A Measure That's Manipulated
I start many presentations by asking attendees, How many hours per customer-pay repair order would you like in your operation?
March 1, 2007
I start many presentations by asking attendees, “How many hours per customer-pay repair order would you like in your operation?”
Someone will give the usual answer of 2.5. I ask, “If I could show you a way to double that number, are you a player?” “Oh, yeah!” several of them reply.
I tell them: “Just double the amount of time you pay the technician on the job!”
Yes, I'm being sarcastic. But the point is that the calculation of “hours per repair order” can be manipulated to whatever you want. When an advisor's pay plan is based on this measurement, they will find a way to increase their hours per repair order, usually at the expense of the effective labor rate and your bottom line.
“Hours per repair order” has been a key performance indictor for years. Many people call it the “stepping stone” to increased profitability in parts and service. The only problem is that profitability will not increase by increasing the mathematical number only.
Hours per repair order is the most manipulated measurement we have. It certainly can be a component of increased profitability, but you must produce the hours first.
Let's look at the basic mathematical calculation:
Flat Rate Hours | ÷ | Repair | = | Flat Rate |
|---|---|---|---|---|
Hours | Orders | Per Repair Order | ||
345.3 | ÷ | 279 | = | 1.2 |
This mathematical calculation is the same regardless of the category of labor (the most often mentioned category is “customer-pay labor”). An increase only in hours per repair order does not have a direct impact on the profitability of a service operation.
Monthly labor sales are the result of six elements. The six elements are as follows:
Clock Hours Per Day | × | Work Days Per Month | × | Productivity Percentage | × | Effective Rate | × | Calendar Utilization | × | # of Technicians | = | Monthly Sales |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
8.0 | × | 22 | × | 105% | × | $78.34 | × | 93% | × | 13 | = | $175,030 |
As you can see, “hours per repair order” is not a part of the calculation.
Of the six elements, the only area impacted by hours per repair order is the percentage of productivity.
If a technician continues to produce the same number of hours each month, and nothing else changes, sales will not increase and the profitability will remain the same (depending on the type of labor sold, parts sales may increase).
Remember, to increase profits, the technician must increase production above the current level.
Many people use the following calculation to show the potential increase in labor sales if customer-pay repair orders are increased by just .3 hours:
Amount of increase per CP RO | × | Repair Order Count in Month | × | Effective Labor Rate | = | Projected Monthly Sales Increase | × | 12 months | = | Projected Annual Gross Profit Increase |
|---|---|---|---|---|---|---|---|---|---|---|
.3 hrs | × | 1435 | × | $78.34 | = | $33,725 | × | 12 | = | $404,700 |
An annual gross-profit increase of $404,700 is a large number. Many dealers have increased their attention on this key performance indicator because it makes sense. As a result, some managers and service advisors have developed ways to manipulate this measurement to keep the dealer or general manager off their butts.
Here are a few of the ways this number can be manipulated:
Remove oil and filter changes from the measurement.
A service manager shared with me how he “fixed” his hours-per-customer repair order. He told me he removed the oil and filter changes from the measurement because he implemented a quick service operation at his dealership. This can do it. But, the question is: Did he improve it or just manipulate it?
Let's go back to simple averages. If we add to the average with a number that is less than the average, the overall average will go down. If we add to the average with a number above the average, the number will go up.
With that said, review the following actual data from a recent repair order survey:
Total Customer Flat Rate Hours
÷
Total Customer Pay Repair Orders
=
Hours Per Repair Order — Customer Pay
1522.1
÷
1103
=
1.38
Now let's remove the 578 repair orders for oil and filter changes that totaled 172.8 hours:
Total Customer Flat Rate Hours without Oil & Filter
÷
Total Customer Pay Repair Orders (without Oil &Filter repair orders)
=
Hours Per Repair Order — Customer Pay
1349.3
525
=
2.57
The hours-per-customer repair order jumped from 1.38 to 2.57. But are we making more money?
Using different time guides.
Hours per repair order are often used to compare performance among multiple dealerships. That can be misleading. Consider one reason. Labor time books:
Let's say in my dealership I use the manufacturer's warranty time guide for all customer pay operations. In your dealership, you use a book purchased from what I call the “Time-Life series” for all customer-pay operations. These labor times are usually 30% to 50% higher than the manufacturer's times.
In comparing your dealership and mine, who has the higher hours per repair order? Yours, of course. Make sure you both are using the same time guide.
Work mix.
A service department has two basic labor categories: maintenance and repair.
Maintenance operations are usually price sensitive, not parts intensive, and do not require highly skilled technicians to perform them. The increase of repair labor will impact hours per repair order by increasing the amount of labor that is parts intensive and usually requires more time, driving the hours per repair order higher. Hours are up and the production output is lower than maintenance type work.
Maintenance reminder systems.
These have been utilized for some time now and provide measurable returns on investment. Vendors offer real advanced systems. They automatically send customers reminders for service. In most cases, it has lowered hours per repair order. If we are successful in keeping the customers returning, it usually means our mix of small services has improved and they are usually lower hours per repair order.
Maintenance recommendations.
The maintenance services recommended by the manufacturers have dropped compared with several years ago. Trying to offset the reduced maintenance schedules, some dealerships have developed their own recommended services and sell “dealer-recommended services” in hopes of maintaining their customer hours per repair order.
I'm often asked, “What should my hours per customer repair order be?” My reply: “A tenth of an hour more than it is now.” In other words, you should strive for continuous improvement. This number is nothing more than one indicator of performance. If we become obsessed with it, we are misguided and are missing a ton of opportunities in the real areas that drive profitability.
Lee Harkins, president of Atcon in Birmingham AL, is a dealership management consultant with 22 years of experience. He is at 800-692-2719 and [email protected].
System Tracks Vehicle Prep Work
A software developer thinks he has solved the problem of finding the right keys, the right people and the right work order to finalize dealership new-car prepping.
Auto Scheduler Advantage is a web-based scheduling system that displays color-coded screens to track the progress of a vehicle being prepared for delivery. The system shows alerts if the process is interrupted or needs attention.
“It is a terrific piece of software,” says Bill Studebaker, general manager of Buff Whelan Chevrolet, a Sterling Heights, MI, dealership that installed the technology in 2006. “With one click you're on the screen and you can tell what's going on.”
The system eliminates paper tracking. Electronically a sales person can make changes to a vehicle order and status of delivery without leaving his or her desk.
David P. Miller, CEO of Software Advantage Consulting Corp. came up with the idea. “Nearly everyone wants a positive sales and delivery experience from their dealership,” he says.
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