Australia: What is the Maximum Absorption Potential for Your Dealership?

Last Updated: 29 January 2013
Article by Brett Fowler and John Gavljak

Most dealers know about service and parts absorption*. Often dealers are encouraged to aim for 80% to 100% absorption, however the great majority achieve somewhere between 40% and 60%. The world is changing, dealer absorption levels have been falling for years.

What if you knew the maximum absorption potential for your dealership for the brands you market?

A key driver of absorption, with varying methods of calculation is 'service retention'. Is absorption related to service retention?

The answer is a definite YES. Figure 1 illustrates the direct relationship between service retention and absorption, based on our dealer financial modelling.

It makes sense doesn't it, retain more customers, after selling the vehicle and you will increase service and parts GP and therefore increase absorption. Great!

There are many income streams into dealer service and parts operations. Something that is often overlooked is the importance of retaining pre-owned vehicle owners. Used vehicles generally consume more parts than new.

As shown below, keeping your used vehicle customers can represent around 25% of your service and parts GP – this is very significant.

There are several reasons for falling dealership fixed expense absorption performance. These include increased operating expenses and wages, aftermarket competition, fleet company controls, F&I adding overheads, doing more to vehicles (wash, pickup), extended service intervals, capped prices, better vehicle quality etc.

What is the best absorption my dealership can expect to achieve? Is 100% realistic?
What if ALL new and used vehicles your dealership sold over the last five years (in and outside your PMA), CAME BACK to your dealership for service and repairs using genuine parts. It is a simple concept, not all customers will return for service (unfortunately) yet wouldn't this 100% service retention be your approximate maximum absorption potential (ignoring trade parts)?
If you knew you maximum absorption potential and current performance, would it influence your investment decisions, your ROI expectations, growth plans and customer retention strategies?

We have developed a detailed model to determine a specific dealers maximum absorption potential. Readers may be interested in plugging in some figures into Figure 3 to 'approximate' your maximum absorption potential. We stress this method is only indicative. You may wish to complete this for brands or vehicle types (eg SUV, sedan) that you sell.

Maximum Absorption Potential – An Indicator
Follow Steps 1 to 10 in Figure 3 to determine your maximum absorption potential. (Note this is a very approximate method, more refined analysis which considers model type, pump ins/outs, tech recovery and trade parts sales contributions can be applied to our MaxAb computer model. If you seek more information please contact us).

To determine your 'approximate' maximum absorption potential, enter your dealership data in the yellow boxes below and perform the calculations indicated in each step.

Step Performance Indicator How to Calculate Your Dealership
1 Total Number of new vehicles sold by dealership last 5 years Dealership History
2 Total Number of used vehicles sold by dealership last 5 years Dealership History
3 Total Dealership vehicle population New plus Used (Step 1 + Step 2)
4 Average Labour Gross Profit $ per RO Total Labour GP last 12 months/Total number of RO's
5 Average Parts Gross Profit $ per RO Total Parts GP last 12 months/Total number of RO's
6 Total Potential Labour GP (if all vehicles came to your dealership) Step 3 x Step 4
7 Total Potential Parts GP (if all vehicles came to your dealership, ignoring panel). Step 3 x Step 5
8 Total Labour & Parts GP Step 6 + Step 7
9 Total annual Dealership Fixed and Semi Fixed operating expenses Dealer specific data
10 Maximum Absorption Potential (Approximate) Step 8 / Step 9
Actual Absorption* (Actual Service GP+Parts GP) / Total Dealer Fixed & Semi Fixed Exp

Good luck with the model let us know if it influences your thinking about absorption goal setting. If you would like more accurate analysis please contact us.

Five key things dealerships can do to enhance absorption include (but are not limited to):

  1. Measure absorption and set a target.
  2. Measure service retention, set retention targets for new and used vehicle owners.
  3. Be more efficient - maximise labour productivity and efficiency in service and measure by tech.
  4. Engage top service advisors who engage customers and load the workshop.
  5. Market – ie 'chase' service work. Be aware of competitor offerings and be competitive with them.

80% to '100% absorption' is a great and admirable goal and a few dealerships do achieve this. However no two dealerships or PMA's are the same. The world is changing rapidly – start with your maximum potential and go from there. Good luck!!!

This publication is issued by Moore Stephens Australia Pty Limited ACN 062 181 846 (Moore Stephens Australia) exclusively for the general information of clients and staff of Moore Stephens Australia and the clients and staff of all affiliated independent accounting firms (and their related service entities) licensed to operate under the name Moore Stephens within Australia (Australian Member). The material contained in this publication is in the nature of general comment and information only and is not advice. The material should not be relied upon. Moore Stephens Australia, any Australian Member, any related entity of those persons, or any of their officers employees or representatives, will not be liable for any loss or damage arising out of or in connection with the material contained in this publication. Copyright © 2011 Moore Stephens Australia Pty Limited. All rights reserved.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.