Measuring Productivity and Efficiency

As an automotive shop owner, do you measure billable or sold hours? In other words, if you added up all your labor sales for the month and divided by your standard labor rate, you would have a reasonably accurate figure reflecting how many hours you sold that month. Then, divide it by the number of hours that your Techs worked and you would have what is commonly referred to as Average Productivity percentage.

For example, if your total labor sales last month were $39,323.00 and your primary labor rate was $93.65, you would have billed out about 420 hours for the month.

Here's the equation:

$39,323.00 / $93.65 = 419.89 hours billed.

Now suppose you did that with 3 Techs who altogether worked a total of 515 hours during that month. Therefore, it took your Techs 515 hours to produce 420 hours, or 81.5% Average Productivity. How come? Can't they usually beat flat rate time on most jobs most of the time?

What I would do to improve your billable hours is to start by measuring both the Shop Average Productivity -and- the Techs Average Efficiency. An example of Efficiency is the amount of time it actually takes a Tech to do a timing belt on a Honda or front brakes on a Suburban as compared to the amount of time that you charge the customer.

For example, suppose the Tech replaces the Honda timing belt, from start to finish with road test included in 2.2 hours and you bill the customer the suggested book time of 3.5 hours x your labor rate of $93.65, or $327.77.

The equation is: 3.5 / 2.2 = 159% Efficiency.

Now if you're measuring Productivity and Efficiency, you might see something like an average of 120% Month Average Tech Efficiency against your 81.5% Productivity.

Here's the nugget: The farther apart these two numbers are, the more you have a systemic problem; That is a problem with your system. Perhaps you are understaffed; perhaps you are slow at calculating estimates and getting work authorizations. Whatever the cause, your system is slowing down your Techs, impeding them from producing more hours that are billable.

On the other hand, low Tech efficiency is most likely a Tech problem. Perhaps a training or inexperience issue or possibly he or she doesn't have the right tools. Or maybe he or she is talking on their cell phone or drinking coffee and using the restroom.

Whatever the causes are, remember the old saying, "That which gets measured, gets improved"