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Not enough production/efficiency from current group.
I believe the question I should be asking is how should I structure a pay plan that would work well for both my employees and my shop? Right now we have 3 technicians (on flat salary) and myself (also on salary) with my father working throughout the day to pick up slack I have run the numbers on efficiency and we’re at roughly 28% on “good” weeks. Our gross profit on labor is -7.5% also on one of these “good” weeks. Our car count is around 135-150/month with a ticket avg of around $200 – $215. I believe we are doing a pretty good job looking vehicles over, but since everyone is salary I have to constantly be asking my techs to look for more work to sell. Without a major increase in either ticket average or car count I don’t see how we have enough work here for more than 1-2 techs. My main obstacle is that I don’t get to call the shots but since that may change in the foreseeable future I want to have a pay plan worked out so that I can make this transition. What I gather from the discussions on here is that a flat rate plus a commission when either production/eff. exceeds a set goal is what many shop owners seem to like. I’ve read on here $10-15 per hour based on experience and abilities but we’re here 50-55 hrs/week so wouldn’t that involve quite a bit of overtime every week or would I just have to overlap my techs so they work 40-45 hrs/week? I’m sure there is a lot to work over in this post and there are several other issues that if I could address I would but I feel like this is the core problem since our labor deficit eats up profit from parts sales.
Some facts about our shop that might be relevant to production and would probably affect advice you might have for me.
3 bays (with room for a fourth)
General maintenance, tires, as well as motor and trans swaps infrequently
Techs have been with us for 12-20 years
We don’t have a shop management system (we use alldata, identifix, and Real time for labor guide)
Our hourly rate is 60/hr and has been for 9-10 yrs
No advertizing budget other than craigslist -
11 Replies
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As you say, lots of things to cover. What type of change would encounter the least resistance? Start there. If I had to pick one to start with, put everyone on a 40 hour week.
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OK so basically I should approach this in increments. So when I move everyone to 40 hrs do I keep salaries at the same level or change them to reflect less hours worked? My techs are like most I’m sure in that they live paycheck to paycheck so any reduction in take home pay means I may be looking for techs. They’ve never had their checks go down in a bad week/month which is our fault.
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Cutting to the chase…3 people (let’s say one adviser, 1 experienced tech and one basic tech) working 40-45 hours per week should be sufficient for the amount of sales that you describe. Pay based on production…total for the 3 people $6K to $8K per month. Bottom line….you now have 2 extra people….and currently everyone works way too many hours.
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I would say the first thing to do would be to move all staff to a 44 hour week. NO OVERTIME! That might eat away your labor deficit right there. Secondly, rather than locking yourself into a new pay scale, why not bonus them on specific items sold. Example; this month 50 drive belt and tensioner combo’s will equal an $800 bonus for the shop. Be creative before getting locked into a new pay structure. That actual bonus is on right now at my shop and we are tracking almost 30% over previous year. Just make sure you do the math first!
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jwilkers2,
My first question – would people come to your shop if you charged 80 to 90 % of new car dealer rates??
Second question – can you easily bring in twice as much work as you have today??
My first rule working with a shop is a commitment to get to 85% efficiency ASAP. I feel that 85% is the minimum number to make it worth while to be self employed all of your life. IF you are willing to make that your goal and make all decisions driven by how fast it gets you to that number and IF you answered yes to both of these questions, you need to fire or lay off two techs and raise your rates to within 20% of dealer rates right away. When all decisions are made by the effect on the efficiency number, decisions are easier.
If the answer to either question is NO then you need to understand what it takes to change those things to a yes. Failing that you need to seriously reconsider the whole thing. Maybe you, your dad and a helper would be a good place to go if more volume is not easily available. Lots of shops do $300K gross sales per full time tech. Four techs at $80 an hour for 220 days a year is over $560,000 in labor billing at an average of 8 hours per day. That would give you and your dad $185,000 of net labor profit after paying your salary as a tech. That is without any parts profit. You may not be able to get good productivity numbers for your present crew with only 3 bays available. Shops that hit higher numbers have 1.5 to 2 bays per tech.
You are so far off the mark that working out a new pay plan for your present crew is not something I would do. One good flat rater could equal your whole shops production. You need a good diagnostician, a flat rater and a helper. That is about what your shop can support at this point. Hopefully you qualify as the diagnostic guy and one of your long term employees has the ability to knock out flat rate if left alone to do so. Your dad can be the helper until you get to making more money.
