- September 7, 2004 at 11:56 pm#62755Anonymous
Ok you just did a 3000$ a month reduction in expenses, For discussion sake say it was a tech reduction. Now at what point would you consider the over all gross of the shop to drop before loosing this tech would actually cost the shop? If the tech was producing say 3k a week P&L at a 1 to 1 ratio at what point would his loss really cost you money? at what point would you replace him?October 4, 2004 at 1:58 pm#66372ybanfieldMember
We do not consider techs an expense at our shop because they are paid on flat rate. If they do not produce, they do not earn money. We would not reduce our technicians in order to reduce expenses unless we did not have enough work to keep them busy. They typically generate much more revenue than what we are paying them.
Front office workers or helpers are a different story, but generally, unless business is decreasing, reducing your tech workforce will not reduce expenses as much as it will decrease your revenues and you will end up cutting your net profit.
For this calculation we really need to know your GP before we can break this down and we’d also need to look at wether your existing techs could pick up the slack or not. But here’s an example at 55% GP.
If the tech produced $12,600 per month ($3,000 x 4.2 weeks) with a shop Gross Profit of 55% the shop makes $6930 after parts and his labor are paid ($12,600 x .55) from this employees production. That is $6930 that can be used to pay the shop expenses and the employee’s benefits.
From this $6930 you would need to subtract any benefits and taxes paid on his behalf. The resulting number would be the $ of profit LOST (more than likely) if you do not replace this technician (assuming your existing techs do not pick up the slack).
To compute other expense reductions we simply take the expense cost and divide it by our Gross Profit %. This gives us the $ in sales we need to generate to pay for this expense.
If you had a $3000 per month office worker (includes benefits etc.) with a shop GP of 55%…..you would need to generate $5454 per month in sales to cover her salary (3000/.55) and break even.
Hope this helps.
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