What Is Your Shop's Effective Labor Rate?

Motor, Nov 2004 by O'Connor, Bob

2. Labor discounts offered, such as dollars or a percentage off full price, when the same number of hours are allocated to sold time. An example may be a job that normally prices out for 10 hours of labor at the shops labor rate, but then is discounted when a customer presents a coupon, with there being no adjustment to the sold hours.

3. Advisors underselling the labor times so the technicians can barely meet-let alone beat-those times.

4. Menu-priced items where the technician will put in more time than the menu price allows for. For example, the labor charge on LOF service may be $10, but if the time required for the technician was .5 hour, the job would generate a $20 per hour effective labor rate.

5. Freebies, if they consume a significant amount of a technician's time.

6. Lack of work due either to insufficient car count or insufficient hoursper-repair-order.

7. Technician inefficiency by his not performing tasks in the most efficient order.

8. Having technicians doing other things like ordering parts, shuttling customers, filling in for the advisor, etc., instead of performing only vehicle repair and maintenance work.

9. Waiting for customer authorization, parts delivery or an answer to a question from an advisor.

Factors that will increase your effective labor rate include:

1. Billing of diagnostic times at over 100%. We advocate that diagnosis and testing be billed at an efficiency rate of 200% of actual time invested. This concept is covered thoroughly in our "Technician Time Management" workshop.

2. Advisors consistently billing sold hours in excess of available tech hours.

3. Selling so-called menu service wraps and preventive maintenance services that have a great deal of technician efficiency in them.

Table 1 on page 60 will help you determine your shop s hourly labor rate performance. Table 2 on page 61 shows how to calculate your shop's effective labor rate.

The important thing to know is that "effective labor rate" is the selling score of a shop after all transactions have been completed. The service advisor is the individual most responsible for achieving the desired results. Use the information contained in this article to calculate your shop's effective labor rate, and implement the necessary processes to improve your results.

Visit www.motor.com to download a free copy of this article.

BY BOB O'CONNOR

www.rloconnor.com

800-755-0988

Robert "Bob" O'Connor is President of R. L. O'Connor & Associates, Inc., a Seattle-based automotive operations and management training and consulting firm. He is best known globally for his highly effective automotive business management and sales training workshops, continuous improvement Bottom-Line Impact Groups, as well as his new division, The Service Advisor Academy. Bob is an Automotive Management Institute (AMI) approved instructor ana AMI EXCEL "Guarantor. "