Or when your buddy asks you who won yesterday’s NASCAR race (Kyle Busch!). It should be that automatic. Like a reflex.
Here’s the question: What is your effective labor rate? If your service manager can’t quickly answer, it’s a sure sign of an ongoing profitability issue in your service department, or one that’s about to rear its ugly head. Think of it this way: If you can’t answer the marriage anniversary question quickly and successfully for your better half, life might suddenly turn ugly.
We recently emailed the effective labor rate question to a number of our powersports dealer friends and received the following responses:
“86 percent, shooting for 90 percent!”
“85 percent.”
“We really don’t do that…”
Cue the disturbing background music and piercing, high-pitched scream. That last response isn’t good.
Effective labor rate is a terrific profitability benchmark for our service departments because it’s easy to identify. It can also be a sign of two potentially disturbing issues: excessive discounting and lack of training. To figure out your effective labor rate, simply take the total dollars of your labor sold and divide it by billable hours.
Essentially, what we’re hoping the effective labor rate shows us is a percentage that is as close to 100 percent of your posted labor rate as possible. Some believe a really effective labor rate percentage should be within 10 percent of your posted labor rate. Rather than debating a few percentage points, we’re more interested in whether you and your service manager know that percentage as readily as yesterday’s racing result.
If you do, terrific, but don’t stop there. If you have multiple service writers, do you know it for each of them? Many of us know our effective labor rates for our techs but don’t examine it for each service writer. Each service writer should be checked to determine if we have somebody who is a little too friendly with discounting. That’s a common problem associated with low effective labor rate percentages.
The other issue that effective labor rate percentages can highlight is the need for additional training. Is one of your service writer’s effective labor percentage rates low because he doesn’t know what it takes to do each job? Is your service department under-selling labor times and not giving the tech enough time to get the job done properly? An examination of each writer’s effective labor rate percentage will tell you that.
It also can be a reminder to examine some of your menu items, especially those that haven’t been changed in years. Remember when you increased your labor rate last time? When you did that, did you also change your menu pricing? If not, your effective labor rate percentage will be impacted. This competitive rate approach for common menu items may be part of a strategy to draw more traffic into the store. Ultimately, you’ll have to ask this question: Is more traffic leading to more revenue?
Thankfully, running effective labor reports in a modern dealer management platform can be a simple task. Some modern dealer management systems include operational and marketing applications that are easily set up so those reports can be created and then automatically emailed to your inbox as often as you like.
Hopefully, that type of efficiency will let your service department staffers know their labor effective rates as quickly as yesterday’s NASCAR results. Unfortunately, we haven’t figured out how to do the same for your anniversary date…
