Service Absorption Rate: Formula and Benchmark
Service absorption (often called fixed ops absorption) measures how much of the dealership's overhead is covered by the gross profit from service, parts and body shop. At 100%, fixed ops pays all the store's overhead, so every vehicle sold contributes to net profit. The Pocket20 benchmark is 85% to 100%, with 100% the gold standard.
The formula
Absorption = fixed-ops gross profit ÷ (total fixed expense + dealer salary + service, parts and body selling expense)
Fixed-ops gross profit: service gross + parts gross + body shop gross.
Total fixed expense: rent, depreciation, utilities, insurance, taxes and the other fixed lines on the expense page.
Dealer salary: the owner or general manager salary line, where the statement prints it.
Service, parts and body selling expense: the departments' own personnel and selling expense.
The common mistake
The most common shortcut is fixed-ops gross divided by fixed expense alone. Because it leaves out dealer salary and the fixed departments' own selling expense, it overstates absorption, sometimes by a lot. A store that "looks" 110% absorbed on the shortcut can be well under 100% on the full formula.
If your manufacturer prints its own absorption figure on the statement (Ford does), use that printed number rather than rebuilding it.
How to find it on the statement
Take service, parts and body gross from the department summary (year to date).
Take total fixed expense, dealer salary, and the fixed departments' selling expense from the expense pages.
Divide.
Example (hypothetical round numbers): fixed-ops gross of $3.0 million year to date. Fixed expense of $2.4 million, dealer salary of $300,000 and fixed-ops selling expense of $700,000 add up to $3.4 million. Absorption is 3.0 ÷ 3.4 = 88%, inside the 85–100% band but short of full coverage. Closing the gap to 100% would take another $400,000 of fixed-ops gross, or lower expense, over the same period.
How to raise absorption
Lift labor gross. Customer-pay labor should run at 78% gross or better. See Service labor gross profit.
Grow parts gross alongside labor. See Parts gross profit and turns.
Bill internal work at the retail rate, so internal repairs don't move gross out of fixed ops.
Watch fixed-ops selling expense. It belongs in the formula, so it moves the number.
See it on your own statement
Pocket20 reads absorption the way your manufacturer prints it, or calculates it with the full formula when it isn't printed, and shows the dollars between your store and full coverage. Get a free read or see a sample read.