April 23, 2007: How to get $8,500 more each month from your service dept.
April 23, 2007
Filed under Columns
Do you measure your service department’s productivity and efficiency?
Those two factors are both great ways to gauge the department’s overall performance.
Productivity is measured by dividing the amount of hours a tech bills by the number of hours they were available. Billed hours equal time that is charged for completed work (customer, internal, warranty), and available hours equal the time a tech is at the dealership available to work. For example, if a tech billed 20 hours one week and was available 40 hours, their productivity would be 50 percent. According to a recent RPM Group Composite Report, the national average for a service department’s productivity is 78 percent.
Let’s take a look at the difference that 78 percent productivity rate makes using a 40-hour work week and a $79 labor rate. A productivity rate of 50 percent equals 20 billed hours, multiplied by $79 amounts to $1,580. A tech with a productivity rate of 78 percent equals 31 hours billed at $79 for a total of $2,449. That’s an increase of $869 per week per tech, which is more than $3,450 per tech per month.
Here are some tips on increasing productivity: Put first things first and begin measuring and tracking it for each technician, and for the department as a whole. Next, use a schedule and set appointments for every customer. By having a job scheduled for each tech to begin upon completion of the job they’re on, and having a plan that fills up their day with work, it will minimize the amount of time they are waiting with nothing to do. Also, be sure the next unit is corralled and ready to put on their lift and make sure the parts are readily available. This way the tech isn’t wasting time searching for parts when they could be billing additional labor hours.
Now let’s talk about efficiency, which is measured by dividing the number of hours a tech bills by the actual number of hours it took to complete the work. For example, if a tech bills 20 hours one week and it takes 40 hours to complete the work, their efficiency would be 50 percent. Many techs and service departments have an efficiency of more than 100 percent. Let’s take a look at improving your efficiency, again using a 40-hour work week and $79 labor rate.
An efficiency of 50 percent equals 20 billed hours multiplied by $79 amounts to $1,580. An efficiency of 90 percent equals 36 billed hours at $79 for a total of $2,844. That’s an increase of $1,264 per week per tech, which is more than $5,050 per tech each month.
Here are some tips on improving your efficiency. The first step, as always, is to begin tracking it. It’s difficult to improve something that isn’t being tracked. Next, begin to determine what skill level each tech has, and when possible dispatch work that matches their skill level. Also, consider using a price escalator. Many dealerships multiply the flat-rate manual by 1.5, or time-and-a-half. For instance, if the flat-rate manual shows a job will take two hours to complete, charge three hours. This is because flat-rate time is calculated by an OEM technician who’s in an optimal environment and likely using a clean, brand new machine.
Speaking of OEMs, it’s a great idea to send techs to the technical training that OEMs offer. Today’s technology is very sophisticated, and often times a tech can gain valuable insights by networking with other techs.
Lastly, be organized. Have a system that ensures service manuals, microfiche and OEM special tools are quickly available, and encourage techs to maintain an organized tool box and work area.
A smooth running service department will improve employee morale and generate a team environment. Not to mention a total increase of more than $8,500 per month per tech using the above numbers.
Tracking and improving your productivity and efficiency is easier said than done, but it is well worth the effort.
About this column
Series goal: Each “Profit Ability” column will focus on one key measurable found in most dealer 20 Group’s composite reports and offer tips on improving those measurables.
This edition: A service department’s productivity and efficiency levels
National average for a service department’s productivity: 78 percent
Tory Hornsby, general manager of Dealership University, was drawn to the powersports industry more than 10 years ago when he turned his passion for motorcycles into a career. Hornsby worked in nearly every position in the dealership before becoming a general manager at Dealership University. He welcomes your e-mail at email@example.com.