hours per ro or effective labor rate

[nineball]

just looking for other opinions on this,my group is multi line with My store (Toyota)and our Ford store the largest.The ford service mgr focuses on hrs per and i focus on effective labor rate,his hrs per is 2.0 and mine is 1.7 his effective is 72.35 mine is 89.63 he constantly tell the principle how much better my store would be if my hrs per were like his and i am of the opinion that his hrs per ro would suck if he didnt overpay his techs i.e 5hrs for a 3hr job and his effective rate would be better.How does everyone else look at thier store

[arnien]

Lots of folk focus on hours per ro, while many others look at the effective labor rate, which is the true picture of what is being charged.His effective labor rate is 72.35, with 2 hours per ro, this works out to 144.70 average per ro, while your effective labor rate is 89.63 with 1.7 hours per ro, which is 152.37 average. last I heard, banks accepted dollars and not hours.

[KevvyG]

"last I heard, banks accepted dollars and not hours" -

Very well said!

[gmcgrew]

Increasing the work order count while maintaining your hour per RO and effective labor rate is more important to us.

[scotstrong]

nineball:

Fully understanding that the expenses structures may not be comparable, which service dept. has the higher NET profit?

[TheOne]

Hours per RO is a valuable tool used to "normalize" measurement criteria. Realistically what you are really doing is looking at dollars per repair order adjusted to accomodate differing labor rates across multiple market areas. Obviously in order for it to be "normalized" the math used to derive it must be agreed upon, and the best math is the math that takes the most variables out of the equation.

Customer labor dollars per RO divided by the posted labor rate provides an hours per RO number that doesn't allow itself to be skewed by effective labor rates.
Example:
$200.00 labor per RO divided by $100.00 labor rate equals 2.0 hours per RO regardless of your effective labor rate.

Using faulty math (my opinion), labor dollars per RO divided by Effective labor rate provides flawed information. I can drive my hours per RO up by forcing my effective labor rate down.

Example:
$200.00 labor per RO divided by $50.00 effective labor rate equals 4.0 hours per RO. Fabulous job right? All I did was increase my average cost of labor hour produced.

Your Ford Service Manager in my opinion fails at basic business math. Fools in every business right????????

[Old Irish]

"last I heard, banks accepted dollars and not hours"

I love it...too true, too true.

Personally I think ELR is a more effective measurement tool. I thought the :hours per RO" thing was pretty well a thing of the past....I guess not.

Cheers
DD

[nineball]

Scot

Toyota has the highest net "BY FAR" not even close

[GENE WHITE]

Hours per repair order is the result of proper salesmanship and not the driving force. Focusing on this causes a Service Advisor to chase large jobs and ignore small low cost maintenance services that keep the customers coming back to the Dealership, and thus selling high cost major repairs and services that give us the high priced image.

Effective labor rate is the result of proper pricing in the market place and work mix, and not negoating price with the customers or flat rate hours with technicians.

I recommend you measure proper compliance with whatever Service slaes process you have at your Dealership and verify that a proper maintenance menu is presented each and every time and that technician inspections and recommended repair reports are presented to each customer every time.
There are no shortcuts that you can afford.

[Tyler Robbins]

This discussion always cracks me up as this discussion never, ever seems to go away.

If, as an industry, we all used EXACTLY the same flat rate times than at least this conversation would have "some" merit, but even then, not really that much merit.

The fact of the matter is, hours per RO is a measurement of "how" and realistically, it is a usless measurement to compare one location to another unless the Flat rate times are identical.

Effective Labor Rate objectives need to be carefully and mathematically determined factoring in the gross profit percentages required based on actual work mix and the expected TOTAL amount of hours (ALL PAY TYPES) SOLD.

The Effective Rate is only as relevant as the amount of total hours sold.

If a shop needs to generate $75,000 in Gross Profit, and their current ELR is $100 dollars @ 75% Gross than they need to generate 1000 Hours. HOW they do it:

500 RO's at 2.0 hrs/ro or...
1000 ROs at 1.0 hr/ro or...
2000 RO's at 0.5 hrs/ro

All of which generate the appropriate gross profit, which presumably generates the appropriate net profit.

Nineball's Toyota Store VS. the Ford Store is really two guys arguing over "how" to get there - the real question to ask is - which one of you is acheiving the TOTAL goal of Appropriate NET Profit!