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

Charlie NewsletterWho is the most successful company in the history of the world? Wal-Mart!

Why are they so successful? Adaptability – While Wal-Mart manufactures nothing, they have been remarkable at adapting quickly to changing trends. We haven’t. When 8-track tapes were the hype, Wal-Mart had shelves and shelves of 8-track tapes; when trends began to shift from 8-track to cassette tapes, Wal-Mart moved out the 8-tracks and moved in the cassettes; then the CD’s, and so forth.

While this is just one example, it illustrates how Wal-Mart was fast to move, while their competition hesitated. Why would they abandon 8-track tapes that had made them so much money for so long? Look at Blockbusters, who hesitated while Netflix stole their video rental market.

You might be lucky that you’ve survived! Face it; no-one has experienced the impact from competition more than the automobile business. More competition, both in nameplates and independent service  providers, has continued to gobble up our customer base, while many of us sit back, business as usual, hoping for something good to happen. These attitudes allow Flat Rate Mentality to prosper.

A perfect example of this lack of adaptability is check-engine light diagnosis. Twenty years ago, drivability diagnosis was a nightmare. Most of the time, the diagnosis required a well-trained, highly skilled technician many hours to diagnose a concern. In fact, the manufacturer’s flat rate times were usually one hour or more just to perform the preliminary diagnosis. Since then, technology has improved the procedures and made diagnosis far less complicated. As a result, most manufacturers specify two or three tenths for the preliminary diagnosis. Yet, in our service departments, many of us still charge the retail customer the same thing an hour we did 15 or 20 years ago. Meanwhile, our independent competition has seized the opportunity to steal our customers by offering free or discounted rate “scans”.

We challenge their position by saying that the “customer will end up here anyway”; or we justify our position by saying “this is one of the last opportunities that I have to make money.” What we need to be saying is “How many customers am I losing?” and ““Would it really cost me money to do things differently?”

All of that was said to say this: Improving customer retention in a Flat Rate Mentality environment involves CHANGE! We must learn to change to an ever-changing world. So, how do we do this?

Before we talk about the actual changes of a successful plan, let’s talk about the most important part, your role as a manager.

Customer retention must be a key focus of everything we do!

Customer retention is critical to our future success. If you don’t believe this, no one else will.

Set Your Vision

Your vision must be stronger than reality! Many dealers and service managers have attempted, on many occasions, to implement change, only to hit a wall of opposition. The wall is opposition to change itself, not necessarily what is being changed. If you understand why you are doing something and believe from the bottom of your heart that it is the right thing – set it as your vision. Employees see this vision as strength and they will respect and honor the strength.

Communicate Your Vision

Develop a focus for your department! Through many years of studying dealership CSI, we’ve discovered that the primary difference between dealerships that are truly successful in customer satisfaction and dealerships that are not so successful in customer satisfaction is communication. The successful dealerships talk about CSI often, like every day, and it comes from the dealer down. Everyone understands the importance. In the fast pace of our everyday world, we tend to tell our staff what to do rather than setting their vision. We must work “with and for” and not “to and against.”

As an example, many dealerships have had unsuccessful Saturday service for years. The dealer told the manager to open on Saturdays and the service manager told the staff. Week after week, Saturdays are sabotaged by advisors, technicians, and even managers who would like to see Saturdays stopped. Meanwhile, the independent service providers continue to enjoy Saturday as their busiest day of the week. What If you, as a manager, set your vision for Saturdays to be your biggest day and you communicated this with all of your staff, daily, and encouraged their feedback in making it happen. As you do this, remember that most people understand logic. And the logic in this case is that 70%+ of our customers defect and the main reason is inconvenience. If you don’t believe it, take a field trip to one of yourindependent service provider competitors one Saturday morning.

Consistency in Communication

The #1 concern that employees express is a lack of involvement and communication. Employees will complain about having meetings, but they complain loudest about not having meetings. In fact, a lack of meetings reinforces a technician’s “sub-contractor” and “all-alone” beliefs which is opposite of what we want or need.

Have meetings often, but remain brief. We actually suggest, and highly encourage, daily technician meetings. While we’ll discuss this in further detail in the “Actual Changes” portion of this article, these meetings allow discussion of the previous day’s production, ongoing discussion of the “Vision,” and encourages employees to be at work on time. Consistently means, if you are going to have daily meetings – HAVE MEETINGS EVERY DAY. If you don’t, you are showing a sign of weakness in your focus on the vision.

