by The Spader Business Management Consulting Team
In order for you service department to have a chance at being profitable, your technicians must first be efficient. What do we mean by that? They simply need to bill the vast majority of the hours you pay them for as a Collect-able™ Labor sale.
Collect-able™ hours billed are ones that generate cash. One component is obviously customer labor. Another is warranty labor, since the manufacturers reimburse you for your labor. It might not be not as much as you would like, but you do get credit for it. Internal unit prep and reconditioning are considered Collect-able™ since they are typically added to the cost of the unit sold and the customer ultimately pays for it when the unit is purchased. These three categories of labor bring cash into the dealership.
Our calculation for technician Collect-able™ Efficiency is quite simple. It is Total Collect-able™ Hours Billed divided by Total Paid Hours. Total Paid Hours include every hour you pay techs for including vacation, holiday, sick, training, breaks, etc. For many of you, these non-working, paid hours will be 15% to 20% of your total paid hours.
So who “owns” technician Collect-able™ Efficiency? Keep in mind tech efficiency is not just a measure of their skill level. It is much more a measure of Service Management and the techs working together to maximize the billing of the techs’ time to a Collect-able™ labor sale. It is a team effort.
How can we impact and improve efficiency? First of all, you have to measure it. Remember the old saying, “you can’t manage what you don’t measure.” Let your business system do the work for you if possible. Just dig in and make sure you understand what and how it is measuring tech efficiency. Tech efficiency can be measured differently by different people and business systems. Our primary goal is to measure the Collect-able™ hours billed and try to drive that number up to improve our efficiency percentage. Measure and monitor your individual techs and the working techs as a group. Depending on your industry, a good target range for Collect-able™ Efficiency (Spader Measure) would be 60% to 80%, meaning you are billing 60% to 80% of their total paid hours.
What are some of the key issues for improving tech efficiency? Start by minimizing the use of tech time for Non-Collect-able™ work. That work ends up being expensed off or just plain lost, so no cash revenue is created. It just doesn’t make sense to be working on the boss’s truck or pet projects if we have Collect-able™ labor out there to complete.
An effective scheduling system will help improve the efficient flow of work through our shops and fully utilize the time and techs available. Techs want to know what their upcoming jobs are so they can prepare. A tech should never be standing around waiting for the next job. Keep them busy… they want to be busy.
A good flat rate billing system is another key to improving efficiency. You need a good system to be able to talk to your customers in dollars of repair cost, and to be able to tell the techs how much time the job should take. Unfortunately, good retail flat rates aren’t always readily available. Many times, we have to develop our own. For common jobs, what is the average time it takes for a tech to do the job, (not the quickest time of your best techs)? Top techs should be able to meet and routinely beat flat rate times.
There are many other possible areas for improvement, like:
- repair order processes
- communication processes
- pay plans
- proper service admin structure (ratio of managers and writers to techs)
- proper labor rates
- tools and facility, etc.
These all are factors in improving technician efficiency. Nobody said it would be easy, but if you truly do focus on the right things in your service department, you can see improved results rather quickly.
If your service department is struggling, it is time to dig in, find the right person to lead the effort and move forward. Make your service department a strong contributor to your dealership’s net profit. It does not have to be that “necessary evil” some people categorize it as, but can be a true profit center. Remember, there is no silver bullet. It involves many little things that add up to make a big difference.