like, that's the hardest part of, and I'm a nice guy. And so, you know, everything you read, like you got to push, push on their pain points and really make them feel it. And I'm a nice guy. And I was like, I don't want them to hurt anymore. Cause it's already hurting. And it's really like, Hey, there's, we, they work so hard. to lose so much money. And you're like, you don't have to do it. You're working too hard. You know, delegate, centralize your command and control, empower your department heads to make decisions.

47:24

But once again, you've got to have a service manager and a parts manager that's business minded that understands it. Just, you know, I tell you, this is simple as saying, create a budget and tell your managers, this is your budget. You stay within these guidelines and just do what you got to do to take care of the customer. Most dealerships don't even do that. It's a service manager doesn't even know if they're doing it, making a good decision or not. They, and so they make bad decisions financially because they spend a lot, a lot of money to get a very little return, but they already know what, what is their range of money to spend

48:01

at the, at the risk of this becoming political because of the expression I'm going to use. It's common sense. Yeah. And common sense is not particularly common.

48:11

No.

48:12

And the part, I started consulting in 1980.

48:21

I was five years old at the time.

48:23

Thanks a lot. I started teaching in 1967. That makes it even worse. Yes. What would happen, you know, I had a grandfather contract because I was a chicken and wanted to make sure I had enough money to put food on the table, etc. So I started it up in Canada for a guy who was the largest broker of Caterpillar equipment in the world. And he wanted to compete with the Caterpillar dealer in parts and service. So he hired me to put together a parts and service business for him, which we did. And two or three years later. I was taken into the States to run EBS, which was a by-project Caterpillar's dealer data processing. And they had 450 dealers on their business system. And it was failing. And they wanted me to come in and put it back together so that the owner of the business could sell it.

49:22

Yeah.

49:23

Which we did. And all of a sudden, I didn't have a grandfather anymore. So it's January 1984. I have no guaranteed income. I started developing products to sell to dealers. I used the phone because I couldn't afford to travel everywhere and say, you know, I'm going to come in and look at your parts department. I'm going to look at your inventory department. I'm going to look at your service department. I'm going to look at how you sell product support. And I know how to do that a hell of a lot better than you do. And you're going to pay me to prove that that's true. Well, after a while. I got to doing operational reviews. And I'd come up, it would be a month time span on a calendar. I'd be present maybe two weeks, maybe eight days. And they'd get a report at the end, and here's what I found. Here's the financial, here's the benefits, here's what you need to do. And I'd say, have you got anybody that can implement this for you?

50:28

And they'd all say, oh, yeah, we've got that. And I'd follow up a month later and three months later, and nothing's happening. Being a little slow coming to the, you know, you can take a horse to water, you can't force him to drink. I started saying, have you got somebody to implement this? And they would say, oh, yeah, we've got people like that. Or if you want, I could do it for you. And all of a sudden, I had a five-year backlog. And at university, there's a thing called executive function, which is mostly used at postgraduate students. It's an evaluation of. how successful they're going to be and what kind of an impact they're going to have 10 years after school. And there's three categories in global terms. There's people that are good at strategy. There's people that are good at implementing. And there's people that are doers. And it's important that you know where you fit. Yeah. And don't try and do something you're not up to.

51:28

But what really is missing is implementers. And then the other side of the table and evaluation of personalities, are you open-minded or are you closed-minded? In other words, how adaptable are you to change? And you put the open, closed with those three categories. Now I got a little grid of six. And I can take and look at performance levels of a dealership, sales revenues, customer retention, market share, all that stuff based on those six boxes. with a correlation of higher than 90%. So if I've got a good strategist and a good implementer, I can buy doers. If I don't have a good implementer and I got a great strategist, I will fail. If I've got a terrible strategist, but I've really got a good implementer, I will succeed. So you can put all of that stuff together. So now we go back to service departments. I got a service manager who's a great technician. I'm not going to grow. I got a service manager who thinks strategically is a good leader.

52:37

I will grow. My problem with I will grow is we have shops. It's a fixed cost infrastructure. I don't want fixed costs. I want tents. And I'm going to have a life cycle on that tent of maybe 10 years. So I'm going to put a pad down somewhere. I'm going to have a like Denver airport tent. I'll do all my repairs in there. And after 10 years, as the work moves out, as you look at the expansion of cities and communities, you don't have machines in the inner city anymore. Oh, wait a second. Yes, we do. But we've now got rubber-tired excavators because they've got to go in on top of streets. Oh, my God.

