Top Metrics to Watch
Creating and hitting service department labor budgets
Creating a service labor budget can be a stressful and intimidating time for many service managers. In many cases, service managers are comfortable when it comes to technical product knowledge but are less familiar with financial budgeting.
For some dealers, the budgeting process consists of looking at last year’s numbers, adding a percent or two and that’s about it. Others take a more in-depth approach.
In this article, I will share a way to create a conservative, basic, yet effective labor budget and provide suggestions to keep you on track throughout the year.
Labor inventory has NO shelf life.
Understanding labor inventory
If we buy an oil filter at 8 a.m. and don’t sell it by 9 a.m., we still have it on the shelf to sell later in the day. However, if we pay a technician starting at 8 a.m. and don’t sell that hour of labor by 9 a.m., that hour is gone. We would not allow this to happen with our other inventory but tend to do it too often with labor inventory.
Some loss of labor inventory is unavoidable (see Chart 1).
Realistically, there will be some non-revenue time, including training, breaks, talking with customers, waiting for parts, etc. We want to keep that to a minimum. We also want to minimize precious technician time spent on non-revenue work orders such as general shop cleaning, servicing internal company vehicles and other “make-busy” work.
Generally, we want at least 85 percent of the available time to be assigned to revenue-generating work orders.
We also know that there will be other areas of lost time, including training, breaks, interruptions, talking with customers, waiting for parts, etc. Generally, we want at least 85 percent of the available time to be assigned to revenue work orders.
Example: 1,920 available hours x .85 = 1,632 revenue hours per technician.
By using this basic formula, you can plug in your own numbers (the highlighted areas) to come up with a realistic target.
Putting your budget to work
Now that you have a realistic and attainable budget, you must get your whole team engaged to help hit the target. This begs the question, “How do you eat an elephant?” Answer, “One bite at a time.”
The same logic applies when trying to hit your budget.
In the next examples, Charts 3 and 4, we had a target of 9,792 revenue hours for the year. By breaking it into smaller bites, we can use it as a scorecard to engage technicians and service administrators to hit the target.
Keeping your eye on the ball – and on the scoreboard
Do you ever notice professional (and amateur) athletes constantly check the scoreboard or game clock during a game?
Yes, they may be watching the replay of their goal celebration on the big screen, however, they are also aware of the score and the time remaining on the clock. The same should apply to your team.
Top performing service managers make a habit of keeping score and ensuring the whole team is aware of the time remaining on the clock.
This is as easy as putting up the weekly and monthly targets on the shop whiteboard for all techs to see then updating the progress (score) on a regular basis. This can be done as a group or by individual technicians.
Some service managers have reported that this alone can be a magic bullet.
“Techs will check to see how many hours they need to bill to hit their monthly or weekly target, then put an extra effort into handing in their work orders on time,” according to one service manager.
Others have reported it has a positive effect on the whole service team including service administrators.
Another service manager commented during a training session, “I now hear our service administrator checking with the techs to see what work orders they can close prior to the end of the day, week or month… it’s sort of like an in-house competition to hit the targets.”
Realistically, you won’t hit the target every week, especially when you have techs away on training or vacation. However, you will have weeks where you will exceed your budget target. The trick is to ensure you are endeavoring to make up lost ground when you can, with a focus on the monthly, quarterly and annual targets.
It is a key responsibility of the service manager to ensure technicians are assigned to revenue work orders at all times.
Top performing service departments have shared some of their other “best practices.”
- Have a marketing plan to ensure you have revenue jobs available throughout the year.
- Quote 100 percent of the retail jobs to reduce writing off labor.
- Never quote hours to a customer.
Give the customer a price… give the technician a time.
- Never quote hours to a customer.
- Implement a standard or flat-rate pricing method to allow techs to succeed.
- Don’t wait until the month end to “batch close” work orders.
Close work orders every day; month-end then becomes just another day.
The older the work order is, the harder it is to close and collect.
- Train technicians on proper documentation methods.
Properly documented work orders are easier to close and show value to your customers.
Document throughout the day.
Document the time and steps taken to diagnose.
Document the time and steps taken to repair.
Document the time and steps taken to test the repair.
It’s what you write, not how much you write.
- Never allow technicians to clock on to “non-revenue” work orders without approval from the service manager.
- Have revenue jobs lined up for each tech prior to the start of every day.
- Have secondary revenue jobs ready to assign in case of delays or interruptions.
In my upcoming articles, I will discuss ways to take your service profitability even higher. For more information on upcoming aftermarket training programs, visit WEDA’s Dealer Institute at www.dealerinstitute.org.
To discuss a customized aftermarket program for your organization, send request to email@example.com
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 firstname.lastname@example.org