How to Improve Your Dealership’s Monthly Forecasting

Written By: STEVE HALL
POSTED ON August 23, 2022

Today, I'd like to talk about your monthly departmental forecasting – specifically fixed operations, but these basic principles can be applied to other areas of the business as well.

Whenever talking to service managers in class, I often ask, “how do you come up with your monthly forecasting numbers?” A lot of times, they’ll say “well, we basically just look at the number from last year, and maybe the last month or two to get an idea of where we’re trending. From there, we’ll add a number we want to see, and add maybe 5% or 7% … and that’s our forecast.”

My next question: Is that really a good business plan?

Realistically, it’s not the most accurate way to arrive at a forecasting number. A lot of things can change – for better or worse – from month-to-month, and especially year-to-year. A more accurate process helps you do a better job of forecasting, ultimately helping you make better business decisions.

Production Capabilities

One avenue you can look at is production capabilities. Let's think about this. Let’s say that last year you made $200,000 in your shop and you had 22 technicians on staff. Now this year you have 26 technicians on staff. Adding 5% to last year’s number is not going to be a very good or accurate forecast when you’ve actually increased your production capacity by nearly 20%.

Calculating a Proper Forecast

To get a more accurate forecasting number, you need to look at your actual production staff and see what they're capable of. The process for doing this would look something like this:

Look at the number of working days in the month, calculate how many days each technician works, including scheduled days off, vacations, and other things like that. From there you would figure out the average hours per individual technician, and then calculate the effective labor rate and gross profit that they turn on those hours.

When we look at all these items together, we can get a very detailed forecast and we can actually see what our real gross profit potential is.

Hitting Your Forecast

Once you visualize your real gross profit potential, you will have a better idea of the hours of inventory you need to sell for the month. If your hours inventory comes up to say, 3500 hours, you will then decide how to fill those hours. If you see that you have 1000 hours' worth of internal work that you do a month, you need to deduct that out of inventory. Then, perhaps you will have another 1000 hours of warranty work. If we deduct those 2000 hours, 1000 for internal and 1000 for warranty, off the 3500 initial inventory – that leaves us with 1500 hours we need to sell in customer pay.

Next, figure out how many vehicles you need to schedule per day and how many hours you need to sell on customer pay to actually hit your forecast. That can help you decide when to add technicians or improve the production of your current techs.

So, my final question to you: Can you get more detailed on your forecasting?

If you're just talking about what you did this last month or last year, and adding a percentage, you probably need a more detailed process and better calculations to maximize your business. When you start breaking down and really figuring out your inventory – in this case, your hours inventory, and planned sales – you can find ways to grow your business more effectively and quickly identify a need to add people for greater success.

If you need assistance implementing processes like this or learning more about forecasting, look at our NCMi course catalog here.

For any topics you would like us to cover, or if you have specific questions, e-mail us at: askncm@ncmassociates.com