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Aftersales Departments Archives - Profit by Action - Germany

Extent of the Service Opportunity to Franchise Dealers

Of the $350B Service business in NA, franchise Dealers only capture 27% of it. So, in this Quick Tip, Andy Church asks what are you doing to increase your service opportunity?
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Effective Labor Rate

Effective Labor Rate (sometimes called Recovery Rate) is the KPI that identifies the actual labor rate achieved by the service department, either as a Total or by Customer, Internal and Warranty work.  Your Dealership might have a posted labor rate, but this is never the actual labor rate you are achieving due to discounts, promotions or warranty paperwork hold-ups, for example.  In order to maximize Service Department profitability you must know what your ELR is (for Total, Customer, Internal and Warranty) so you can identify where you are performing poorly and make appropriate changes.

Effective Labor Rate = Sales / Sold Hours

Benchmark: 90% of your posted labor rate.

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Service Hours Defined

Understanding Service statistics is essential if you want to maximize your service department profitability.  The building blocks required to understand KPI’s such as Productivity and Efficiency are the Service Hours, yet these continue to be a source of confusion.  Here are the fundamental definitions and rules:

  • Available Hours – The total number of hours a technician is at work.  So, if a technician is in the workshop from 9am to 5pm and they take 1 hour for lunch, then they are available to work for 8 hours.  Available Hours are sometimes called Attended hours.
  • Actual Hours – The total number of hours a technician spends working on a PAID job (either customer, warranty or internal).  It is IMPOSSIBLE for a technician’s actual hours to be greater than their available hours.  Actual Hours are sometimes called Productive Hours.
  • Sold Hours – The total number of hours sold to the customer (either customer warranty or internal).  For a profitable service department, this number will be great than their Actual hours and maybe even their Available hours – remember selling time is what service departments do.  Sold Hours are sometimes called Flat Rate hours, but this really refers to a payment method and as such we prefer the term Sold Hours, after all, that’s what they are.

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Technician Efficiency


Technician Efficiency is a KPI that monitors a Service Managers ability to assign the right Technician to the right job and the Technicians ability (right skill set) to perform the job.
Technician Efficiency = Sold Hours / Actual Hours
Benchmark: 125%

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Overall Technician Efficiency

Overall Technician Efficiency is a blend of the Efficiency and Productivity calculations and is sometimes easier to measure than Technician Efficiency as it is often easier to get Technicians to clock in and out once or twice a day vs for each job (which is required for Technician Efficiency).

Overall Technician Efficiency = Sold Hours / Available Hours

Benchmark: 115% – 125%

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Productivity

Productivity measures how productive your Technicians are by comparing how much time they perform PAID for tasks (either through customer, warranty or internal work) against the number of hours they are actually available to work.

Productivity = Actual Hours / Available Hours

Benchmark: 85% (this cannot be more than 100%)

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Profit by Action - Germany