By Don Tipton.
In Flat Rate Shops, the amount a technician gets paid is directly tied to the Flat Rate Hours he produces. If time available for the technician to work, is not billed for whatever reason, that time is lost and gone forever.
In this regard, consider…The flat rate technician is NOT part of your personnel overhead. The following positions are calculated as part of your Fixed Operations personnel expense:
The technician’s time is not expensed… it is a “Cost of Sale”… occurring when his or her time is sold. It benefits the Technician, the Service Department and the Ownership when time is not lost during the day. The loss of time means no sale and therefore no gross profit.
The following is an exercise that has been applied numerous times to help put a number, or value, on how much time an average technician loses during a workday.
These are our estimates of lost time. Your list may differ and you may need convincing, so we urge you to do the analysis with your own estimates.
In a shop with 12 technicians do the math to annualize what this means.
2.8 Lost Flat Rate Hours X 12 Technicians X 254 Working Days in a Year… that means for this shop there are 8,534.4 Lost Flat Rate Hours per year.
Apply a $90/hour Effective Labor
Rate.Apply a $0.90 Parts to Labor Ratio.
Assume Gross Profit on Labor is 73%.
Assume Gross Profit on Parts is 40%.
Run the numbers. It equals $837,224.00 in Potential Gross Profit.
So what?... You might be thinking. We can’t eliminate all the technicians lost time. We agree… that would not be reasonable. But, is it possible that you can, just by being aware of Lost Technician Time, reduce that 2.8 hours to say… 2.5 hours per day.
That extra .3 hours per day of productive time would calculate to almost $90,000 in additional Gross Profit for this 12 technician shop.
Is that worth paying attention to? Can the Service Advisor have that kind of impact? Sure!
The Service Advisor can help; here’s how:
Have work ready for each technician as soon as she or he arrives for work.
Be more diligent about speeding up customer approvals
Keep the vehicles organized so they are easier to find
Communicate more clearly on the repair order and prevent extra back and forth communication
By diligently paying attention, the Service Advisor can find ways to save a good chunk of those Lost Hours and the Lost Gross Profit they represent.
This is just a tidbit from a New DealersEdge Guide authored by Don Tipton. In this Guide, Don offers expert coaching advice with the goals of:
Increased Hour Per R.O. without a "Hard Sell" approach
Improvement in Customer Retention for both Service and Sales
Becoming the Service Customer's "Go To" Trusted Advisor