Everyone acknowledges that today’s shop business is dramatically different than the shop 10 years ago. The continuous investment in the business that is required today is enormous and many shops are getting financially behind because of it.
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The question now is how should we be approaching this issue?
Consider that today we are in a knowledge based business. Consider today it is about managing productivity through “billed hours”; billed hours is the result of selling your knowledge. This billed hour measurement now plays a stronger role than ever in moving the business forward as everything revolves around it.
Let’s look at two examples and how to handle the solution:
- We require $25,000 a year now for technician, service advisor and management training/development so how do we fund this? Solution – take the total billed hours from last 12 months and divide that total into $25,000. If we billed out 4500 hours over the last year, 25,000 divided by 4500 = 5.56. We raise our maintenance labor rate by $6 and all our future education and personal development will be funded as long as the billed hours are in place. Put aside $6 for every hour billed each week into a special account. Maybe label the account “Education/Development Fund” and that is where you draw your development funds from.
- We will require $3,000 per month for new leases on diagnostic equipment. Take your average billed hours per month for the previous 12 months and divide it into the required lease fees per month. Example, we average 375 billed hours per month so $3,000 divided by 375 = 8.00. If 85% of our hours are maintenance and 15% are diagnostic then we raise our maintenance rate by $6.80 and our diagnostic by $1.20 ($8 X 85% = $6.80) We are covered for all new diagnostic equipment leases as long as the average billed hours are in place.
As you can see, every new investment will be reflected through the labor rate and the labor rate adjustments will depend on the billed hours. The more efficient the shop is, the more billed hours it achieves and therefore the labor rate adjustment is not much compared to an inefficient shop that does not obtain the correct billed hours for the work coming through the door. The math simply does not lie.