Everyone acknowledges that today’s shop business is dramatically different than the shop 10 years ago. The continuous investment in the business that is required today is enormous and many shops are getting financially behind because of it.
The question now is how should we be approaching this issue?
Consider that today we are in a knowledge based business. Consider today it is about managing productivity through “billed hours”; billed hours is the result of selling your knowledge. This billed hour measurement now plays a stronger role than ever in moving the business forward as everything revolves around it.
Let’s look at two examples and how to handle the solution:
- We require $25,000 a year now for technician, service advisor and management training/development so how do we fund this? Solution – take the total billed hours from last 12 months and divide that total into $25,000. If we billed out 4500 hours over the last year, 25,000 divided by 4500 = 5.56. We raise our maintenance labor rate by $6 and all our future education and personal development will be funded as long as the billed hours are in place. Put aside $6 for every hour billed each week into a special account. Maybe label the account “Education/Development Fund” and that is where you draw your development funds from.
- We will require $3,000 per month for new leases on diagnostic equipment. Take your average billed hours per month for the previous 12 months and divide it into the required lease fees per month. Example, we average 375 billed hours per month so $3,000 divided by 375 = 8.00. If 85% of our hours are maintenance and 15% are diagnostic then we raise our maintenance rate by $6.80 and our diagnostic by $1.20 ($8 X 85% = $6.80) We are covered for all new diagnostic equipment leases as long as the average billed hours are in place.
As you can see, every new investment will be reflected through the labor rate and the labor rate adjustments will depend on the billed hours. The more efficient the shop is, the more billed hours it achieves and therefore the labor rate adjustment is not much compared to an inefficient shop that does not obtain the correct billed hours for the work coming through the door. The math simply does not lie.
There are a couple of other considerations to be discussed on this topic as well.
- Consider your labor rates and the dealership labor rates in your area as a starting point. For example with GM dealers, there is no way you should be more than $5 lower in your rate. You require more training as you work on all makes and models. You need more equipment as you work on all makes and models and you need a more diversified staff with different knowledge levels as you work on all makes and models. I have clients that are now above the dealer rate and NEVER receive one complaint from their clients because they are excellent at what they do. Their client is never let down. It is all about competency today and competency is reflected in the labor rate. If you are incompetent your rate better be the lowest in the market but when you are competent you must have the right rate, so when you have the skill level in your shop, STOP selling yourself short. This is strictly a MANAGEMENT issue, not a marketplace issue.
- Do you measure religiously (daily, weekly and monthly) the average billed hours per RO? Are you where you should be, meaning for basic consumer work 2.5 billed hours per RO, mid duty 4 to 6 hours and heavy duty 8 to 10 hours? Take your total labor sold in each category (maintenance, diagnostic, reflash) and divide it by your labor rate for that category to determine how many hours were sold. Take total hours sold and divide it by the number of RO’s written to determine the average billed hours per RO. Now also examine your sales mix as for example if you are doing consumer vehicles and mid duty (1 tonne, cube vans) then maybe your average in your shop should be 3.5 hours per RO. Calculate your average mix of vehicles. If you are not at the correct billed hours then you must examine you internal processes starting with vehicle inspections and how they are being handled and follow through from there on all other issues that affect productivity billings.
Welcome to the new Aftermarket, as this article is just one topic of so many that must be examined and realigned to work properly in today’s shop business. The same old question must be asked, “Are you working IN the business or ON the business?”