2021 is coming to an end and while you may be getting ready for the holiday season, you should also be reviewing your business to prepare for the new year. Taking a closer look at your shop now can let you make the most out of your new year’s resolutions. Here are three items you should review before the end of the year.
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1. Examine Labor Hours and Rates
When was the last time you took a look at your hourly shop rates? Most new car dealerships review their hourly labor rates on a yearly basis, and it’s important that independent repair shops do the same. You should examine how many hours you’ve billed at each one of your existing labor rates, plus the average number of hours per repair order. Your review doesn’t have to result in raising your hourly rates but keeping track of billed labor hours provides insight on your shop’s efficiency as well as helping you with future scheduling.
Labor rates will vary greatly across the country, but one thing that remains consistent is shops under-charging for diagnostic work.
Labor rates will vary greatly across the country, but one thing that remains consistent is shops under-charging for diagnostic work. As we all know, diagnosing a vehicle can easily be the most frustrating and difficult part of auto repair. This is why it’s important that we charge accordingly for this type of work. There’s no reason the most difficult part of auto repair should also be the most unprofitable. Instead of charging a flat fee, consider charging these types of repairs at a specific “diagnostic labor rate.” If additional time is required to diagnose an issue, such as removing a dash panel to trace wiring, or performing a cylinder leak-down test, then make sure to authorize additional billed labor hours with the customer. A diagnostic fee is not just your compensation for troubleshooting time, it’s also compensation for your equipment, knowledge, and years of expertise.
2. Check in with Your Staff
It’s no secret that it’s hard to find good technicians. This has been the case in the United States for the last 15+ years. As a lot of technicians reach retirement age, one of the biggest priorities for shops is to keep the good technicians and foster growth in the technicians that show potential. This is where a yearly review becomes essential.
When you first hired your techs, you probably outlined the job requirements and set expectations. Now that the end of the year approaches, it’s important to sit down with your technicians and evaluate how well they’ve performed over the last 12 months. Take this time to go through their performance and show them the areas where they excel as well as the areas that need improvement. Have a conversation about their goals, and make sure to ask for feedback about their experience working at your shop. See what they like and what would want to improve. And, most importantly, see how they can be a part of that improvement process.
These yearly reviews should be used to make sure that you and your techs are on the same page when it comes to expectations. Whether you want to reduce comebacks or increase efficiency, at the conclusion of your yearly reviews, you should all have a clear plan on how to achieve these goals.
An additional step you could take would be to incentivize your goals. Your incentive doesn’t always have to be a raise, but it’s worth considering if you feel certain technicians have been vital to your business. Offering a $2/hour raise may increase your direct labor costs around $3,000-$4,000 for the year; however, experts suggest that losing a single technician can result in a loss of productivity of more than $10,000 over the course of a year. Losing a tech means that not only are you going to be completing less cars per day, but you will also be faced with the opportunity cost from the work you will have to turn away as a result of diminished capacity. In addition to being short-staffed, the hiring process takes time and once a replacement is found, it takes additional time to get them up to speed in their new environment.
3. Review the Workshop Itself
Your workshop is essentially the assembly-line and production center of your business. In a busy and profitable shop, cars are going in and out all day. While not all of us are fortunate enough to be able to build a service center to our specifications from the ground-up, we should still take the time to make the best out of our existing facilities. Start with the most urgent repairs first. Chances are your shop has a few repair/maintenance items that you’ve been putting off, but now that winter is here, it may be time to take advantage of the downtime and work on investing back into the shop. This way you’re better prepared for the busy months to come.
Start by looking at your large equipment. Make sure that all your racks and lifts are functioning at their optimum level. There’s nothing more annoying or dangerous than having a slow or unreliable rack. You might even consider re-arranging or adding a rack if you have the room for it. An additional bay in your shop can increase gross revenue by over $20,000 in a single year, even without hiring additional technicians. The additional service bay will increase your capacity to take on new work and boost the efficiency of your existing technicians.
An additional bay in your shop can increase gross revenue by over $20,000 in a single year, even without hiring additional technicians.
Once you’ve inspected your large equipment to make sure it is up to par, consider some upgrades that can increase the efficiency of your technicians, such as painting your shop floors, or adding LED lighting. Epoxy floors can make your shop look more presentable to your customers, and they also make it easier to clean up coolant/oil spills and can help save you time when searching for bolts or hardware that you may have dropped during your work.
Lighting is another part of the shop that is often overlooked, even though LED lighting has recently become more mainstream, practical, and affordable. But as the days get shorter during winter, it becomes important that we have adequate lighting in our workspace. Poor lighting not only leads to more accidents in the shop, but can cause eye strain, headaches, or fatigue, especially as you get older. Upgrading your lights will not only make your shop safer, but it can also increase the efficiency of your technicians. Studies have even shown that improved lighting can increase employee efficiency by up to 40%. Improved lighting also makes the vehicle inspection process easier. How many times have you forgotten to notice a dent or scratch on a customer’s vehicle, or accidentally left smudges or greasy handprints on the hood and door? By upgrading your lighting, you’re less likely to miss the small (but important) stuff during the inspection process.
Regardless of whether you decide to make changes to your business in the coming year, it’s important to look back and take note of what you’ve accomplished and what you need to improve. The business environment changes every year (just as this COVID-19 pandemic has shown us) and making the necessary changes and improvements will give you the best chance for the success in the long-term.
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