You wouldn’t take a major trip without a map or GPS, right? You’d routinely check your fuel level during the ride, wouldn’t you? Then why do so many service departments run their businesses without tracking performance? How does a service manager know what’s going well and what needs attention to achieve the ultimate goal of profitability?
Many shops don’t even set goals, yet owners and managers continually ask me what to charge and what to pay their techs. I understand their concern — they want to be profitable — but to me, the place to start is tracking how effective their service department is at getting work into the store and turning that work into revenue. If they knew this, they’d have a better handle on what to charge and what to pay.
Basically there are three measurements that a service department should track daily.
1. Productivity: This rates how well the service adviser loads each day with work that keeps techs busy. The calculation for productivity is to divide the actual hours the techs were clocked in by the available hours the shop had to schedule. Actual hours include any external and internal work assigned by repair order and any internal work assigned by management. The latter could include tasks such as sorting the take-off parts or helping to unloading trucks.
Sample calculation: Let’s say we have a shop with four technicians who are available to work 40 hours that week, for a total of 160 available hours. If the four techs were clocked in for a total of 120 actual hours that week, the shop’s productivity works out as:
120 actual hours ÷ 160 available hours = 75 percent productivity. The service department’s goal should be 100 percent productivity by loading its daily schedule to keep the techs busy 100 percent of the time.
2. Efficiency: This rates how good the technician is at completing the work quickly. Completing the work correctly does not affect efficiency, but does affect productivity because mistakes will cause comebacks that have to be corrected by the offending tech “off the clock.” The calculation for efficiency is to divide the billed hours charged to customers by the actual hours the tech clocked in for the jobs. Example: If a tech clocked 30 actual hours for the week, and that work represented 25 billed hours charged to customers, the efficiency rating for that tech would work out as:
25 billed hours ÷ 30 actual hours = 83 percent efficiency.
The technician’s goal should be to achieve a routine average of 100 percent efficiency. Note: An entry-level tech, such as one who has graduated from a motorcycle technician program, should be able to correctly perform routine services at 50 percent efficiency.
A personal anecdote: It was 1976, and I was working at Don and Roy’s Motorcycles in New Berlin, Wis. My fellow senior techs and I were bugging the owner, Ray Van Zelst, to increase our hourly pay. He said he would consider increasing our pay based on our performance. Our efficiency would be tracked for the first time the following week.
I worked my ass off that week, fully expecting a superb efficiency rating. Rude reality set in when Ray informed me my efficiency was a pitiful 38 percent. I remember saying, “No way! You must have made a mistake!” Ray then pointed out that I was routinely taking more than five hours to complete a tune and service for which we charged less than two and a half hours. My excuse was that I was the official Triumph mechanic, and the bikes of that day were often in rough condition. To complete the work in less time would mean skipping what I felt were critical steps.
The end result of this learning experience was that I continued my focus on doing the job well, and less on doing the work fast. No, I didn’t get the raise, but I understood why I didn’t, and was comfortable with the quality of work I was performing.
The takeaway is that most techs will believe they are highly efficient, when many are not. Until you track their performance, the arguments will continue. Techs will want more pay, and owners will say it’s not in the budget.
One last thought on efficiency: Shops should consider the value of techs who consistently perform work so well that they have zero comebacks. That should factor into their pay scale, regardless of their efficiency rating. After all, perfect work improves the shop’s reputation, which brings customers back to the store. Even though “short-cutting” techs can produce more billable labor, their speed often causes comebacks that negatively affect the customer, and that can damage a hard-earned reputation and reduce business overall.
3. Proficiency: This is a rating of the service department’s gross labor profitability. It takes into account both productivity and efficiency. The calculation for proficiency is to divide billed hours by available hours. Example: If a shop charged 100 billed hours during a week it had 160 available hours to schedule, its proficiency would work out as:
100 billed hours ÷ 160 available hours = 63 percent proficiency.
Shops should strive to maintain a proficiency rating above 85 percent as a rough goal to becoming profitable. Just remember that many other factors affect profitability. For instance, the parts-sales-to-labor-hours ratio affects income dollars, and payroll and overhead affect expenses.
Now that we know how to measure service performance, how can we improve it? I’ll address that in the next column. Until then, start tracking!
This story originally appeared in the Dealernews July 2010 issue.