Phone: 630-495-2282 Fax: 630-495-2260 Map/Directions
 

Comparing actual labor sales to potential labor sales

November 17, 2010

In the service department, among the inventory is time—the highly marketable time of highly trained technicians. That time must be used skillfully in order to retain profits while giving customers value that exceeds their expectations. 

Service labor thus should be priced competitively, and the mix of work the shop performs should be monitored carefully. Repair orders should be analyzed daily to make sure that every RO is complete, that pricing is correct and effective, and that the Effective Labor Rate is where it should be.

 

Of the various labor pricing options, variable labor rates based on job complexity may be a good choice. When tech skills are matched to the job, labor is used efficiently, and the dealer’s competitive stance is enhanced. Guidelines for the work mix are 60 percent competitive and maintenance, 40 percent repair. 

Competitive labor comprises such services as lube, oil and filter changes; and tire rotations. The work is charged at a low hourly rate, perhaps at or near the rates of local quick lube shops and gas stations.

 

Maintenance labor is work the manufacturer recommends or requires. Including common but less competitive services, like emission control or air conditioning service, maintenance labor is priced at a moderate hourly, perhaps at or above the existing warranty rate. The maintenance rate is the target rate for the department and never should be lower than the warranty rate. 

Repair labor comprises the least competitive, most specialized services and is charged at the highest hourly rate, perhaps $8 to $10 above the maintenance rate. Fuel injection calibration or engine overhaul are examples of repair labor.

 

Monitor performance. Use daily reports to study ROs and calculate the dealership’s Effective Labor Rate, which is the dollar figure obtained from dividing sales in each category by the number of hours billed in each category. Analyze ROs monthly to determine what needs to be done to maintain an Effective Labor Rate that always exceeds target. Then, use a month’s actual performance to calculate the dealership’s monthly labor sales potential: 

1. $ Labor sales ÷ Hours billed = Effective Labor Rate

2. Number of techs x Hours/day x Working days/mo. = Clock hours available/mo.

3. Available hours/mo. x Effective Labor Rate = $ Labor sale potential/mo.

 

How does the actual total (dollar amount labor sales in #1) compare to the potential total (labor sales potential, #3)?

 

Among the many adjustments that can be made to achieve potential—pricing tweaks, minimizing one-item ROsupselling needed service and maximizing the use of menus, pricing guides, extended hours, and work mix scheduling—are improvements in facility utilization and in technician performance.

 

This article was adapted from the NADA Management Education bulletin, "Service Department Performance Analysis" (SP29). The bulletin can be ordered online at www.nada.org/mecatalog or by calling the NADA at 800-252-6232 ext. 2.

 

Back