1 tom 1 Ratio on parts and labor?

[chevyguy]

Small Chevy store in PA. Pay the tech hourly plus bounus.

Just can't seem to get much profit out of the back end? My parts sales on Ro's is constanly 20% higher that my labor sales.

I always have a month end adjustment to labor in the negitive.

I just have to think that a $1 of parts should deliver a $1 worth of labor. Is this the case or am I just dreaming?

[arnien]

1 to 1 ratio will be very hard to get to. I don't understand the negative amount at the end of the month. Are you running specials with reduced labor? A lot of oil changes? Charging the correct amount? Maybe it's time to increase the flat rate or door price. Might even take a look at pay plans. Have you figured your effective labor rate? That will show what you are really charging.

[chevyguy]

I use the GM account 665, adjustment to labor. As I said I pay the guys hourly, so Hrs flaged and hrs sold has no meaning to me. They're here 8 hrs and get paid no matter what. I use a 50% cost of sale to every dollar sold. If That doesn't cover my payroll I use account 665 to post the overage. (Basically these guys are salary and yes I pay them too much) I know this is my 1st problem.

But I feel I need to instill in them that we are working too cheep. The parts sales are there, I beleive thay should be selling more labor per RO ? My agverage is .9 to 1.2 hrs per RO on any given month.........and yes, a lot of oil changes.

Customer pay and warranty rate is $60.00

Effective rate average around $30

How can I get my Labor sales up, still be ethical,..............and not go flat rate.

again asking if most profitable shops are a 1 to 1 ratio? I'm 20% higher on parts sales per RO then labor

I guess I was hoping to here that a 1 to 1 should be a standard in the industry, then convince my team too shoot for it.

[This message has been edited by chevyguy (edited 10-06-2006).]

[arnien]

Is your door rate competive to other dealers in the area? Your effective rate is too low, check some ro's to see if someone is cutting the price. Many shops are happy with .80 cents to a dollar of labor. Your parts sales are probably ok, your problem may be in the labor sales, and hourly charge. Sometimes hourly techs feel that the company is getting rich from the difference between their pay and the hourly rate, if that's the case in your shop, they may not be chargeing enough. Who decides what the labor charge is?

[btk]

our shop runs about .60 cents for every $1.00 of labor sold-why are you opposed to flat rate? We (for lack of better terms) are hourly flat rate-which means if they work 80. hours in a 2 week pay period they will get paid for 80. if they produce 100. hours they get paid for 100.00 if they produce 60. they get paid 80. It seems to be the best of both worlds for the techs.

[AKTOYPM]

How many 60 hour weeks do they get before they are down the road?

[Old Irish]

"Who decides what the labor charge is?"


There's the question of the day and likely the heart of the problem. Next question: How are the *advisors* paid ??

Next, have you done any pricing studies? Are you simply selling your labor too cheaply? You don't have to be the cheapest guy in twon---just be in the ballpark.

As for tech pay vs. labor billed, here's how I view it and how I explain it to the techs: I am buying your labor for "x amount" per hour. Having bought it I will now resell it for whatever amount I see fit. If I buy an hour of your labor for $20 I might resell it for $100 ....or I might give it way for free.


Cheers
DD

[Gran Sasso]

Your customer pay rate seems pretty low, but then again I have no idea what its like where you are. You can't even find an independent that will work for $60/hr here.

You need to find a way to motivate your guys to upsell work. Give away a nice BBQ to the tech with top hours or something... Just throw a little prize out there to see how these guys can produce, then ask them why the hell they aren't doing it every month.

[GMFXDOPSMGR]

Chevyman,
Have you given any thought to the GRID pricing structure. It allows you to be competetive while collecting top dollar for the hi tech jobs. I'm with all the others on the tech pay. Menu pricing also helps. I just calculated my parts:labor ratio...1.0 to 1.1 and have not lost any customers. As with the others, your rate seems years behind. We have all techs, lof, detail on flat rate and have a production bonus set by management. the rate is locked by management with discounts set up for menu's or coupons. Advisors are not given the option of changing the rate. They have to get management approval if they feel a customer deserves a break other than the normal competetive jobs.

[OUROBOROS]

New Guy here - wanted to add my 2 cents worth...


I certainly do not want to suggest that I disagree with the otehr posts here but I am wondering if your issues are more likely closer to home...

I know that $60 - 70 an hour is tops in Hershey and those areas around so maybe it is an ok starting point but the wages have to be in line to some degree. start with the 70% GP target -

If ave cost of labor (all techs wages per hour added / # of techs ) = $20 per hour then $20 / .3 will give you your door rate of $66.67 per hour. Not 65 or 63 but 66.67....ok? Trust me you will NOT lose customers from raising labor rates you lose customer from SELLING labor rates.

Once you have that ask now why your effective is so much lower than target - I guarantee that you are barking up the wrong tree on focussing on the 1:1 ratio as it is largely irrelevant as it can simply reflect over charging from a parts department or a disparity between the demand elasticity for parts and labor. Forget it... it is a fairly unimportant item in itself - better to ask how to get effective labor rate to 120% of door or how to produce labor inventory at 100% + proficiency month in month out.

if I had to guess I would say some of the following is true -

1) If a customer says " hey bud, my car is making a funny noise , could ya come and have a look at it for me" - I could get a paid member of staff to come outside 5 times out of 6.

2) you give away diagnosis everywhere - on the phone, at the counter and in the shop.

3) You have focussed on getting the best techs you can find - chevy certified guys dont grow on trees so you have to pay high to attract them... there is a major shortage of talent right.... in fact... wait a sec... do I have enough apprentices and rookies...????????? hmmm...

4) warranty is well over 50%? - high diagnostic burden leads to inevitable FRFT reduction and high labor costs... what is your effective rate adjusted for comeback removal? now take out self inflicted freebies... now take out 4 techs pushing a car onto the hoist... how much is 1 minute of labor worth again...??!

5)if bill is higher than quoted you discount labor first then parts

6) You are a victim of the CELERY PRINCIPLE.


My dealership - last 4 months composite - 128% proficiency - NOT FLAT RATE - CP Labor gross profit of 77.6%, effective labor rate of 1.24 x door rate - volume up 206 % since I joined this place 19 months ago.

It can be done - forget about what you should be doing - ask yourself " what the heck am I doing?" and go from there.... I tell you that I worked with guys in PA and one had 5 techs and made $55,000 in Labor GP in one month.

One thought - when I was a consultant a customer refused to raise labor rat eas he would " lose all his good customers" - I asked him to name 10 of the best ... he did and we looked a average GP per VIN per year on the units of those 10.... you guessed it ... the were 25 % lower than the department average.... food for thought huh?

[This message has been edited by OUROBOROS (edited 10-11-2006).]

[This message has been edited by OUROBOROS (edited 10-11-2006).]