Shop management can get sidetracked when they only focus in on individual productivity measurement within their business. This is not to say that it is not important; however, individual measurement, known as proficiency measurement, is excellent for counselling an individual staff member to improve themselves. But what about the TEAM productivity as a whole and the effect on the business?
Measuring the entire shop as a team can help direct management to the necessary attention to certain processes that are failing. When processes fail, net income disappears. It also tells us much more. This measurement is called “site efficiency.”
Let’s look at the steps required for this measurement. Insert your own numbers as you go through each step. Note that the longer the period of measurement to start (i.e. one full year), the more accurate the measurement will be. Once you have this “base” measurement established, then you can proceed with a weekly and monthly measurement within the business to compare your progress.
The basic information you require to complete the measurement is the following:
- The number of days per year the shop is actually open (Example: 243 days per year)
- The number of days per week the average technician works (Example: 5 days per week)
- The total average hours per week a technician works (Example: 44 hours per week)
- The business labor (door) rate (Example: $125)
- The total labor sales for the year (Example: $561,731.25)
- The equivalent number of technicians on staff (Example: 3 licensed technicians/journeymen) Note – a licensed technician (A Tech or Master Tech) is 1 full technician and an apprentice technician (B or C Tech) is equivalent to ½ technician for this measurement. If you had 2 licensed technicians and 1 apprentices, the shop has the equivalent to 2.5 technicians for this measurement.
Step 1: Take the total hours per week an individual technician works and divide it by the number of days a week worked. This equals the total average technician hours per day.
Example: 44 hours divided by 5 = 8.8
Step 2: Take the average technician hours per day times the number of days per year. This equals the number of technician hours worked (paid) per year.
Example: 8.8 X 243 = 2,138.4
Step 3: Take the number of technician hours worked per year times the number of technicians. This equals the number of hours available per year to produce labor.
Example: 2138.4 X 3 = 6,415.2
Step 4: Total technician hours per year available to produce labour divided by 12. This equals the available hours per month for all technicians.
Example: 6415.2 divide by 12 = 534.6
Step 5: Available technician hours per month times the hours labour rate. This equals the potential labor dollars available in the shop for a month.
Example: 534.6 X $125 = $66,825.00
Step 6: Actual average monthly labor of the past year divided by the potential. This equals the site efficiency of the shop.
Example: $561,731.25 divided by 12 = $46,810.94.
$46,810.94 divided by $66,825.00 = 70% site efficiency.
Step 7: The actual labor produced per month divided by the average total hours per month for all technicians equal the average labor rate achieved.
Example: $46,810.94 divided by 534.6 = $87.56
What does this measurement tell us? The shop thinks it is charging $125 per hour, but it is only achieving $87.56 per hour to pay the technicians and benefits. This is known as the “effective rate.” The shop is operating at 70 percent efficiency, and this number should be a minimum of 75 percent with 80 percent being utopia. The only way you increase your site efficiency is by improving “billed hours.” The only way you improve billed hours is by slowing the entire internal process down and the shop completes “proper, professional and accurate” vehicle inspections, fully documented, coupled with proper communication between the technicians, the front counter and the end client. Today, this entire process should be fully electronic with each technician utilizing tablet technology through “cloud computing,” providing live, secure and accountable transactions.
Many shops are in financial stress because management refuses to learn about the business today. This is a professional business and no longer a trade business. It is so complex today. Management learned years ago “in the old days” to watch total sales, average sales per RO and their bank account. This tells the owner nothing about where to focus their attention to improve shop bottom-line profitability. The one exercise I shared with you in this article is simply the extreme tip of the iceberg as to what the math can tell you about what is going on in the business. Do the math and then follow the math. Once the self-disciplines are in place to execute what the math is telling you to focus your attention on, the bottom line of the shop will grow as you have never experienced before.