Wow, that’s a lot of acronyms, but you know what they all mean, right? Following are four recommendations from John Gilbert, the Fixed Operations specialist with NCM’s Retail Operations division. To increase your effective labor rate (ELR), reduce your cost of sale (COS), and improve your gross profit margin (GPM) on customer-paid repair order (R.O.) sales:

1. Check “competitive” and “menu” pricing, making sure that the labor prices (and totals) are competitive but not lower than the area’s competition. We don’t want to be the lowest priced because we have too much to offer, and we can be towards the high range for the same reason. Check flat rate pay times for these operations to make sure we are not overpaying the technicians for these operations; I’m always amazed at the exorbitant flat rate times often paid to technicians for this work. Note: we are fighting minimum wage, hourly technicians for this business.

2. Implement variable technician costing for the above listed labor operations. (e.g., if an “A” technician draws this type of work, he should be paid at a lower rate, if he wants to do the job.) I usually set up 3 tiers; an “A” cost rate for skilled work, a “B” cost rate for competitive work (brakes etc.) and a “C” cost rate for oil changes/rotations/wiper inserts/bulbs etc. This is not always an easy sell to the technicians, unless we explain to them that we really are fighting to be able to continue to do this work. The second alternative, if they don’t agree, is to hire our own minimum-wage personnel to do this work, and the journeyman line technicians simply don’t perform this kind of work anymore.

3. Set up a Precision Labor Rate for high-skilled, captive operations; this is normally 25%-30% above door rate. This work includes, but is not limited to, ABS, SRS, AWD, internal engine, transmission, and transfer case/axle work. Also, electrical and drivability checks, engine light work that gets complicated, some dash warning lights, etc. This way of pricing is far more justifiable than a grid. With a grid, essentially we are saying to a customer you have to pay more because the hours on the job are higher; with a precision rate, the customer has to pay more because the job requires more skill, training and special tooling (technicians’ or ours) to complete the work. The additional thing that can happen with a precision rate is that we could give the technicians slight raises (within the gross profit percent we want or greater) to offset the lower pay rate we are asking them to take on lesser skilled work. Obviously, due to work mix, we gain much more through variable costing on lesser skilled work than we lose in any raises. Especially when we think the raises through from a gross profit percent standpoint. 

4. The service manager must check the exception/override report daily to see what discounts have been applied to labor arbitrarily. If we have coupons or specials out there, that’s fine, but giving a discount because we messed up an estimate to balance the repair order or because this is a good customer (I’ve heard all kinds of reasons) is not acceptable. This abuse can be so rampant in a service department, I have had to password-protect against discounting. Also check to see if labor sale amounts are being lowered; usually a movement away from the grid amount. This report lists any and all adjustments or modifications to a repair order; great tool. Note: an additional thing we usually find when reviewing this report, is that shop supplies are also being adjusted or eliminated when repair orders are booked; again, there could be legitimate reasons for an adjustment; what we’re monitoring are the adjustments that are not legitimate and affecting recovery amounts.

To learn more about how to improve fixed gross profit, reach out to your NCM 20 Group moderator or a Retail Operations Consulting