We 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 managers, 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, is 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