The season is upon us and your service department should be quickly filling up with work. While being busy is a great thing, if your shop is like most there is a good possibility that you are leaving valuable dollars on the floor. You need to monitor key measurements and take steps to improve your processes on a daily basis.
Keep your techs in the shop
One of the first things to look at is what is happening to your technicians as a whole. Evaluate how often your service techs are in a position to produce billable time for your dealership. Are they spending time each day unloading trucks, helping with customers on the sales floor or behind the parts counter?
Any time a tech is pulled away from turning a wrench is time you are losing the ability to bill a customer for. It is not uncommon for a tech to have an hour a day of unapplied time—and your focus should be to reduce it to zero.
Measure and manage key numbers
The goal of the dealership is to do anything you can to make sure the techs are in their bays creating billable hours. As you look at your technicians, keeping an eye on productivity and efficiency will help you know if you are on track with maximizing your potential billable hours.
When you think of productivity, think about measuring the amount of time a technician spends in his bay working on equipment versus the amount of time he is on the clock. As an example, if the technician is being paid for 8 hours of work and is moving and washing equipment, sweeping the floor, and emptying out used oil or trash cans for an hour and a half a day, then the amount of time they have left to spend in their bay producing is 6.5 hours. So the productivity for that tech would be 81%.
Technician efficiency is a measurement of the amount of billable time the technician produces versus the amount of time he is in a bay working on equipment. With efficiency we are measuring the amount of time the technician is in a position to make money and the money he is making for the dealership in that time.
As an example, if a technician installs a spindle on a zero-turn mower in 45 minutes and utilizes flat rating, the customer can be billed for 1 hour and the technician is 133% efficient.
For a service department to fully understand how it is operating, both productivity and efficiency must be measured and reviewed. Keep in mind that in most shops, 80% of the opportunity for improvement is in the area of productivity.
Monitor your effective labor rate
Every owner and manager I work with knows what their posted labor rate is, but few have any idea what their effective labor rate is. The effective labor rate is an important measurement of how the service department is doing. The difference between the posted rate and the effective rate is the discounting of labor on work orders because of poor communication between the customer and the dealership on the cost of a repair, as well as the lack of full recovery of labor on warranty work from manufacturers.
If you have a technician that spends three hours diagnosing an electrical issue on a mower and you only bill the customer for 1.5 hours, you have reduced your posted labor rate by 50% on that particular job. If your posted labor rate is $80, then your effective labor rate would be $40.
This doesn’t happen on every job, but you want to measure all the labor write-downs you make. Track those that happen with customers and also manufacturers for unpaid warranty time, and from that calculate your effective labor rate.
In most of the dealerships I work with, their effective labor rate is 15% less than their posted labor rate. If your shop is producing $200,000 per year and your effective labor rate is 15% less than your posted rate, you are giving up $30,000 in net profit.
Quick tips to implement now
The question that has to be asked is, “How do I keep my technicians in their bay, turning out billable hours?” Here are some things to consider for making a technician's job easier and you more profitable.
- Stage the next job for the technician so he doesn’t have to go to the lot and move three pieces of equipment to get the next piece he is going to work on.
- Deliver parts to the technician's bay so he doesn’t have to stand at the edge of the parts counter and wait for the parts people to take care of the customers before him.
- Be sure the technician has correct and thorough information about the work or service he is about to begin.
- Encourage the service manager or service writer to get the cell phone number of the customer receiving service. Then the technician can get quick authorization to do work instead of needing to wait for a couple of days before they can move forward.
By measuring and managing the right numbers in your service department, it can quickly become the most profitable part of your dealership.