Managing labor to maximize profits can be challenging for any diesel repair shop owner. There are many aspects of labor that need to be scrutinized in order to get the most out of it. From recruiting, to training, to efficiency, to compensation, these components all have an impact on your bottom line. The question is, how do you know what that impact is? The only way to find out is to thoroughly analyze each aspect of your labor to determine how well it is performing toward achieving your overall financial goals. For a typical diesel repair shop, labor should account for 30% of total sales. In this article we will provide some insight into managing your labor to get the best results for your repair shop.
Recruit and Hire the Right People
Recruiting and hiring the right people for your shop is critical to your success. Employee turnover can cost your shop thousands of dollars per person in lost productivity, training, and recruiting costs. Anyone can look good on paper, so consider placing new hires on a probation period, during which they will have to prove they can do what they put in their resume. Not only will this tell you if they can turn a wrench, it will allow you to observe them closely to see if they fit in with your company culture, environment, work ethic, and processes. It will also help you determine if it would be beneficial for your shop to provide additional training for them to bring their skills up to par with the rest of your technicians. While this may add more time to your recruiting and training process, it will pay dividends in the long run by minimizing your turnover rate.
In order to recruit and hire the right people, you have to make your shop attractive to the type of people you want. Your shop needs to be a place they will want to come to, leave another job for, and stay with you for a very long time. This means you need to make your shop a clean, comfortable and positive working environment, free of any discomforts or barriers that cause frustration. This can include clean shower facilities, free snacks and beverages, lockers, and of course a quiet, comfortable break room.
Perhaps the most important advantage for attracting good talent is to have the latest technology available. This is especially true for the younger generation of technicians. Having outdated technology demonstrates a lack of commitment to the advancement of your shop capabilities, and will not attract new, motivated technicians. They will view working for your shop as a step back in their pursuit of a high-tech, progressive career.
Coach and Train to Correct Mistakes
It is rare to find an employee who does everything right. We all make mistakes. How you handle employees who make mistakes determines how good of an employer you are. Obviously, you can’t fire someone every time they make an honest mistake. If you did, neither you, nor the employee would learn anything from it. When an employee makes a mistake, use it as a teaching opportunity to coach them on what they did wrong and train them how to do it correctly. This tells the employee that you care about them and want them to succeed. That will motivate them to do a better job and work harder.
Motivate your Employees
Employees do better quality work in a shorter amount of time when they are appreciated and happy. Unhappy employees are not motivated to perform at a high level. If unmotivated employees are holding back your shop productivity, it is time to consider implementing some motivation techniques. Typically, these methods include some type of incentive reward and recognition for high performance. The most common of these methods is an Employee of the Month program where the employee receives some type of reward, like a monetary gift card to a local retailer or restaurant. Or you may institute a program where everyone in the shop is rewarded for reaching a specific quality, productivity, or sales goal. This reward could include a dinner party, a picnic, or a group outing to a concert or sporting event. But be sure not to set your goals too high. If they are unattainable or induce a high degree of stress in the shop, it will have a negative impact on morale, performance, and quality.
Improve Labor Efficiency
You only get paid for the work you perform. So, the more work you get done, the more profits you make. A large percentage of diesel repair shop labor is non-wrench time. It has been estimated to be as high as 80% for a typical shop. By reducing your non-billable time, you will greatly increase your repair shop profits. In order to do this, you need to determine where time is being wasted and make changes to improve the efficiency of your workflow process. The best way to do this is to map out your current process. This method is often referred to as Process Mapping. The objective of Process Mapping is to document every step in the workflow process, in the form of a flow chart diagram. This provides you with a visual diagram of your entire process that is easy to follow and understand.
Once the map has been created, you can review it to identify where problems occur that slow down the process or waste valuable time. When you discover an inefficient step that needs to be improved, consider carefully all your options to improve it. Ask yourself questions like: can the task be reassigned to someone else?; can technology be utilized to complete the task better or faster?; can the task be eliminated from the process? If your labor rate is $100 an hour, a technician that wastes only 6 minutes per hour is costing you $10 in labor sales. That equates to $80 a day; $400 a week; and $1,600 a month for each technician. You do the math. If you minimize non-wrench time, your shop will be more efficient, allowing you to repair more vehicles, thus increasing your profits substantially.
Optimize Your Compensation System
How you pay your employees has an impact on your profit, as well. As you probably already know, there are several different pay systems you can utilize, including hourly, salary, or flat rate. The trick is determining which one works best for your repair shop, in terms of maximizing profits, controlling quality, and benefiting your technicians.
Depending on who you talk to, there are pros and cons to each pay system. One shop owner will say that technicians are happier with a flat rate pay system because they have a greater earning potential. However, the downside to this system can be lower quality work, due to the temptation for technicians to push jobs through the shop faster, resulting in the need for more quality control oversight by management. On the other hand, the faster the jobs go through the shop, the higher the profits are. The key to a successful and profitable flat rate pay system is to hire quality-minded, skilled technicians who take pride in doing good work fast.
Another shop owner may claim that a salary pay system is best for their shop because technicians know exactly what they are making at the end of the day. And some would say they are more likely to perform higher quality work, because there is no incentive to rush jobs out the door. One downside to this is that production has to be managed closely to ensure jobs get done on time. You have to manage a balance between quality and time in order to get the volume you need to make a profit. Implementing a bonus system can help motivate hourly and salary workers to meet production requirements.
Determining which pay system works best for your repair shop comes down to how well it suits your shop culture, if it meets your quality and performance standards, and how it impacts your profits. Don’t be afraid to experiment with a few methods before making a final decision. The ultimate goal is to structure your pay system so that when your technicians make more money, you make more money.
To learn more about how to increase your profits, CLICK HERE to download our FREE White Paper: How to Maximize Your Diesel Repair Shop Profits.