Confused about parts margins? Read our guide below to get the low down on getting the right margins for your workshop
What is workshop efficiency?
Workshop efficiency is all about maximising charged time from the chargeable work available. It is the ratio of a technician's charged/sold hours (input) measured against the time spent on jobs (output). Labour is your primary revenue driving resource so it’s important that money isn’t slipping through the cracks. The goal is 100% or 1:1 for labour hours charged:labour hours worked.
Efficiency is calculated by (Hours charged / chargeable hours clocked)*100.
Let's say you charged an average of 6 hours per day for a technician who is clocked on to an average of 6.5 hours of chargeable work per day, based on the equation above, we calculate that this technician is operating at an efficiency of 92.3%.
What is "good" efficiency?
In the NZ auto mechanic industry, the average rate of efficiency in workshops is 97.02%, this equates to a technician charging out 43 hours and 40 minutes of a 45-hour work week. If this tech is charged out at $50/hour, they're bringing in $2,182.95 gross profit per week rather than a potential gross profit of $2,250.00.
Using the same example as above, we've punched in the figures for the upper standard deviation of 114.32%, average of 97.02% and the lower standard deviation of 79.72% to see how the impact on profit and loss over a year.
The myth is that you can only increase your chargeable labour hours by increasing the number of hours you're working. The truth? Those minutes and hours are hidden away in the work you're already doing, by reviewing your processes and performance you can get to a position of 1:1 of hours-charged:hours-clocked.
Analysing efficiency ratio by job and technician
Have you ever had the feeling that someone isn’t pulling their weight or needs a push to work harder? Standing over someone watching what their doing isn’t an effective way to measure and observe this but using their own data to gather an average is. Hard numbers help us to make a point. Once you start measuring your tech’s effectiveness on each job, you can add evidence to these hunches and find ways to overcome inefficiencies.
Follow the steps below to work out an efficiency benchmark on a job:
- Measure each technician’s efficiency on this specific job
- Order the techs efficiency from highest performer to lowest, does this match with expectations?
- Average the time taken for each job to find the average based on your current team
- Enter the efficiency each month to track your teams progress (download our Team KPI Tracking excel spreadsheet)
- Repeat for your common jobs
Now that you have identified who works best on which jobs, you can use this information to help you manage job assignments and also create a training plan. Those that are highly skilled in one job can be tasked with helping to bring up the efficiency of those that aren’t reaching their efficiency targets.
Time spent tracking down the elusive 10mm socket should not be a primary component of chargeable time. Implementing the practice of ensuring all cleaning, tidying, vehicle movements and paperwork is finalised before clocking-off the job all helps to maximise productivity and helps reinforce a workflow that maintains workshop cleanliness throughout the day.
Rounding up clocked hours
How are you compensating for the extra tasks within a job? Tasks such us, completing the job card, greeting customers, tidying the workspace, moving vehicles? This time is a big cause of lost time. Using a time clocking system that allows for rounding time is effective in counter-acting this loss.
How does it work? When your tech clocks-off a job, the tool automatically rounds up to the nearest 6 minutes. So if the job took 42 minutes, the charged time is 46 minutes. That’s an extra $4.00 in your pocket to account for all the small tasks that don’t always get included.
The simple process of rounding up to the nearest 6 minutes on every job captures these lost minutes. But what do 6 minutes really mean to you? Let's say that your team completes an average of 5 jobs each day, that's an extra half hour of chargeable time every day, or 2.5 hours a week. It doesn't seem like much, does it?
Use the table below to see the impact 6 minutes could be having on your business. These figures are based on an additional 2.5 hours per week and a conservative charge out rate of $50.00 / hour.
Fully Burdened Labour Rate
Are you basing your labour charge out rates on the amount you pay your technicians? This is a sensible place to start but let’s not forget all the other charges you incur to employ that person each day.
This is where the Fully Burdened Labour Rate comes into play, it's the actual cost you incur to employ someone. Non-chargeable hours (training, breaks, clean-ups), tea and coffee, training courses, super.
How to sell these ideas to your staff
When efficiency programs are launched, it can make staff feel like they’re being monitored
Some staff view efficiency measuring as a negative because they believe they’re being monitored or that this information will be used for performance management.Below are a few tips on how to communicate this to your staff to get them on board:
- Show them the numbers: just like we’ve done above, create a chart showing your current income based on your current efficiency rate and also your potential income based on increases in your efficiency rate.
- Make it about them: Talk to your team directly about how increased profits and proof of their increased capabilities in each job are the driver for their pay raises.
- Make it a competition: Who doesn’t love a competition? Get your techs competing against each other for the title of most efficient on each job every month and give small prizes to winners. Be careful that this doesn’t incentivise the team to do poor work though.
TRACKING YOUR EFFICIENCY
Download our bundle of excel templates to track your progress to 110% efficiency. In the bundle you'll receive:
- Team Performance Tracker
- Fully Burdened Labour Rate
- Workshop KPI Trackers
Looking for an easier way to manage your efficiency? Get a Workshop Management System that tracks this and other essential workshop key performance indicators. Request a call back from the SAM team to find out more about how we can make your job easier.