Selling Diagnostic Repairs Profitably (Part 1)
Most automotive repair shops are still using the same methods to charge customers for diagnosing problems that were used 20 years ago. Big mistake!
Most of today’s automotive technicians work diligently to remain technically competent to service and repair their customers’ vehicles. However, many shop owners, managers, and service advisors continue to use outdated techniques to quote prices for technician labor by quoting time and labor rates instead of procedures and dollars and cents. Furthermore, when it comes to charging for diagnostic time, most repair shops are leaving significant amounts of critical revenue and profits on the table.
The automotive repair industry is going through some very difficult times, and profits are becoming tougher to generate. If shop owners are to survive and prosper, they need to remain open-minded, to continuously fuel their minds with knowledge, and to prepare themselves and their employees to embrace and effectively implement changes that are beneficial to all.
Most shop owners and their technicians believe they’re in the business of fixing customers’ vehicles, and desire to do it profitably. I believe that automotive repair shops should be primarily in the business of buying and reselling technician labor, and that repairing vehicles is merely the process by which they accomplish these sales!
Arguably, the largest “profit leak” in the industry is due primarily to the inability and/or unwillingness of shop owners and their staff to properly sell their technicians’ labor for its full value. Charges for diagnostic time comprise a significant portion of this leak.
The first step in selling diagnostic labor profitably is to understand and track the four basic types of time — available time, elapsed time (also called actual time) “E” or “W” time, and sold time (also called billed time).
Available time is the time that a technician is at his stall ready, willing, and able to perform revenue-generating work. This is normally eight hours a day, or 40 hours per week.
Actual time is the time a technician spends actually performing each task on the Repair Order. This is the time that both technicians and management desire to be less than the sold/billed time.
“E” or “W” time is the time spent on non-revenue-generating activities. An example may be the time a technician spends sweeping floors, shuttling customers, chasing parts, etc.
Sold/billed time is the time for which the customer is charged. This is what pays the overhead and — one hopes — generates profits for the shop.
Productivity & Efficiency
Tracking these four types of time enables a shop owner to measure two important elements for technicians and the shop itself — productivity and efficiency.
Productivity is defined as the time a technician spends on a customer’s vehicle performing revenue-generating work (actual time divided by available time). It’s a measurement of how well management keeps the technician busy generating revenue.
Example: A technician is at work 40 hours in a week (available time) and spends 30 hours performing revenue-generating work on customers’ vehicles (actual time). The computation of productivity would be: 30 hours (actual) divided by 40 hours (available) = 75% productivity. As a frame of reference, the industry benchmark is 90%.
Efficiency is defined as the time it takes a technician to complete tasks (actual time) divided into the time the customer is being charged for (sold/billed time). It’s a measurement of how quickly a technician accomplishes the work in the time allotted.
Example: A technician spends 30 hours on customer vehicles and customers are billed 32 hours. The computation would be: 32 hours (sold/billed) divided by 30 (hours) actual) = 107% efficiency. Again, for reference, the industry benchmark is 125%.
The term proficiency, while often used synonymously with the terms productivity or efficiency, is actually the measurement of productivity and efficiency combined. Proficiency is the relationship of sold/billed hours to available hours, but does not take into consideration the critical element of actual time. The computation for proficiency would be : 32 hours (sold) divided by 40 hours (available) = 80% proficiency.
Proficiency is the most common measurement standard that exists in our industry because3 hours sold and hours available are relatively easy to track. However, the problem with measuring proficiency instead of productivity and efficiency is that when it comes to problem-solving, a shop owner can’t determine whether he’s failing to provide enough work (actual) and/or his technician is unable to perform the tasks in the time allotted (sold).
If you’re not tracking these four types of time (or are not tracking them incorrectly), it becomes very difficult to effectively charge for diagnostic time.
So how does a shop owner accurately measure the four types of time? Time can be measured with time clocks and cards, bar coding systems, and some shop management systems.Click here for the continuation of this article for the continuation of this article on Selling Diagnostic Repairs Profitably.
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