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As to the idea of cutting the workforce given current production that thought has been considered (at least by me) several times. I wouldn’t expect them to keep me on if I couldn’t pay for my own salary with my labor and parts sales. We have a long history of doing this wrong so we have set ourselves up for this.
On a separate but related note has anyone been through this situation where you can see the problem and the fix but because you’re not calling the shots you can’t really affect the situation positively. I have tried showing my argument in black and white explaining every way I know how. The conversation basically ends with “we’re not doing it that way” along with an irrational argument all of this to avoid the reality of facing our situation. I ask this not to air dirty laundry but simply to ask for ways to resolve this since reason and math don’t seem to work.
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I just wanted to put my 2 cents worth in on the productivity. You cannot stay in business with 28%! It sounds like your shop is in transition. That can make it frustrating, but be patient. My suggestion would be to cut 1 tech if they cannot produce. Ticket average needs to go up. We pay a flat hourly with a spiff per flat rate hour produced. We are trying an additional incentive if productivity is above 75% that will increase depending on where it sits. 75%, then 80%, then 85% and so on. Until you can make the actual change, I agree with Tom, which was the path of least resistance.
Also, lose the overtime and show the techs what the shop gets out of your hourly rate and what it costs (including Labor and Industries, unemployemnt benefits, etc) so that they can see the bottom line. It may help open their eyes to profit not being collected. Maybe they will realize that they won’t have a job because the shop can’t pay its bills.
I would urge you to join a 20 group like that offered by Gary Gunn. His email is- info@turnaroundtour.com You can get help from other shop owners that may be dealing with similar issues. They are also a safe place to bounce ideas off.
I hope this helps.
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Addressing the question: What should I do considering that I don’t call the shots?
You could just ignore it all and concentrate on other things until you get control.Or….Consider getting a job at another shop. You will learn a lot by doing this….especially if it is a well run shop, and it will become clear that you are serious about making changes. Eventually you might return depending on how things go.Or…Start your own shop. Not easy, but doable if you are determined. There is enough info on this website to make a new shop a success. There are more than a few techs out there who do sales of $300K+ per year with the tech by himself in the shop and his spouse running the front counter. Personal income for these folks is generally 6 figures plus. -
I appreciate your advice regarding my situation. I have actually tried two of the suggestions (1 and 2). I returned to the shop in January after being gone for 1 year. This actually helped our relationship and gave me perspective on my situation. After posing my question the other day I spent some time thinking about this and I realized why my arguments aren’t getting through. I’m arguing logic, reason, and math to someone whose actions are dictated by fear. I’m sure this situation isn’t unique since every shop owner who wants to pass on their shop has a good deal of fear/ anxiety although this one is fear of retirement, fear of loss of income (on his part), fear of changing the shop in a way that damages the business. This realization helped me mainly because I had only superficially considered his motivation in the past (why he considered all of my suggestions as wrong without trying them first). Obviously our shop needs a turn around in almost every area, but all of the operational metrics don’t really mean much if you can’t get management on the same page. I also realized that I have to consider myself as part of the problem as well in that I know I have areas that could be greatly improved.
I remember reading the book “Seven Habits of Highly Effective People” where the author explains that when you work diligently on your sphere of control that many times problems actually become diminished because your spheres of influence and concern realign to fit the things that you have control over. If I work hard on the many areas of the shop that I have daily and direct control over and don’t allow myself to be concerned with things I have no control over then I won’t waste energy on things I currently can’t fix. I’m not so naive as to believe that I can just bury my head in the sand and everything will be fine, but worrying about this is unproductive and since we have so many inefficiencies already my time is better spent right now learning better methods, procedures, and strategies for my daily responsibilities. While I believe most of the users of this forum may have already had this realization I just wanted to share so possibly someone in a similar situation can use this because there are many baby boomers who will be retiring in the next few years. -
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Jwilkers- You bring up some really good points, and your situation, though frustrating, is actually a really good one to be in right now. You work for your dad, and naturally (as all kids and employees do) see the things that he could/should do different to make the shop better. I agree 100% that there are a lot of things done wrong, and the current business model is not profitable for the long run.
However, if you want to be in a position to take over the company later on, i would suggest that you focus on as much personal development as you can. Learn as much as you can about proper automotive shop management, develop your leadership skills, and gain your dad’s trust in your abilities. Then, when the time is right, you will be given the opportunity to take the reins. But understand that when you do make these changes, you will most likely lose most of the staff that have become accustomed to the current way of doing things, and people dont like to change.As others have said, start by focusing on what you can control right now. You.Hope this helps.
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