The Next Level

stan ribeiro newsletterWe have been blessed to have worked with stores during our collective automotive careers that were managed by brilliant businessman, with strict conviction and foresight into our industry. We gather these experiences and create ways to accomplish your goals. One of the greatest lessons learned was simply “You cannot manage what you do not measure”. That being said, let’s think of a few things we can measure. Effective labor rates (ELR), hours per repair order (H/RO), cost to produce a dollar (CPD), and proficiency percentage (PROF%). There are many calculations we can do to help us monitor, maintain and enhance our skill levels.

As a manager, we are held accountable by our dealer, the factory, employees and of course our customers.Top performers in our business must know how to manage these key performance indicators, but first they need to know how to calculate them.

As a refresher for some or an education to others, let’s look at how to do just that. You will need to gather some information. The two simplest calculations are your effective labor rates and your hours per repair order.

Effective Labor Rate

Formula: Labor Sales ÷ Hours = ELR
Example: $102,319 ÷ 1376.4 = $74.34
Source: DMS Report (RAP, 3611, Advisor Performance) or Financial Statement/Hours Sold

Effective labor rates, also known as your ELR or OELR(overall effective labor rate) is the labor rate you collect based on your labor charges on your repair orders and your hours paid (billed, flagged). Why you ask, this determines the rate per hour you are getting for the services you provide. You can even determine the ELR’s for the work mix (repair vs. maintenance) in your store. You can determine all ELR’s the same way. Take your total sales and divide by your hours. You can calculate your customer effective labor rate (CELR) by just taking a total of your customer pay categories on your financial statement and divide by the total hours paid in the same categories. The same formula applies to your warranty (WELR) and your internal (IELR) rates as well. Once you know your current ELR’s, you can compare them to your door (posted) rate. Any significant difference between them that perhaps you are not comfortable with, would indicate that managing this value daily is necessary.

Hours per Repair Order

Formula: RO count (written) ÷ Hours = H/RO
Example: 2478 ÷ 1376.4 = 1.8
This calculation along with the ELR equation, are often included in service advisor pay plans.Believe me, they know them backwards and forwards. Similar to ELR this statistic encompasses and measures how many hours per repair order your advisors are writing rather than the effective rate per hour. By itself this calculation does not totally reflect a good or bad performance, after all, point of sale consistency is ultimately the true equation of success along with delivering the “Exceptional Customer Experience”. We can detail them in a future article. You can get your RO count from your DMS or financial statement. Divide this count (total) by your sold hours to get your hours per RO. Managing these results are crucial to relative improvement.

Cost to produce $1.00

Formula: Sales – Gross Profit = Cost of Sale
Cost of Sale + Total Department Expenses (personnel+semi fixed+fixed) = Expenses
Expenses ÷ Sale = Cost to produce $1.00
Example: 366,345 – 241,762 = 124,583
124,583 + 209,937 = 334,520
334,520 ÷ 366,345 = $0.91 to produce $1.00
Source: Current Financial Statement

Wow! A lot more to grasp with this one, don’t you think? But once you understand the concept, it becomes second nature. This calculation is one of the biggest eye openers to service managers and dealers alike. It kind of hits you between the eyes when you realize you spend more than a dollar to produce a dollar.

Take your most recent financial statement and look at the labor sales total for the service department. Be sure not to include shop supplies nor sublet amounts. Determine your cost of sale by subtracting your gross profit from the sales (using the same line on the financial statement). Some statements give you the cost of sales for each category; if so, just use the same line as your sales total. Now take the cost of sales total and add the department expense total (most often found on a different page of the financial statement). The total expenses will be the total personnel, semi fixed, and fixed amount all added together. Once you have a true expense total that includes your cost of sale added to your department expenses, just simply divide that total by your original sale amount and there you have it. Now this amount for all intent an purposes should net you 10% or better. Obviously, if you’re total comes to anything less than that or reflects a cost of more than a $1.00 to produce a $1.00, we have work to do.

Proficiency Percentage

Formula: Hours Sold (flagged) ÷ Clock Hours (hours worked / time clock) = Proficiency % (Prof %)
Example: 1385.6 ÷ 1454.8 = 95.2%
Source: Total hours flagged and total clock hours per technician.

Easy, right! The hard part here is gathering the correct information from you DS or Office. Your DMS can give you your flagged hours via the RTH, 3612, technician performance reports, or your office can supply this information from payroll. The important thing to remember is to get accurate flag and clock times. The trick is to gather enough data to make the results a true representation of the activity in your department. Tracking weekly calculation will help spot trends and perhaps point out training needs for some of your technicians.

When performing this calculation for overall proficiency percentage, it is suggested that you go back at least 10 weeks. It would be a better representation if you go back 26 weeks or more. Once you have gathered the correct information, just divide your flagged hours by your clock hours and there it is. The closer your technicians are to 100% productive is the first step, and will be your benchmark to determining improvements. Managing the overall proficiency to and over 100% is paramount to profitability. The closer you are to 125% or greater can be one way to determine if additional technicians are needed.

Knowing how to calculate and where to get the correct information is the start to managing them. “You cannot manage what you do not measure” To get answers, as to how these measurements pertain to your store; call any one of our experienced Consultants/Coaches. Visit, www.m5ms.com, and join us on the road to the “NEXT LEVEL.”

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