Top Metrics to Watch
Many dealers start their budget process at this time of year. Service departments are unique because they have both labor sales and nonlabor sales.
Non-labor sales are items such as outside labor and material, trucking, delivery, and service vehicle mileage.
Labor sales make up the largest part of service department sales. Customer labor sales should make up greater than 60%, Internal should be in the 25%-30% range, and Warranty in the 10% to 15%. This may vary depending on your market; however, Customer labor sales should be the bulk of your labor sales.
Starting place
The best place to start a labor budget is to understand your labor inventory or how many hours you have available to sell.
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Example: Technician is paid 40 hours per week x 52 weeks per year Paid hours: 2,080 Vacation days = 15 days x 8 hours (120) Holidays = 10 days x 8 hours (80) Paid time off or sick days = 5 days x 8 hours (40) Total hours available 1,840 |
Hours that techs are not on workorders due to attending meetings, training or other lost time is inevitable. Most dealers target 85% productivity, meaning techs will be working on workorders for 85% of the available hours
1,840 available hours x 85% Productivity Billed hours: 1,564
The next step is to calculate your total billed hours based on the number of technicians then convert it to dollars based on your labor rate.
1,564 hours x 6 technicians Total hours: 9,384
9,384 total hours x shop rate $120/hour $1,126,280
Using historical data, you can adjust your budget by looking at items, such as:
- your actual productivity rate,
- historical overtime hours,
- changes to your Customer, Internal and Warranty shop rates,
- split of experienced vs. less experienced technicians, and
- anticipated changes to the number of techs.
Changing your budget into a proactive goal
Many dealers set a goal for hours billed per tech. For example, if you are targeting to bill 1,700 hours per year per technician you need to break it down so it’s easy to track.
Example:
1,700 hours x 6 technicians = 10,200 hours for the year x $120/hour = $1,224,000 in labor sales.
People are generally motivated when the targets and goals are easy to understand. Breaking it down can be as easy as this.
- 10,200 billed hours divided by 12 months = 850 per month
- 10,200 billed hours divided by 52 weeks = 196 per week
- 1,700 billed hours per tech divided by 12 months = 142 hours per month
- 1,700 billed hours per tech divided by 52 weeks = 32.7 hours per week
Technicians who are being paid for a 40-hour workweek can clearly understand an expectation to have at least 33 hours or more dedicated to productive workorders.
Of course, not every week or month will be the same. However, if service managers, technicians, and service administrators know how many hours they need to invoice each month, they can improve their efficiency by ensuring they are focused on activities that drive labor sales, timely workorder closing, and reducing lost time.
Editor’s Note: Please check out www.dealerinstitute.org for upcoming programs. The DI also creates specific customized on-site or virtual training programs for multistore groups.
Article Written By Kelly Mathison
Kelly Mathison is a former dealer and current trainer and management consultant for the Western Equipment Dealers Association’s Dealer Institute. Mathison specializes in parts, service and aftermarket training. Please send questions and/or comments to kelly@kayzen.ca.
