As a service manager, one of your primary goals is to ensure that your department is operating at peak efficiency while maintaining profitability. When faced with the challenge of meeting labor sales requirements, it’s natural to consider hiring additional technicians. However, before taking that step, it’s essential to evaluate whether you can optimize the performance of your current technician team.
Calculating Labor Sales Requirements
To determine your staffing needs, start by calculating the labor sales required to break even and achieve your desired net profit. Use the following formula:
Expenses ÷ Gross Profit % = Labor Sales to Break Even
For example, if your current expenses are $89,379 and your gross profit percentage is 90%, you would need $99,310 in labor sales to break even. If your current average monthly labor sales are $85,749, there is a shortfall of $13,561. Based on your effective labor rate, you can calculate the additional hours needed to close this gap.
To achieve a desired net profit of 10%, 15%, or 20%, use this formula:
Expenses ÷ (Gross Profit % – Desired Net Profit %) = Labor Sales Required
Controllables Affecting Technician Labor Sales Value
Before rushing to hire more technicians, examine the controllables that influence your current technicians’ labor sales value:
- Clock hours worked per day
- Working days in a month
- Productivity percentage (flat rate hours ÷ clock hours worked)
- Effective labor rate (overall collection rate for work performed)
- Calendar utilization percentage (days worked compared to available days)
Improving these controllables can significantly increase your technicians’ labor sales value without the need for additional staff.
Increasing Daily Clock Hours
Analyze the average clock hours worked per day by dividing the total clock hours worked by the number of days worked. If technicians are averaging less than 8 hours per day, identify the reasons and take corrective action. Common issues include:
- Dispatch timing: Streamline the process to reduce waiting time for the first job.
- Scheduling: Ensure a steady flow of work throughout the day to avoid afternoon lulls.
- Accountability: Encourage a strong work ethic and discipline regarding hours worked.
Boosting Productivity Percentage
Productivity percentage is calculated by dividing flat rate hours by clock hours. Establish and manage production objectives for each technician based on their historical performance. Consider setting objectives in 5%, 10%, and 15% increments, depending on the technician’s skill level. Other factors affecting productivity include:
- Repair order count
- Work mix
- Advisor sales performance
- Parts availability
- Organizational structure and dispatch process
Optimizing Effective Labor Rate (ELR)
Focus on improving the customer pay ELR by adhering to your current pricing policy. Review repair operations and ensure that labor charges are consistent. Aim for a balanced work mix of 60% maintenance and 40% repair to achieve a stable contribution to the overall ELR. Improve menu sales and additional sale request (ASR) closing ratios to further boost the ELR.
Maximizing Calendar Utilization
Calendar utilization measures technician attendance compared to available days. The typical range is between 88% and 92%, taking into account planned days off, vacation, training, and illness. Identify opportunities to improve attendance and minimize unplanned absences.
Conclusion
By focusing on improving the controllables that affect your technicians’ labor sales value, you can significantly increase efficiency and profitability without necessarily hiring additional staff. Regularly monitor and manage daily clock hours, productivity percentage, effective labor rate, and calendar utilization to optimize your department’s performance. By taking a proactive approach to maximizing your current technicians’ potential, you can navigate the challenges of meeting labor sales requirements while maintaining a lean and efficient team.
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