Automotive & HD Business Management Articles.
Bob Greenwood. September 24, 2014. ( over 7 years ago ) 1,724 views
Many shop owners look at operating expenses and attack that topic as a main cost reduction plan to increase their bottom line. The fact is, most business expenses today in this business are either non-controllable or common sense expenses as we’ve covered off in detail in our past Management classes.
That being said, I think it’s time to actually look at the most serious problem in every business: what unproductive staff really cost the business and calculate that cost as a bottom line loss.
For example: If a technician is averaging 4.5 billed hours per day but is being paid for 8 then that means 3.5 hours per day are a real cost to the business. If you’re paying the person $25 per hour then $25 X 3.5 = $87.50 per day X 20 days per month = $1,750 per month plus employer burden = $2,257.50 PER MONTH off the bottom line ($27,090 per year from ONE person).
Add to that, if you were charging $112.50 per hour labour rate on that individual, then $112.50 – $25 basic wage cost = $87.50 per hour lost in gross profit contribution from lost labour billings times 3.5 hours = another $306.25 loss per day X 20 days per month = $6,125 lost additional gross profit per month which would also be net profit. Total cost to the business from ONE person being unproductive and unaccountable = $8,382.50 per month or $100,590 per year.
If the entire team were averaging this as a group average and you have 4 techs on the team at $25 per hour per tech, then that works out to a monthly cost of $1,750 X 4 = $7,000 per month plus burden = $9,030 PER MONTH off the bottom line ($108,360 per year). This works out to an additional $294,000 per year net profit lost from the tech team when the lost billed labour contribution to gross profit is factored in for a total net profit loss of $402,360 to the company that is not obtained.
This is scary. This is serious money!!! THIS is where management should be spending their time… fix accountability within the business.
Remember that a competent licensed technician should be billing 8-10 hours per day and an apprentice should be billing 4-6 hours per day; if they are not achieving those numbers then investigate fully “why not?” Don’t guess, don’t listen to rhetoric, find out the facts. That’s management’s responsibility to the company.
It is time and absolutely necessary to focus on accountability by embracing all the processes and management education you’ve been shown/taught/exposed to. If you “cherry pick” the processes or what you were taught, then it won’t work. If you “assume” the processes are being followed without verification, then it won’t work. Every owner/manager must “Inspect what you Expect” and determine why something happened or did not happen or why that member of the team is not performing his/her position properly and focus on fixing it. This will be the quickest way to turn any business around.
What you ask the staff to apply to in the business means management also must apply. Always lead your team. For example—we ask the staff to start filling in the time APP so we can see where their time is truly being spent (not just what they say) and build a trend module in graph form so we can resolve the problem accurately to make them more efficient. Let the staff know you’re doing the same thing with your time because you also must be accountable to the business. Where do you really spend your time? Is it helping other staff on a job, or spending time giving them guidance, or on the counter or participating as back parts person or in the office or talking with clients or out with a supplier or all the above, but what are your trend lines in time spent for each function you’re doing?
Stand your ground and make every single person in the company accountable. I’ll guarantee you one thing; when you improve the accountability throughout your company it will have 5-10 times the effect on your bottom line than trying to save money picking away at individual operating expenses. Do the math and follow the math as math doesn’t lie and then you’ll be working smarter instead of harder.