Benjamin Franklin is attributed as the first person who said, "Time is money." Well, that was over 200 years ago and you know, for Service Managers, it couldn't be any more true today than it was back then. That is the essence of what Service Managers do everyday. They turn a technician's time into labor revenue. For a service department to be profitable they have to turn the time paid to technicians into dollars and do it efficiently.
Many dealerships are not paying enough attention to the relationship between time and money. And that one area represents one of the greatest opportunities we have in improving service departmental profits. So let's see how we can improve this situation and start returning the profits we need and deserve.
We will start at the really basic level. What does a Service Department do to make money? They hire technicians who work on equipment and they charge the customers for doing that. In other words they hire techs and bill out their time one way or another. Sure there can, and should be, other income streams such as outside labor and materials, sublets, shop supplies, vehicles etc, but the basis of any service department is to sell time. They buy time from their employees and the sell it to their customers, and hopefully at a profit.
OK, so now that we all agree that the function of a service department is to sell time can we also agree that the service manager has to manage this resource efficiently so that at the end of the day he produced a profit? We all know that the way we measure time is in years, months, days, hours, minutes, seconds, nanoseconds etc. The most common measurement for service departments is in hours; that is the one we are most accustomed to. We pay technicians by the hour; we have a labor rate by the hour, our reports account for billing hours, etc. But I propose and strongly believe that hours are not the best measurement for managing a service department. A much better way is to manage by minutes and to measure those minutes every day.
We will soon see examples of how minutes can add up to make the difference between making a profit and losing money for a service department. At $80 per hour, one minute per day per tech is about $2,700 in a year! Did you ever think that one drop from a leaking faucet can fill a swimming pool in a year! You don't need a calculator to imagine how many dollars are going out the door when you think that just one minute per day for just one tech represents that much potential revenue.
Now if the product that our service departments sells is time and we measure it in minutes let's see what a typical day might look like. For our hypothetical service department on a typical day for the sake of simplicity we have 6 technicians working an 8 hour day. Each tech has 8 hours or 480 minutes to work that day and for the service manager to sell that day. Our six techs have a total of 2,880 minutes available that typical day which the service manager can try to sell.
Every morning your service manager starts the day with a fresh inventory of 2,880 minutes and he has to do the best he can to utilize those 2,880 minutes wisely. At the end of that day he has no carry-over of those minutes; the minutes that were not sold are gone forever and he has to start off the next morning with another fresh inventory of 2,880 minutes. His inventory has a shelf like of exactly one day before it goes bad. If you think a meat market has a perishable product just think of what your service manager has. His product is gone every night, never to be sold again. That is why it is so important for him to manage those minutes everyday so that he is not wasting his available inventory of minutes.
Accounting for all those 2,880 minutes for our 6 techs is so important that the success of your whole service department depends on it. The way we measure and how efficiently we bill out those minutes is usually called Revenue Recovery. The percentage of minutes each day that can be charged to revenue jobs compared to the lost minutes to non-revenue is called Revenue Recovery; in other words how many of our available minutes are we charging to paying customers ?
There are service departments who are consistently charging out 90% of the available minutes every day; that means they are achieving a 90% Revenue Recovery. Those managers are watching the details and paying close attention to all their available minutes every day. But there are many service departments far below that number, some as low as 50% Revenue Recovery. Those who have revenue recovery rates less than 85% have opportunities to improve the profitability of their department and in a dramatic way. Here is an example of what it looks like to have a revenue recovery rate from a high of 90% to a low of 50%, knowing we have a total of 2,880 possible minutes to sell:
Sold Minutes Lost Minutes Recovery
2,592 288 90%
2,304 576 80%
2,016 864 70%
1,728 1,152 60%
1,440 1,440 50%
So in the first instance the service manager who really has a handle on his workload and his technicians billed out 2,592 minutes for his 6 technicians that day had only 288 minutes that went to non-revenue. That is excellent and is being done today by some departments. But on the other end is the manager who is only able to bill out 50% of the available minutes and is losing 1,440 minutes each day!
That is a huge swing and makes all the difference in the ability to make a profit for the department. If we can assume the labor rate for our typical department is $80.00 per hour this is what our example looks like:
Gross Revenue Lost Revenue Recovery
$3,456 $384 90%
$3,072 $768 80%
$2,688 $1,152 70%
$2,304 $1,536 60%
$1,920 $1,920 50%
The gross revenue difference from our 90% Revenue Recovery to our 50% Revenue Recovery departments for just one day is $1,536! For a 5 day week that would be a difference of $7,680 for a week. For a 4 week month that would be $30,720. And for a 52 week year our two departments will have a difference in gross revenue of $399,360. Now remember that doesn't change your expenses at all. What would an additional $400K do to the bottom line of the non-performing 50% Revenue Recovery department where the minutes are not being managed!
This is one area that the service manager can control and have influence over the productivity of their department. By diligently managing his available minutes he can improve the revenue recovery. The net effect of doing that is to move minutes from a non-revenue account to a revenue account. That increases revenue without increasing costs.
When our company conducts a thorough analysis of a service operation we often find many areas that cause a loss of revenue by minutes being billed to a non-revenue job. Some of the biggest culprits are techs not having a new job to post their time to, time spent waiting for parts, time spent doing paperwork, and time spent diagnosing problems on the phone. There are many others that we see, but those are the predominate ones. And in many cases these minutes can be turned into revenue minutes.
Can this be done? Is it even possible? The answer to both of these is yes. There are dealerships who have achieved this success, but it takes a tremendous commitment from the entire management team. That includes the dealer principal, the service manager, the service writer, the service secretary and the shop foreman. And a properly designed incentive program can be a help in moving these lost minutes into revenue minutes.
This is probably one of the easiest areas of a service department to fix. Once these numbers are communicated to the service management team and the goals are properly set this area can see an overnight turn-around. There are many ways to accomplish this change of operations and attitudes. The dynamics, strengths and weaknesses of each dealership are different and require different solutions. The improvement plan for each dealership is different but they all have the same affect on the bottom line.
Minutes can make all the difference. It is not enough to measure the hours that are available everyday. At our $80 labor rate our customers are paying $1.33 for every minute we charge to their jobs. We owe it to our customers and to our departments to spend those minutes wisely.
Watch Those Minutes!
Steve Uible is the President of Time Service Consulting, LLC, a firm that specializes in training and consulting industrial equipment dealerships to maximize the efficiency, productivity and profitability of their service departments. Steve has 30 years of international experience of managing and advising companies to develop their service departments to become the leaders in their marketplace. He can be reached through his website: http://www.TimeServiceConsulting.com
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