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Improving Performance – Part 2: How Benchmarking Labor Metrics Can be Useful to Your Dealership

SERVICE

SPARKS
November 16, 2017
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Improving Performance – Part 2

How Benchmarking Labor Metrics Can be Useful to Your Dealership

Authored by David Dubois, along with Joe Bueti and Ann Torno


Part 1 of our 3-part article series discussed how Sales and F&I metrics can be used to benchmark business performance and help automotive dealerships owners align their goals and future needs with their dealership’s financial performance. Part 2 of the series focuses on using Service benchmarks to gauge key performance metrics (KPI) for the same objective.

Benchmarking service department metrics can help you evaluate your dealership’s performance, and use them to make informed, responsive, decisions. 

BENCHMARKING SERVICE

Labor Hours per Repair Order (Total Labor Hours / Total RO’s)

This performance indicator measures the average hours sold on each RO.  Too high of a metric could lead to a low customer satisfaction level.  If you are billing the customers too much labor time on each RO, you could risk customer retention in the future.  Too low of a metric could mean that advisors are not presenting options and upsells to the customer.  This results in lost sales opportunities.  

Recommended Benchmark Range: 1.3 – 1.8 Hours per RO

Technician Efficiency Rate (% of Flagged Hours to Actual Hours)

This performance indicator measures the true efficiency of the technicians.  Since dealerships sell hours based on a labor time guide, this KPI is a way to track what hours are being presented to the customers, verse the actual time spent on each RO.  Too high of a metric could mean you have experienced technicians doing jobs that could be done by less experienced ones, which could mean excess wages for paying more expensive technicians when it isn’t necessary.  Too low could mean you need more experienced techs in order to get closer to the flag times set by the manufacturer or industry on each job.  It can be helpful to evaluate the “mix” of experience you have in your shop, and make sure each job is being matched to the technician with the proper experience.  

Recommended Benchmark Range: 90% – 100% of Actual Hours  

Total Number of Chargeable Hours per Technician (Totals Chargeable Hours / Total Technicians)

This performance indicator is another efficiency measure of the technicians.  The purpose of this KPI is to determine if the number of technicians you have on staff is adequate.  Too high could indicate you don’t have enough on staff, and, based on the amount of flagged hours your store sells, you need additional technicians to meet the demand.  Too low could mean you have too many technicians based on demand, or, that there is a low labor hours sold per repair order. This would also result in excess wages since you have more technicians than you need to cover the hours sold.    

Recommended Benchmark Range: 165 – 180 Hours per Tech / Month  

Number of Technicians per Service Advisor (Total Technicians / Service Advisors)

This performance indicator measures the ratio between the technicians you have in the shop, to service advisors you have in the write up area.  Too high of a metric could mean the advisor does not have enough time to contact customers and upsell, which leads to lower dollars per repair order.  Too low of a metric could mean you have too many advisors, which will lead to excess advisor salaries and excess idle time for your staff. 

Recommended Benchmark Range: 3.2 – 4.3 Technicians per Advisor


Bottom Line


As you can see, using key performance indicators and benchmarking can dramatically help you dealership become both more efficient, and effective in its operations. Part 3 of the series will discuss Parts department metrics and improvements. Ask your professional accounting advisor to discuss key performance indicators and benchmarking with you, to get your business headed in the direction you want it to go.