Thank God for the service department

Posted on Written by David Shaw

35_service_03The stepchild of boom years is earning its wings in these leaner times

Don MacKenzie has a newfound appreciation of the service department at Boats Incorporated, a Niantic, Conn., dealership for Grady-White Boats, Parker Marine Enterprises and Yamaha outboards.

“Right now, more than at any other time, I realize how important our service department is,” says MacKenzie, vice president of the company that was founded in 1959.

New-boat sales have long been the primary focus at many dealerships, and while service was always important, it seemed a little less so when those sales were trending upward. That changed during the Great Recession, when boat sales plunged 35 percent or more in many markets. Now, dealers large and small are putting a greater emphasis on service as a source of revenue to offset sales losses.

“There are still very few new-boat customers, so the emphasis is on service for existing customers and customers who come to us for the first time,” says MacKenzie, 55.

35_service_04Many dealers swear they won’t return to the old ways when service took a back seat to sales. Others already had a firm focus on service and were in a good position to fall back on it when times got tough. One of them is Sail & Ski Center, in Austin, Texas, a dealer for seven boat brands, including Sea Ray, Nautique and Boston Whaler.

“The majority of dealers that are successful in downturns like this one anticipated them or have been through them before, and they understand the value of fixed operations,” says Rod Malone, president of Sail & Ski Center, which also owns a marina, operates retail outdoor recreation enterprises focused on snowboarding and skiing, and employs 85 people. “It’s very easy when times are good to take the low-hanging fruit [new-boat sales] and not continue to build the parts and service capacity and organization.”

Malone, 69, thinks that’s a mistake.

He has always viewed the service department as a profit center unto itself, not a leg of the sales department, and he has structured it that way, with separate management and tools to measure productivity, efficiency and profitability.

“I made the decision long ago to operate these parts of the business as separate profit centers, and it has helped during economic downturns like this one,” Malone says.

In 2008, 34 percent of the company’s gross revenue came from new-boat sales. That figure dropped to 26 percent in 2009. Parts and service accounted for 34 percent of gross revenue in 2008, and increased to 37 percent in 2009. “The point is we had a core of fixed operations revenue that kept us from feeling the impact of new-boat sales losses as much as we might have,” Malone says.

36_service_05Seattle Boat Co., a Cobalt and Sunseeker dealer with four locations and two drystack marinas in Greater Seattle, committed in 1997 to focus more on service. “The company was heavily reliant on sales, and we

realized that diversification was important. We felt that service would be a good addition,” says company vice president James Baker. The change is helping ease this downturn, he says.

Seattle Boat Co. was established in 1984 and employs 30 people at peak season. Like Sail & Ski Center, its two service departments operate as completely separate units. The sales department is billed at the retail rate for services.

“By billing service for boat sales at the retail rate, we can better assess the profitability of the service departments, whereas if we gave the boat sales department a special rate, we’d have a less accurate picture of profitability, and we would lose overall revenue,” says Baker, 40. “I would say that this isn’t the norm among many dealers. Many have a special internal billing rate.”

In 2007, service accounted for 27 percent of Seattle Boat Co.’s total revenue. In 2009, it was up to 34 percent. The bulk of other revenue came from boat sales. “We’ve been seeing a lot of first-time service customers,” says Baker. “They’re from dealers that have closed, and we’re doing warranty work for other brands where there is no dealer support.”

Baker ranks communication as paramount to the success of a service department. “The majority of times when there’s a complaint, it almost always stems from a lack of communication internally and/or with the customer,” he says. Doing quality work, bringing the job in on time and billing at the quoted price obviously are essential, he adds.

Galati Yacht Sales, headquartered in Anna Maria Island, Fla., has more than 130 employees at eight dealerships between Florida and Houston. It also owns three boatyards to service its brands, which include Viking Yachts, Viking Sport Cruisers, Tiara Yachts, Cruisers Yachts and Maritimo Yachts.

General manager Darren Plymale says 90 percent of the company’s revenue is derived from boat sales. When new-boat sales tanked nationwide, Galati took an active approach.

Plymale, 44, says the family-owned business was founded in 1970 as a yacht service company, but in the late 1970s it added new-boat sales. By 1997 it was offering services only to customers who had bought new or used boats, closing its doors to retail service customers. “Our No. 1 effort was to sell the product and keep the customers happy and on the water,” Plymale says, adding that the service department ran at a loss “in support of our sales efforts.”

Then came the crash. “With the decline in new-boat sales, our service efforts had to change from new-boat sales support to a greater focus on retail,” Plymale says. “For the first time since 1997, we expanded our reach to the retail level.”

The company was positioned to bring in new service business with its multiple locations and strong service departments. The new retail business came, boosting profit margins in the service departments by 12 percent in 2009 over 2008. A “substantial increase” in brokerage sales played an integral role in feeding the company’s retail service efforts. “At the end of 2009, we generated less overall revenue, but we produced more income from the revenue we took in because of our focus on retail service business,” Plymale says.

Established in 1960, Woodard Marine, in Lake Bomoseen, Vt., is a family-owned business with 25 employees. The company is a dealer for seven boat brands, including Regal, Bayliner and Boston Whaler. It also owns a marina, offers boat storage and operates a boat rental business. New-boat sales dropped by 20 percent in 2009, says co-owner Lauren Woodard.

“Fewer people were buying new boats and choosing to service their existing boats instead,” she says. “We wanted to better position ourselves to not only service our existing customers, but to encourage new customers to do business with us in our service department.”

Woodard Marine launched a marketing campaign featuring direct mail, telemarketing and special promotions to boost service business from existing customers and to bring in new ones. Key to the plan was delivering quality service faster than the competition. Service had always been a major profit center (59 percent of total revenue in 2009), which positioned the company to handle new business, if it came in. And it did. In 2009, gross revenue in the service department was up 18 percent over 2008.

“Overall, our net profit is actually much higher in 2009 than it was in 2008 because of our emphasis on the service department and the net gains it produced,” Woodard says.

Boats Incorporated’s MacKenzie says the dealership, which has 30 employees, has always been committed to service, and that the department remained at close to capacity during the downturn. Revenue from the service department in 2008 and 2009 was stable, accounting for about 35 percent of gross revenue in 2009.

“In any boat dealership, many people in sales feel they’re driving the ship, but in the last two years it’s been driven by service,” MacKenzie says. “If sales doesn’t start to appreciate service, it’s a mistake. Both play a [vital] role in any boat dealership.”

This article originally appeared in the February 2010 issue.

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