Ways to Create Customer Retention-Focused Flat Rate Technicians

  • Implement Production Objectives – Every technician shows up to work, each day, with a number in their head. That is the number of flat rate hours that they need to produce to be able to make a living. At the end of the day we can tell if they accomplished this number by the look on their face, happy or frustrated. The frustrating days support the “I’m alone in this world to survive” theory. No one else really cares. What are the alternatives? Implement formal production objectives. There are three ways to do this, two wrong and one right.
    • Assign every technician a minimum number to hit each day or week – WRONG!
    • Assign objectives based on their current skill category; A Tech – 10 hours, B Tech – 9 hours, C Tech 8 hours, etc.; a technician’s skill level does not necessarily determine their productivity…some of the best technicians around are not big hour producers, but they fix cars!
    • Develop objectives based on previous performance; get buy-in and concurrence from technician
      • Meet with technicians individually
        • Solicit feedback regarding roadblocks
        • Address concerns with one of three responses
          • We’ll resolve this issue
          • I’ll look into this and get back to you by (date)
          • Welcome to the car business
        • Reach agreement on increase, based on removing roadblocks

Production objectives, when properly implemented, help tremendously in conquering the “I’m alone in the world to survive” mentality. But feedback is mandatory. As we discussed earlier, performance against production objectives must be monitored and communicated daily, weekly, and monthly. Morning Production Meetings, we discussed earlier, are the perfect opportunity to do so. Without feedback, the objective is only a number. Daily meetings give management an opportunity to discuss a plan of action to resolve poor productivity prior to it being too late. It makes dispatch inadequacies obvious. This gives the technicians the assurance that someone else cares.

In addition, production objectives provide the service department the information needed to effectively schedule and load work into the shop. Now the advisor can better forecast accurate promise and/or status times.

The bonuses are that a typical service department that correctly implements production objectives realizes an eight to twelve percent increase in productivity. Do the math on that one! Most technicians, dealers, or managers won’t complain about an 8-12% raise. In addition, morning meetings give the managers an opportunity to assure that technicians arrive on time and the chance to share any additional communication.

The manager should single out any technician that has missed his or her objective for three days in a row, to discuss the problems or issues that are causing the sub-par performance. Objectives should be re-evaluated on a regular basis.

  • Establish and Communicate Vehicle Inspection Process – including returning vehicle to original technician for repairs.
    • Designate, solicit volunteers, or elect a group of technicians as a Process Implementation Team (PIT Crew). With the manager’s guidance go through every single item on the inspection document and write a description of how that inspection should be performed. Also, identify whose role it will be to perform that particular inspection (Example: in some dealerships, the technician tests batteries; in others, the advisor tests the battery; and in others, a porter tests the batteries). You might be surprised by the different opinions of how a tire tread depth should be measured. This helps to eliminate the controversy. The manager’s role is to keep logic and reason in the process and constantly remind the PIT Crew that every decision made should consider the fairness to the customer, the technician, and to the dealership. If it’s fair to all, it is probably the right decision.
    • Once the process is written and agreed upon, arrange a meeting for all technicians. The manager introduces the new process, explains the importance to our business and customer retention then asks the PIT Crew to go over it.
    • Solicit input from each member of the staff and set a date for implementation. Measure the results! Just like with implementation of production objectives, it is critical to measure and manage your process. If it’s not worth the manager’s time – then it’s not worth the staff’s time!
    • Create a written policy for returning vehicles to the technician who made the recommendation, whenever possible. Technicians regularly lack confidence that this happens. While this practice typically happens anyway, a written policy assures that everyone understands the procedure and creates comfort in the technician’s mind.


While fair and focused pay plans are very important, we sometimes expect pay plans to do everything. This will not happen. Remember Newton’s theory of physics: “For every action, there’s an equal reaction.” As it comes to technicians, we can manage their “Action” by paying them hourly and “whipping” them into producing. Or, we can compensate them based on production (flat rate), and manage the “Reaction” by helping them to be a part of a bigger picture and showing care and concern for their needs.

If we consider three important factors in EVERY decision that we make, we will succeed in this endeavor:

  1. Will it support and improve customer loyalty retention?
  2. Will it support and improve employee loyalty and retention?
  3. Does it support the dealership’s profit needs?

While we mentioned a couple of specific ways to improve in this quest, there are many, many ways to build on this. These examples might include: specific recognition or rewards for improvements in customer retention, and funding or supplementing 401K programs with profit sharing. Most of all, we must include retention in every meeting and conversation that we have with our staff.

 The “FLAT RATE” Mentality – Part 1


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