Wednesday, March 22, 2023 | Spring 2023
BY BILL HAAS
IN THE BUSINESS OF AUTOMOTIVE SERVICE AND REPAIR, WE SELL TWO things. We sell parts and labor, making up the majority of sales that generate the profits a store needs to be successful.
When delivery is sold correctly, it generates a higher gross profit than the sale of parts. Labor sales are the result of the work produced in the shop. It is the time spent by the technician to perform a repair or maintenance procedure and billed to the customer. That time is referred to as shop production. Production is the utilization of available resources. For shop production, the open resource is when the technician is at work versus the hours billed to the customer. The production measurement is the percentage found by dividing the hours billed by the hours worked.
A typical workday for the technician would be an eight-hour day. If eight hours are billed to the customer, their production would be 100%. If only six hours are billed, their production would be 75%. Discussing percentages can be confusing and force people to do math, which might not be their favorite subject. Rates might also be misleading. A technician can have a high percentage of production but need more hours produced for the store to reach its goal.
A shop must know how many hours need to be billed to the customer to meet the store’s sales goal. Therefore, looking at production as a number rather than a percentage is essential. That number should be based on the individual's knowledge, experience, and skill sets. The individual with the most knowledge (training), the most experience (seniority), and skills to be efficient in the execution of their job would be the most productive technician.
There is a correlation between the standard A-, B-, and C-level techs to their production. The A-level technician produces a higher number of billed hours than the C-level technician.
To set the production hours goal for technicians, start by identifying your labor sales goal. Determine the monthly sales goal for the store and the portion that labor sales contribute to that goal. The labor sales goal divided by your effective hourly rate will establish the total number of hours that need to be billed to achieve the goal. The effective labor rate should be no less than 95% of your labor rate.
Now you have the total number of hours of production needed. Then, an appropriate portion of the hours is assigned to individual technicians, which becomes their production goal. When done correctly, the number will be realistic and achievable. Using a tech production report provides historical data to have confidence that your production hour goals are realistic and achievable. When setting goals, always consider that raising the bar is required to grow. Leaders must use their coaching skills to encourage others to see the potential they may not recognize in themselves.
There are multiple things to consider when determining the production hours for your store. Consider that the hours per technician are too high and they’re not humanly possible, or that the store needs additional staffing. If the hours per technician are reasonable and achievable based on your historical data and it fails to provide the labor sales goal, the labor rate for your store would need to be increased.
Another function of the technician production report is to measure the profitability of the store's labor sales and the individual technicians. The technician achieving the production hours goal is rewarded for the achievement. The technician wages (including their production bonus), when measured against labor sales, should provide the store with 70-75% gross profit.
When the store rewards service advisors for the sold hours, it pulls the team together to focus on one thing: time. Advisors sell the time, and technicians produce the work in the time sold.
There are multiple benefits of knowing the number of hours that need to be sold every day:
- The advisors schedule appropriately because they only count hours and stop counting cars. If the store has many cars but low hours per vehicle, the store will run out of work before the day ends.
- The store can process more work. That results in customers getting their cars back sooner and not waiting as long to get an appointment.
- Employees no longer work at a pace that suits them. They work at a pace to meet the needs of the company.
Communication is an essential element for improving shop production. A weekly production meeting of the technicians led by the shop foreman or a lead technician results in identifying obstacles to meeting the production goals. The conference is most effective on Fridays, following lunch, with an agenda to keep the discussion focused. The notes from the meeting guide management to improve work assignments and workflow.
If shop production is low because you perform services you don't get paid for, stop doing those services or get paid to do the service. Know what you do well and stop doing things you could do better. Then, you have more time to do what you do well.
So, it is about TIME!
A recognizable name in the automotive industry! Bill’s no-nonsense, straightforward approach comes from many years of real-world experience in the automotive aftermarket. That experience is the foundation of assisting shops across the U.S. be successful.