53:25

Yeah, vacuum trucks and pump trucks. Yeah.

53:29

It's a very interesting thing. You asked me for something relative to absorption, and I mentioned Bill Blackie, the chairman of Caterpillar, and he created manuals. He was an accountant by trade. He created a book that was parts grams, every procedure, service grams, every procedure, every document, every process known to man for those departments. It was defined by Caterpillar, and every dealer in the world did things pretty much the same way with very little variation on the thing.

54:02

Are those still available? Can you get those?

54:04

Yeah, but you're going to have to look. You know, it'd almost be an antique.

54:08

Yeah.

54:10

There's a book out there I think you can still get called Earthworm Tractor.

54:15

Okay.

54:17

I think you can get it in paperback. It was published in the 60s. But, you know, it's a guy who's a salesman for Earthworm Tractor is a makeup of Caterpillar. Yeah. And the salesman's going out to make a sale. And all of the things he goes through, the demonstration and all the rest of it. And it still applies today, John. It's really weird. And if you just get people to read, like one of the things I'm throwing around in my head is I want to start a book club. Yeah. And get a group of people, six, eight, ten guys, gals, whoever. And we're going to read a book once a month. And we're going to spend four hours on a Zoom call. We're just going to talk about it. And start growing knowledge and wisdom and open progression. change. Sarah Hanks, who does continuous improvement, got her background. She's an engineer, mechanical engineer. She worked for General Electric with Jack Wills directly. There's a lot of talent out there.

55:19

We just got to focus it. And that's why your book is so important to the audience. If they don't have it, he's offering to give it to you for free. Send them an email, get the book, read the book, follow the book. And if you have questions, Call him. He'll gladly help you. Now that might cost. That's good. He's got to make some money somewhere. Yeah.

55:40

I've got a beautiful wife. He likes beautiful things. And I got two beautiful daughters. So my son, I tell him to go to work. He knows everybody in our neighborhood. We live in a rural neighborhood. So everybody's got a little bit of land and he goes to everybody and he mows their lawns. He trims their trees. And so I tell him, just go, you go make some money. You know, you're a man. Go make some money. And I might get in trouble. I may seem a little sexist or old-fashioned or something. But I like to take care of my daughters. But the boys can go work.

56:11

I'm the other way around. I've been around powerful women my whole life. My grandmother had a master's in 1950. Nice. And, you know, so my mother was a graduate. My daughter's got a master's. My granddaughter's got a master's. My grandson, who's 20, just... At the end of this month, he'll have a nuclear engineering and astrophysics degree.

56:32

I bet you he's pretty smart. It seems like everybody's really smart in your family.

56:37

Oh, no, I just carry the luggage, man. Yeah. But you've got to find what you like. If you're lucky enough to find your passion, everything's good. If you find your passion, you've got to recognize it's not static. Yeah. It constantly needs to be refreshed. And so all of our internet-based training, five, six-hour classes, $79.50 for a five-hour class.

57:08

That's a good value.

57:10

$79 for five hours? $79.50, man. $0.50. $0.50.

57:15

Yeah, plus tax or that includes tax?

57:18

Well, it's learning. There

57:21

you go. You don't have to worry about tax. That's right. That's a great value there.

57:26

You got it. Everybody who's listening, I hope you enjoyed this. We rambled around a lot, but I think you get the message. The service department is one of the most critical pieces of an equipment dealership, of any dealership in the capital goods industry. It has the highest gross margin. It has the most influence on customer satisfaction. And yet it's treated as a stepchild. Training is not a discretionary event. People are not tools in a toolbox that they get obsolete. You replace them. You can't replace them. And there's guys like John who are young and energetic and in the marketplace that are out there helping, trying to make a difference. And there are not a lot of them because it's hard to get the skill set that's out there. So for everybody listening and John, thank you very much. I think this is beneficial. I look forward to having another one with you in the near future and to everybody out there. Thank you for listening. Mahalo.

58:31

Thank you for listening to our podcast. We appreciate your support. Should you have any thoughts or comments, please don't hesitate to contact us at www. learningwithoutscars. com. The time is now. Mahalo.

The Profitable Path: Transforming Service From Cost Center to Profit Engine

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