RV PRO

March '19

Issue link: https://nbm.uberflip.com/i/1083480

Contents of this Issue

Navigation

Page 164 of 172

138 • RV PRO • March 2019 rv-pro.com B U S I N E S S as in our Profit Builders Workshops, and when making this calculation for technician productivity we find it ranges anywhere from 30 to 70 percent, with an average coming in around 50 percent. With that being the case, how does that affect the gross profit and gross profit margins in our example? 1. Technicians are being paid for 40 clock hours to produce 20 billable hours (assuming they are not flat rate). 2. The cost of sale for every hour billed is $60 versus $30 3. 20 hours billed at $125 ELR per hour produces $2,500 in labor sales for the week 4. 40 hours paid to technicians at $30 per hour produces a cost of sale of $1,200 for the week. 5. The gross profit margin drops to 48 percent versus 76 percent. That's not a pretty picture! Accordingly, If you choose to mea- sure ELR by technician hours worked it looks like this: 1. 40 hours paid to technicians for sales of $2,500 equals an ELR of $62.50 per tech hour worked. 2. $62.50 ELR per tech hour worked with a technician cost of sale at $30 pro- duces a gross profit margin of 48 percent (the same as in the above example). So, my point is that effective labor rate doesn't really tell you the whole story until you understand how it is being cal- culated in whatever reports you may be using. In my mind, the important metric to manage is not the ELR – but the gross profit margin and the corresponding gross profit dollars. Think of it this way: If you consis- tently maintain a profit margin of 76 percent regardless of what you're paying your technicians, you will most likely have a successful and profitable service and parts operation. With that goal in mind, it's obvious that a dealer and the management team must put their efforts behind making the changes necessary to move that pitiful 50 percent technician productivity toward 100 percent, meaning you are billing one hour on your repair order for every one hour you are paying your technicians. I'm sure some of you are reading this article and saying to yourselves, "Why is Don explaining this again? – I already know this!" My response to that question is: "If that's the case then why haven't you done what it takes to change these lousy results?" Could it be that you have become so accustomed to losing money in your service operations that it is now your comfort zone? (I know when I was an RV dealer, I did not find anything comfort- able about losing money!) Maybe you're one of those dealers who is afraid to make changes to your processes so you can provide a higher level of service to your customers and start making some money because those changes might upset your technicians? To you I say, "Who owns the store?" How about employee compensation plans? Have you been paying your advi- sors, technicians and parts personnel on that same old hourly wage pay plan for a decade now with no performance incen- tives to produce at a higher level? Do you think your employees are already paid enough to do their job, so no incentives should be necessary? If so, then I'd say you are lost in the '60s! Of course, this conversation would not be appropriate without including your management team. Are they leaders or administrators? Are they looking for new ways to grow your business, improve your customer service, reduce repair cycle time and drive productivity – or are they stuck in the infamous comfort zone of underachievers? By now, I'm guessing some of you may think I'm being too harsh. Well, I just shared with you four examples of what we find in dozens of dealerships across the country and I find there is only one way to turn these underperforming dealerships around and start earning the return on investment that they deserve. It starts with a profit improvement plan to identify where your opportunities for improvement are. Next, identify what needs to change in order to capture those opportunities, and finally, implement a performance-driven training plan that gives all employees the skills they need to become top performers and break out of their comfort zones. Most of you don't have bad employees – you just have bad processes! Once you've started on this plan you can expect to experience the following benefits: 1. Happier employees with less turnover 2. Increased employee productivity in all positions 3. Competitive compensation plans that will attract new hires 4. Higher profit margins 5. Reduced repair cycle time 6. Better control of your service scheduling 7. Ensure every customer leaves your store with a "safe and reliable RV." 8. Less HEAT (i.e., upset customers) cases for mangers to deal with 9. A top-notch work environment 10. Higher net profits Remember, once you develop your plan as a dealer or manager, you must get committed and stay committed to your plan with no exceptions! This will indeed become the year for record profits in your service and parts operations. Figure 1 MEASURING THE PROFIT MARGIN Dealership suggested retail labor rate .................................................... $125 Technicians' average hourly wage .............................................................. $30 Expected gross profit ..................................................................................... $95 Gross profit margin ............................................................................ 76%

Articles in this issue

Links on this page

view archives of RV PRO - March '19