Managing Service MinutesWritten By Steve Uible
Article Date: 07-01-2007
Copyright (C) 2007 Associated Equipment Distributors. All Rights Reserved.
A service manager can turn around an entire department by paying attention to details.
Benjamin Franklin is attributed with the quote: “Time is money.” It was said more than 200 years ago
and yet for today’s service managers, it couldn’t be truer.
In fact, it’s the essence of what service managers do every day. They turn a technician’s time into revenue. If a service department is to be profitable, service managers have to turn the time paid to technicians into dollars and do it efficiently.
Many dealerships are not paying enough attention to the relationship between time and money. And that one area represents one of the greatest opportunities we have to improve service departmental profits. So how can we improve this situation and start returning the profits we need and deserve?
We start at the really basic level. What do service departments do to make money? They hire technicians who work on equipment, and they charge the customers for that work. In other words, they hire techs and bill out their time one way or another.
Sure, there can and should be other income streams, such as outside labor and materials, sublets, shop supplies, vehicles, etc., but the basis of any service department is to sell time.
They buy time from their employees and sell it to their customers, hopefully at a profit. OK, so if you agree that the function of a service department is to sell time, can you also agree that the service manager has to manage that resource efficiently so that at the end of the day he produces a profit?
We all know that the way we measure time is in years, months, days, hours, minutes, seconds, nanoseconds, etc. The most commonly used measurement for service departments is hours. We pay technicians by the hour; we have an hourly labor rate, our reports account for billing hours, etc. But I strongly believe hours are not the best measurement for managing a service department. A much better way is to manage by minutes and to measure those minutes every day.
At $80 per hour, one minute per day per tech is about $2,700 in a year. Did you ever think that one drop from a leaking faucet can fill a swimming pool in a year? You don’t need a calculator to imagine how many dollars are going out the door when you realize that just one minute per day for just one tech represents that much potential revenue.
Now if the product that our service departments sell is time and we measure it in minutes, let’s see what a typical day might look like.
On a typical day at our hypothetical service department we have six technicians working an eight hour day. Each tech has eight hours or 480 minutes to work that day and the service manager has that many hours or minutes to sell that day. Our six techs have a total of 2,880 minutes available on a typical day.
Every morning, the service manager starts the day with a fresh inventory of 2,880 minutes and he has to do the best he can to utilize those minutes wisely. At the end of that day, he has no carry over of those minutes; the minutes that were not sold are gone forever and he has to start off the next morning with another fresh inventory of 2,880 minutes. His inventory has a shelf life of exactly one day before it’s gone. If you think a meat market has a perishable product, just think of what your service manager has to manage. His product is gone every night. That’s why it’s so important that he manage those minutes every day so he’s not wasting his valuable inventory.
Accounting for all those 2,880 minutes for our six techs is so important that the success of your entire service department depends on it. The percentage of minutes each day that can be charged to revenue jobs compared to the non-revenue-generating lost minutes is called Revenue Recovery.
There are service departments that are consistently charging out 90 percent of the available minutes every day; that means they are achieving a 90 percent Revenue Recovery. Those managers are watching the details and paying close attention to all their available minutes every day. But there are many service departments that are far below that number – some have as little as 50 percent Revenue Recovery.
Service managers with Revenue Recovery rates of less than 85 percent have opportunities to improve the profitability of their departments in a dramatic way. Here are Revenue Recovery rates from a high of 90 percent to a low of 50 percent working with a total of 2,880 minutes to sell:
|Sold Minutes||Lost Minutes||Revenue Recovery|
In the first instance, the service manager who really has a handle on his workload and his technicians billed out 2,592 minutes for his six technicians that day and had only 288 non-revenue minutes. That is excellent. But on the other end of the scale is the manager who is only able to bill out 50 percent of the available minutes and is losing 1,440 minutes each day.
If we assume a labor rate for our typical department of $80 per hour, this is what our example looks like:
|Gross Revenue||Lost Revenue||Recovery|
The gross revenue difference from a 90 percent Revenue Recovery to a 50 percent Revenue Recovery for just one day is $1,536. For a five-day week, that would be a difference of $7,680 a week. For a four-week month, that would be $30,720. And for a 52-week year, our two departments will have a difference in gross revenue of $399,360. And remember, that doesn’t change your expenses at all.
This is something the service manager can control. By diligently managing his available minutes, he can improve Revenue Recovery. The net effect of doing that is to move minutes from a non-revenue account to a revenue account, which increases revenue without increasing costs.
A thorough analysis of a service operation often reveals many areas that contribute to a loss of revenue minutes. Some of the most common are techs not having a new job to post their time to, time spent waiting for parts, time spent doing paperwork, and time spent diagnosing problems on the phone. In many cases, those minutes can be turned into revenue minutes, but it takes a tremendous commitment from the entire management team. A properly designed incentive program can contribute significantly.
Minutes can make all the difference. It’s not enough to measure the hours that are available every day. At an $80 labor rate, your customers are paying $1.33 for every minute you charge to their jobs. You owe it to your customers and to your service departments to spend those minutes wisely.
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