Are you accurately measuring and forecasting your productive capacity? Many dealerships fail to conduct necessary in-depth analyses, often resulting in false forecasts. In fact, labor sales reports may not reveal the entire picture; what could appear to be a great month, in reality may not be cause for much celebration.

Take for example a report the service manager for XYZ Automotive prepared for the month of December 2004. This labor sales report showed that the department exceeded the month of November by $5,000 and was one of the best Decembers on record. However, while December was indeed a good month compared to November and previous Decembers, a more in-depth analysis uncovered a different story.   

When evaluating labor sales over a period of time, there are five variables that must be considered before rendering a final judgment on performance. By conducting an analysis of your productive capacity, and managing your forecast on a daily basis, you may find that your monthly labor sales aren’t nearly as exceptional as you would like them to be.

Days of operation

Taking days of operation into account is the first important variable. Assuming XYZ Automotive’s service department is open Monday through Friday, December provided 23 days of operation. Thus, the service manager’s first oversight was to compare December 2004 to November 2004. The two consecutive months cannot be compared equally since November contained only 21 days of operation, while December comprised 23. Since December provides two additional operation days, the fact that the service department exceeded November’s labor sales by $5,000 is not the accomplishment first thought to be. If December had been as proportionately good as November, then the service department should have exceeded labor sales by at least $8,000.

Hours of operation

Hours of operation directly affect labor sales potential. The more hours your shop is open each day, the more potential to generate labor sales. Remember, the service department sells time! Any variable that impacts the time you have to sell must be scrutinized closely and managed effectively. In our example, the service shop is open from 8 a.m. to 5:30 p.m., or 9.5 hours per day. However, since technicians benefit from two, 15-minute breaks per day, as well as one hour for lunch, the shop is really open only eight hours per day, and therefore, eight is the number of actual daily shop hours of operation.

Quantity of technicians

The third variable to consider is the number of technicians employed. In December 2004, the service department employed ten technicians, compared to seven in December 2003, and six in December 2002. The comment that December 2004 represented one of the best labor sales months ever can now be better evaluated. All things being equal, the service manager should have indeed experienced a great December since he benefited from employing a higher number of technicians than in any previous December.

Proficiency percentage

Shop proficiency is by far the most difficult variable to manage when trying to maximize labor sales since so many aspects of a service department’s operation can affect it. Percentages vary from month to month depending on the number of hours technicians are available to generate labor sales, and to what extent flat rate hours are generated during that period. The formula used to calculate the percentage is as follows:

  Flat Rate Hours = Proficiency %
  Clocked Hours

  10 Flat Rate Hours = 125%
  8 Clocked Hours

Effective labor rate

The true rate at which you sell your labor is the fifth and final variable, and significantly impacts your total labor sales. Designing and implementing a sensible retail pricing strategy is the best way to maximize your overall effective labor rate.

So, was it a good month?

Let’s look at how good XYZ’s December really was given the five variables.

Although the service manager was happy with the month’s labor sales, his department operated at only 85% proficiency, and labor was discounted from $68 to $60 in order to achieve $89,760 in total labor sales. While exceeding November’s labor sales by $5,000, the service manager was far from achieving the forecast. When considering the five labor sales variables, this department had the potential/capacity to generate over $143,000 in total labor sales for December 2004. Was it a good month? No. We would expect performance of at least 80% of forecast.

Many service departments, however, do not operate at 80% of forecast simply because they are unaware of their department’s true productive capacity (labor sales potential) or they lack a daily system for maximizing it. Instead, most forecasting consists of adding 10% to last month’s or last year’s figures, then waiting until the end of the period to see whether it’s been achieved. This creates the end-of-the-month syndrome—a mad dash to get as many repair orders closed as possible on the 30th, including outstanding big jobs so they can be recorded in the current month’s figures. 

To accurately measure your productive capacity, consider using the following alternative approach. First, determine your productive capacity and prepare a forecast every month (using the method outlined above). Strive to operate at no less than 80% of your forecast. Manage your forecast daily, rather than weekly or monthly. Practice the end-of-the-month syndrome every day of the month, rather than on the 30th only. Take your monthly forecast and break it down into daily objectives for your service consultants and technicians.

Several times per day, determine how effectively you are meeting your daily forecast. If you find it’s going to be a slow day and you will likely be significantly off your forecast, take appropriate action to turn the day around; this is the whole point of managing a forecast. Early in the day, take proactive steps to maximize your labor sales. For example, initiate an active campaign of calling customers, recalling, and scheduling work for the current day. Call to reschedule missed appointments from the previous day, or try moving future appointments. Call the parts department and find out whether any ordered parts have arrived so those customers can also be called and perhaps scheduled for the current day. Tell your technicians to step up vehicle inspections in an attempt to up-sell more work.

In essence, many steps can be taken to maximize daily labor sales when one is proactively aware of the productive capacity, knows how to prepare a realistic forecast, and learns how to manage one’s forecast daily.