Shop Costs: Breaking it Down for Your Customer - Aftermarket
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Shop Costs: Breaking it Down for Your Customer

By Ron Slee

Article Date: 03-01-2010
Copyright(C) 2010 Associated Equipment Distributors. All Rights Reserved.


It may look like an obstacle course, but for some it may be the only path to gaining their repair business.


At the recent AED Summit in San Antonio one of the questions presented to me from the floor was, “How do we get our customers to understand what their true costs are in doing mechanical repairs and maintenance?” Good question!
 
Let’s look at the format and the information that is required.
 
Direct Expenses:
1. Personnel Expenses
The usual discussions that occur in this area relate to the lack of recognition of the costs associated with having a mechanic on staff requiring additional personnel support functions.
 
  • This covers payroll, which is the salary and wages of the technician and any support personnel functions such as tool administration and control, parts and consumable shipping and receiving, janitorial, payroll, purchasing, benefit administration – pension and medical, statutory holidays and vacations, as well as sickness and jury duty.
  • Supervision or direction of the technician
  • All other employee benefits
 
2. Vehicle Expenses
 
This covers the capital cost of any vehicles used by a technician, which is the purchase price of the truck, body and all related paraphernalia, cranes, welders, air compressor, outriggers, lighting, etc.
 
3. Tools and Consumables
 
This would cover all specialized tools owned by the customer and all consumables used in the performance or repairs and maintenance.
 
4. Other Associated Costs
This covers inventories, repair and maintenance on plant and equipment, and depreciation on plant and equipment.
 
Allocated Expenses 
Rent or ownership – costs of shop space; building repair and maintenance depreciation; taxes and utilities; insurance; office space; administrative support – clerical and supervision.
 
These costs are self explanatory, but they’re not costs that the customer will normally associate with an hour of labor.
 
We must now turn our attention to the actual hours paid versus the hours worked.
 
We will have a 2080-hour work year, consisting of 52 weeks at 40 hours paid per week. We might also have overtime work paid for at time-and-a-half. This all has to be taken into account. This is then the total capacity hours paid for a technician. Now subtract all the hours for which we pay but don’t get work – from vacations and sick time to meetings and training.
 
And we still have two major areas that have to be considered: productivity and quality.
 
Productivity
We all know we will have lost time to personal time, walking around time, waiting on parts time, etc. This will have to be an estimate that the customer must make for you. If a technician is highly skilled with good supervision, obtaining a 90 percent labor efficiency is achievable. I am not sure that there are many contractors who have sufficient repairs and maintenance as a primary responsibility that would allow them to get anywhere near to 90 percent efficiency, but they have to make the determination.
 
Quality
With highly skilled, well trained and well equipped technicians at the dealership, we still will have quality failures. It is human nature. Perfection in work all the time is a very elusive goal. At normal OEM dealers, quality failures represent some 1 to 2 percent of labor hours. At a customer shop without all the skills and training or specialized tooling, I can’t imagine it would be better than ours. However, that is for the customer to say to you.
 
Now it becomes a very simple case of arithmetic. Take the total financial costs and divide it by the actual work hours and you end up with a cost per hour.
 
In my years of doing these shop cost analysis exercises with customers it is rare that I find an hourly cost at the customer, when everything is taken into consideration, that is less than 90 percent of the dealer hourly rate. When the costs that the customers are paying are close to our hourly rate I don’t think you will have a hard time convincing the customer to let you do the work. We have many added values to offer, and they will deal with a more reliable fixed cost.
 
This takes work, but if it makes the operations of our customers easier and more efficient, then I truly believe it’s what we are meant to do.

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