Keep your service teams busy. It’s good for them and good for your bottom line.
The top three greatest mysteries of human history; the Lost City of Atlantis, Stonehenge and of course Unapplied Time.
That nasty number on the financial statement that no one really knows what it means or why it keeps getting bigger. Let’s do a little exercise so we are all on the same page.
Say a dealership’s labour rate is $150 per hour.
So consider an apprentice that is not flat rate and makes $25 per hour, and works an eight hour day. Today he/she worked on five cars and punched on for five hours. We sold their work for 10 hours.
The total sale for the day is $1,500. We got that by taking their sold work which was 10 hours and multiplying it by our labour rate which was $150. Are we good so far?
The gross profit for the day is sale minus the cost of sale, $1500 – $125 ($25/hour x 5 hours Punched) = $1,375 GP.
As a percentage $1,375 / $1,500 gives us 92 per cent GP.
So the million dollar question is…What is the unapplied time in hours and dollars?
In this example we have three hours of unapplied time and $75. At the end of the day, a time ticket was sent to accounting to pay the apprentice eight hours.
If you have unapplied time, look at what your apprentices or hourly people are doing and look at how we are utilizing them. Are they working on cars with a technician and the tech gets all the flat rate time with nothing credited to the apprentice?
The DMS (Dealer Management System) only accounted for a cost of five hours. Accounting has a problem, they don’t balance. This difference should be going into unapplied time. So we can see how important it is to keep our apprentices busy.
They generate a large amount of Gross Profit and if they aren’t working they cost us money. If you really want to analyze what it costs us, it is almost a double whammy. We not only have to pay in unapplied time, but we also have to think about the lost revenue of what we could have charged for those lost hours. We can really blow your mind if we take our lost revenue and multiply it by our parts to labour ratio — the loss gets even worse…but let’s not go there. We want to be clear we are pro apprentice. We need apprentices in our industry desperately. You can’t hide the fact we need technicians in our industry but you need to keep them working, learning and growing.
Now let’s do the same exercise with a flat rate technician.
Again, let’s say the dealership’s Labour Rate is $150 per hour.
The flat rate technician makes $35 per hour and works an eight hour day. Today he/she worked on five cars and punched on them for five hours. We sold their work for 10 hours.
- What is the total sale for the day?
- What is the gross profit percentage?
- What is the unapplied time both in hours and dollars?
The total sale for the day is the same as our first example at $1,500. We got this the same way by taking their sold work which was 10 hours and multiplying it by our labour rate which was $150.
The gross profit is sale minus the cost of sale, $1,500 – $350 ($35 x 10 hours) = $1,150 GP. As a percentage $1,150 / $1,500 gives us 77 per cent GP. Interesting to see what the difference between the gross profit generated in both examples.
We earn 77 per cent from our experienced flat rate tech and a whopping 92 per cent from our apprentice…just saying.
The next question is what is the unapplied time in both hours and dollars…the answer here is ZERO for hours and dollars. Flat rate technicians do not give us unapplied time, they give us lost sales but no expense hits the unapplied time account.
A time ticket was sent to accounting to pay 10 hours to the flat rate technician, the DMS costed 10 hours, therefore accounting balances. No unapplied time. **Note: Technicians will need to be treated like apprentices when you have guarantees. If their sold hours are less than their guaranteed hours you will have unapplied time.
Now pull out your financial statement. Go to the gross profit page and look at the service department. Is there a value in unapplied time? If the answer to that question is no you have no way of knowing how much time is being wasted. Your gross profit will be inflated because this expense is a direct expense in the employment section.
Do you pay bonuses based on a percentage of gross profit? Hmmm! If there is a value in unapplied time, divide that amount by the average hourly rate your apprentices make. The answer will tell you how many hours are being wasted every month. Make sure you are sitting down, the number may shock you. The first question will be: “I must have done the math wrong?” Probably not.
If you have unapplied time, look at what your apprentices or hourly people are doing and look at how we are utilizing them. Are they working on cars with a technician and the tech gets all the flat rate time with nothing credited to the apprentice?
That’s not fair to the dealership or the apprentice. We realize that we need to keep our flat rate techs busy because their paycheque relies on that. We also need to keep our apprentices busy and making us money.
Our apprentices are not for us to send out for coffee runs, running to the license office or cutting the lawn, they are there to work. If we don’t keep our apprentices engaged, working and treated with respect there will be another mystery of the human race along with, the Lost City of Atlantis, Stonehenge and Unapplied Time…a lack of skilled technicians.
