In the last two issues we have been discussing how measuring time, and the management of time, are meaningful to your service operation. We have reviewed how to scrutinize time in terms of the hourly costs of each stall, and why the productivity (attendance hours vs. repair order clock hours) of each technician is so important to profitability. You now know what clock hour rate has to be produced to break even, and to be profitable.
Next on the agenda is the measurement of technician efficiency. In this case, the efficiency measurement is a calculation comparing the amount of clock time the technician spent on a vehicle vs. the amount of paid time the service department received during that clock time.
For those who do not work with paid time everyday, paid time refers to the amount of time collected when the labor rate is divided into the labor amount collected. An example would be $100 collected at a $50 per hour labor rate. In this case, two paid hours were collected, or two times $50.
Paid hours are easily identified because in most cases they are the starting point of the labor charge, such as charging one hour for a repair at the labor rate of $50 equals a labor charge of $50. There is one hour of paid time in this case. This is the formula for calculation of technician efficiency:
Technician Clock Time / Paid Time = Technician Efficiency (as a percentage)
The assigned time standard for paid time usually comes from one of several sources: warranty manual, independent pricing guide like Chilton, or even an in-house price guide. The goal of management should be to ensure that all technicians work efficiently enough to meet the assigned time standards for operations they are performing, and in some cases to actually take less time than the standard.
Meeting the assigned time standard would produce 100% efficiency, and spending more or less clock time would be more or less than 100% efficient. The efficiency level a technician performs at, affects the income per labor hour during the period of clock time the technician is working on the vehicle. The technicians efficiency times the labor's fixed hourly rate, creates the true clock hour rate the technician has generated.
Technician Efficiency X Labor Rate (fixed) = Actual Labor Rate per Clock Hour
As you can see, the efficiency which a technician produces can determine how profitable, or not, a stall is.
Target technician efficiency can vary greatly depending upon type of work, such as warranty, repair, or maintenance, and the pricing manual being utilized. Generally there are some targets to shoot at:
Warranty and Repair 60 to 80% efficiency. (income of 60 80% of the hourly rate)
Maintenance 130 to 150% efficiency (income of 1.3 1.5 times the hourly rate)
At a labor rate of $60 per hour the technician may produce a true hourly rate of as little $36 per clock hour at 60% efficiency, or as much as $90 per clock hour at 150% efficiency. Remember, that this measurement only applies to the technician time spent clocked on a repair order. If the technician is lower than 100% productive, the $36 hourly rate will drop even more. For example, if the technician is 85% productive (clocked on repair orders 85% of the attendance time), the hourly rate would be $36 (at 60% efficiency) times 85% productivity, or just $30.60 for all of the attendance clock time the technician worked.
As you can easily see, measuring and monitoring technician efficiency is fundamental in the science of service management, and should be performed in every shop. In the next issue we will examine technician output calculations, and how to more effectively manage time to improve the bottom line.
Ed J Kovalchick is CEO of Net Profit Inc., an international automotive manufacturer and dealer, training and management-consulting firm, located in Alabaster, Al. Mr. Kovalchick is a featured speaker and instructor at conventions, 20-Groups, associations, and other automotive related events worldwide. He is also a former six-franchise new car deal.