The “FLAT RATE” Mentality – Part 1

Charlie NewsletterWhat is the Flat Rate Mentality?

It’s the attitude that today is all that really matters. In our society of instant gratification, this doesn’t sound so unusual. It is very normal for us to purchase vehicles, clothes, furniture, and more on credit so that we can enjoy these items now and worry about paying for them later. So what? Welcome to America, right?

Flat Rate Mentality is different. It is not the pressure of “instant gratification” but “lone survival.” This mentality has created the attitude that today has to be the focus of everything that we do and tomorrow is another day. From a productivity perspective, this is not a bad thing.

After all, labor has no shelf life! What we don’t sell today is no longer available tomorrow.

The problem is the side effects. In a time that customer retention is the focus of nearly every intelligent business in North America (for the right reasons), the Flat Rate Mentality poses a unique challenge:

  • How do we inspire the employees to focus not only on today, but focus on the future, as well? After all, we need production today. The basic Flat Rate Mentality.
  • Customer retention is about selling the future, rather than flushing their wallet today.
  • With the average ownership cycle at nearly nine years and over 200,000 miles, it is no longer practical to let over 70% of our customers defect by the time their vehicle goes out of warranty – that’s when they are most valuable!
  • We need comprehensive “all-good” (green) multi-point inspections and other efforts that create long-term loyalty. This concept conflicts with the Flat Rate Mentality. Why spend time doing something today that will not produce results today?
  • We need to consider the customer retention risks associated with market changes, like the competition scanning codes for free, while we continue to charge $100 or so, arguing that the customer gets what he/she pays for.

Now, for many of us in management positions, this may all sound simple or elementary. Yet, rarely do I see managers resolve the issue. Generally, management has chosen to ignore it! And it’s easy to understand why. This is a very complex situation! While we are going to primarily examine this mentality from a technician’s position, it is not always just about technicians; it’s about advisors/consultants and, in many cases, managers.

In this 2 part series, we will examine and discuss:

  • Part 1 – Understanding the Flat Rate Mentality
  • Part 2 – Using Flat Rate Mentality to improve customer retention

Part 1 – Understanding the Flat Rate Mentality

The Flat Rate Mentality is not really about a pay plan. We have just given the pay plan the blame. It’s about a focus, a very important focus that most successful companies and industries share. The focus is on productivity! Our bills are due monthly; our profits should be due as well! Productivity has a major role in our competitiveness and ultimately, our profitability. With that focus on productivity come some challenges:

A funny story – A couple of years ago, I was invited to visit a small dealership that was suffering from poor service absorption:

  • The technicians were all paid hourly and productivity was poor (70%+/-)
  • The technician morale was great – do whatever they ask me to, we all help each other, etc.
  • The atmosphere was definitely ”family-like”
  • The only person suffering was the dealer and the financial statement

The dealer did not want to change his technicians to flat rate but was agreeable to an hourly compensation plan with a variable rate based on the previous month’s individual productivity.

We implemented production improvement processes and the new compensation plan to reward the technicians for their hard work. It was a success.

Now that the productivity of the service department had increased, we introduced a multi-point inspection process to “feed the hungry production machine.” When introduced to the new inspection process, the technicians argued: “Who’s going to pay me to do these inspections?” I was shocked at first, but soon began to recognize this newly-identified behavior. These were “hourly” technicians with a whole new mentality…hooray…The Flat Rate Mentality!

A production or performance-based pay plan (flat rate or deviation of) may be the very worst compensation plan except when compared to any other pay plan! Simply said: “The pay plan works!” The pay plan can create a very good work ethic when managed properly.

Once exposed to this reality, many managers embrace the “eliminate flat rate” concept. Which do you want – production or retention? The correct answer is BOTH! Customer retention and great production can and should have a happy marriage and live happily ever after.

The Technician’s Perspective

In order to find the balance needed in this challenge, we must first understand the technician’s perspective.

  1. The Flat Rate Mentality begins with “Subcontractor” belief. When we hire technicians, we offer them a wage that, we believe, to be fair, competitive with the market, and within our gross profit needs. While technicians may be appreciative of their new opportunity, their concept of the arrangement is probably different than ours. Their “reality” is that you are renting them a “bay” or “stall.” If you are paying them $25.00 per hour and your “door rate,” “grid rate,” or even, perhaps, “warranty rate” is $100.00 per hour, their perception is that they are paying you $75.00 per hour for the use of your stall or bay. We know this isn’t exactly the truth. First, we only wish that the $100 per hour was our effective rate, not to mention all of the expenses that are related to the production of that hour. While it is not the truth, it is the perception. Perception is reality in the mind of the perceiver! The perceiver is repairing cars in your service department!
  2. The next factor is the “I’m alone to survive” belief. Many technicians feel alone in the world of work. Sure, they have buddies that they talk to and even have beer with after hours, but they believe that no one else really cares whether or not they make a living. This belief is confirmed, in their mind, every time that they are asked to do something for nothing. Whether it is scanning a vehicle for codes, installing a license plate or performing a multi-point inspection, they see it as us stealing their productive time. Now we know that is not necessarily true as the technician probably wastes far more time in a day than they ever spend doing “freebies”, but it is a perception. And, perception is reality in the mind of the perceiver! Once again, the perceiver is repairing cars in your service department. The survival belief creates a lack of trust in other people and “the system.” While most technicians believe in the concept of inspections, they overall lack the trust that returning vehicles will be given back to them to perform the additional repairs. Further, a lack of trust in the entire flat rate system is created by the technician’s lack of understanding why customer-pay pays more time than warranty.

The Technician’s Perspective on Customer Retention

Technicians believe in the logic and philosophy of customer retention. Unfortunately, the Flat Rate Mentality causes a technician to believe that customer retention is someone else’s responsibility. The “Subcontractor” belief says: I pay the dealership 75 bucks an hour to use their bay, the least they can do is keep me busy. The “I’m alone to survive” belief says: That’s someone else’s problem. I have to get my “xx” hours, today.

In Part 2, we will discuss ways to assist you in changing these beliefs and misconceptions to help you to improve in retaining customers.

 The “FLAT RATE” Mentality Part 2 – Using Flat Rate Mentality to Improve Customer Retention

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