THE PAY FACTOR

Technician salaries can be the largest
expense in a service shop, as well as
the biggest headache. Here’s how one
shop owner tackled the problem.

By Drew Paras, Contributing Editor

I MUST BE HONEST with you, I really don’t like working on cars anymore. I like the complexity, technology and the challenge of diagnosing computer control problems but frankly, all the rest I could do without. I usually can find a whole bunch of other things I’d rather be doing with my day.

Now, I hope this isn’t offensive to those who still love working on cars or within their businesses everyday, but it’s the truth. I no longer enjoy the headaches associated with running an automotive business. So, if I have to go to work each day and fix cars, deal with complaining customers and often even more troublesome employees, I want to make money – a lot of money – or forget it.

Making money is what I want to talk to you about. I’m not going to bore you with the same old stories about providing better customer service or how to treat your jobbers well because if you don’t already understand those concepts, you’re going to have some long hard days ahead of you. What I’d like to share with you is a system on how to increase your store’s profitability and to actually put more
money into your pocket.

Now please be honest with yourself. For all your hard work last year, did you reward yourself or make the money you really wanted? Last year, I was fortunate enough to have vacationed for about three months. Did you? After working in the automotive industry for more than 22 years and making it a personal goal of mine to read every acclaimed business book I can get my hands on, I’ve learned a few systems and ideas on how to make ‘real money’ and to provide me with the freedom to take that much vacation time.

LOOK AT YOUR COSTS

Most likely the largest expense you’ll have in your business is the cost of labor (COL). The battle to control this cost seems never-ending. In my own case, I have I tried all types of employee pay methods: flat-rate, salary, hourly, cash incentives and all combinations of these.

We will get a store into a good groove for a while where all the employees are happy and COL is in a good place. But, inevitably, an employee wants a raise, and we’re scrambling to make adjustments again. Only then to hope thatthis employee doesn’t tell his co-workers about his good fortune or our calm and COL could really become upset. Multiply this by each store location, and we found we were spending much too much time on payroll instead of the business and customer service. So we came up with a solution: a team system with a twist. The team concept has been around for a long time and has been used very successfully at Toyota Motor Co., for example. Our ‘Team/Twist’ system doesn’t require adjusting very often, makes the stores more money
and gives the employees an opportunity to take some control over their own futures and wages. It’s a win-win situation.

MOTIVATION...... HERE ARE A COUPLE SUGGESTIONS TO MAKE THIS PROGRAM WORK TO ITS BEST ADVANTAGES:

Post a productivity board in the shop conspicuously so the employees can view it daily and see their accumulated labor percentages. This will help instill motivation as they watch their weekly bonuses grow or fade.

If you have multiple stores, also post the weekly totals of the other stores conspicuously. This may inspire some friendly internal rivalry among the stores, causing even greater productivity.

Pay this additional bonus out weekly and separately from their normal paychecks. This will help convey
greater value in the program plus that little extra weekly money will always be appreciated.

THE NUMBERS

In basic terms, here is how the system works: Each technician is given a letter grade (A through E) based upon his particular skill level and abilities. An ‘A’ technician would be considered a Team Leader and would be required to have good diagnostic troubleshooting skills, as well as the ability to supervise and
direct the other technicians. An ‘E’ technician may be a new apprentice with little technical training. All of the other technicians would fall in-between these two levels somewhere, based upon their individual skills and abilities. Our ‘A’ technician or Team Leader assigns and supervises all work being done within the shop and isn’t required to do any of the mechanical repairs himself, only to perform diagnostic troubleshooting, test-drives and supervision. But as you’ll soon see, it’s in the Team Leader’s own best interest to do whatever work he or she can to contribute to the overall labor production. Each technician receives a guaranteed hourly wage set between certain parameters. For example, your structure might look like this:

A Tech = $25 to $30 an hour
B Tech = $20 to $25 an hour
C Tech = $15 to $20 an hour
D Tech = $10 to $15 an hour
E Tech = $8 to $10 an hour

At the end of each day,we do a little simple math to calculate how productive our team was for that day and then again as a running total throughout the week. This running productivity total is posted conspicuously for daily viewing.

The technicians, as a group and only as a group, receive additional weekly cash bonuses based upon their productivity. This gives each individual technician an incentive to be more productive. It also places internal pressures among themselves to not be seen as the least productive member of the team. In fact, the team can recommend to the management that a certain member be replaced for the betterment or overall production of the team. Because the weekly bonuses are received as a group, each technician is watching
and assisting the others to help maintain a more efficiently run store.

THE MATH

To calculate the daily/weekly labor efficiency,we divide the total labor hours billed (total dollars collected divided by your hourly rate) by the total labor hours we paid our Technicians in wages (total hours worked):

Total Labor Hours Billed (over)
-----------------------------------------------
Total Labor Hours Paid to Technicians

The national average for labor productivity is currently approximately 60 percent, with only very well run stores achieving 85 percent or greater. This means that for every 100 hours that are paid out in technician wages, less than 60 hours of customer paid labor is collected. Within our own stores,we had historically been realizing a labor productivity rate of pproximately 70 percent, which I felt was pretty good for our ‘quick service lube and tune’-type businesses. However, immediately after implementing our Team/Twist program our stores consistently achieved greater than 80 percent labor productivity and often have weeks of greater than 100 percent.

To achieve this greater productivity,we established labor efficiency goals and a bonus structure plan. Our first incentive goal was to reach a labor productivity rate of 80 percent, which would then translated into a 5 percent weekly pay increase bonus for the team. Now, for every 5 percent of increased in labor productivity above our starting goal, the technicians would receive an additional 5 percent weekly pay bonus. In other words, if a technician’s normal weekly pay amounted to $800 and the store achieved a labor efficiency rate of 80 percent, the technician would receive an extra 5 percent, or a $40 bonus for that week. Now if the store realized a Labor efficiency rate of 85 percent, the technician would then receive an additional 10 percent, or $80 bonus for that week.

Both the store and the employees win with this system. The store profits from the additional productivity and the income that is associated with it. The employees receive tangible rewards – money – for their efforts. The math works out really well for the store, as long as the starting labor goal is set above the store’s historical weekly labor average. Under our system, the employees only receive their incentives as a group, which means that the 5 percent pay increase is based upon the mean average of all the employees wages and only when the store is billing more customer pay hours.