By Bob Greenwood
In the past, by the afternoon of our 1-day Business Development class, the students were really getting their heads into the numbers of their business. It was great to see the participation and interest, so I thought I would go another step further and look at some real costs in a shop that most owners never consider or have calculated.
Many shop owners have a tendency to look at the business operating expenses and consume their time with that topic as a main cost reduction plan to increase their bottom line. The fact is most business expenses today in operating a professional service shop are either non-controllable or common-sense expenses. We go through this in detail in our longer Management courses. We fail to acknowledge that Management must also be accountable to the business and make better use of his/her time. It is Management’s responsibility to go after the real problems in the business instead of nickel diming the business to death with expenses thinking it will save the business and bottom line in the long run. Nothing could be further from the truth.
That been said, I think it is time to actually look at the most serious problem in every service shop business, namely, what unproductive staff really cost the business and calculate that cost as a true bottom-line loss.
For example: If a technician is averaging 5.5 billed hours per day but is being paid for 8 then that means 2.5 hours per day are a real cost to the business. If you are paying the person $25 per hour, then $25 times 2.5 = $62.50 per day times 20 days per month = $1,250 per month plus average shop payroll burden = $1,500.00 PER MONTH off the bottom line. ($18,000 per year from ONE person).
Add to that, if you were charging $110.00 per hour labor rate on that individual, then $110.00 – $25 basic wage cost = $85.00 per hour lost in gross profit contribution from the lost labor billings that should have been achieved times 2.5 hours = another $212.50 loss per day times 20 days per month = $4,250.00 lost additional gross profit per month which would also drop down to net profit. Total cost to the business from ONE person being unproductive and unaccountable = $5,750.00 per month ($1500 + $4,250) or $69,000.00 per year.
So, from this one calculation we can see the actual cost to the business of only having one person not being held accountable for their time and productivity in the shop.
Now let’s look at the entire shop as an average and keep it simple.
If the entire team were averaging 5.5 billed hours per day as a group average leaving 2.5 hours unaccounted for and you have 4 techs on the team at an average wage cost of $25 per hour per tech then that works out to a monthly cost of $1,250 times 4 = $5,000.00 per month plus payroll burden = $6,200.00 PER MONTH off the bottom line ($74,400.00 per year).
Now add in the lost billed labor hours that should have been achieved just for the basic 8 hours in time they were at the shop.
$110 labour rate – $25 average wage cost = $85 X 2.5 unbilled hours = $212.50 X 20 days per month average = $4,250 X 4 technicians = $17,000 X 12 months = $204,000.00 per year net profit lost from the tech team when the lost unbilled labor contribution to gross profit is factored in for a total net profit loss of $290,400.00 to the company that is not obtained because the people within the shop are not held to be accountable for their time and productivity.
This is serious money!!! and THIS is where management should be spending their time………fix the accountability issue in the business. Management must be accountable to the business by spending time wisely where it has a real effect on the bottom line. Fixing shop accountability is time very well spent.
Remember a competent technician should be billing 10 to 12 hours per day and an apprentice should be billing at least 5 to 6 hours per day; if they are not achieving those numbers then investigate fully “why not?” Do not guess, don’t listen to rhetoric, find out the facts. That is management responsibility to the company.
It is time and absolutely necessary today to focus on accountability in business by embracing all the processes and management education you have been shown/taught/exposed to. If you “cherry pick” the processes or what you were taught, then it won’t work. If you “assume” the processes are being followed in the shop, then it won’t work. Every owner/manager must “Inspect what you Expect” from your team and determine why something happened or did not happen or why that particular member of the team is not performing his/her position properly and focus on fixing it. This will be the quickest way to turn any business around.
Educate every staff member as to why accountability is necessary and as Professionals in this industry, we must take it seriously. If the business is not profitable then everyone’s income is affected and ultimately the commercial client is affected because the shop does not have the cash to invest in training and keeping on top of latest shop technology and equipment.
Stand your ground on this issue and stop babysitting the staff because you are afraid they might quit. That means they are holding you hostage. Professional people want accountability in the business because that will show everyone where they shine. The others are scared of accountability because they know it would show where they cut corners, prove that they are lazy, show how self-centered they are, as they only think about themselves and are only looking for a paycheck at the end of the week. They really do not care about the business or the commercial clients the business looks after and these people must be cut loose from the company. Many of us in the industry wish that these people would leave the industry all together.
Make every single person in the company accountable. I will guarantee you one thing; when you improve the accountability throughout your company it will have 5 to 10 times the effect on your bottom line than trying to save money picking away at individual operating expenses. Do the math and insert your own numbers into the equation I have provided in this article. Follow the math in your business, not your emotions, as the math does not lie and then you will truly be working smarter instead of harder.