Paying Technicians Hourly and Billing Flat Rate
This past week I had the opportunity to interview a shop owner while programming a PCM. I peaked the shop owners interest when I started to speak to him about how he could pay his technicians a higher wage for the work they do. He told me that the shop had always paid the technicians hourly. Each technician got paid a rate per hour no matter what the flat rate said.
I asked him about how efficient the technicians were. He told me that they were running about 50%. The average in the industry seems to be 70%. So I am seeing a problem here. I asked if he had a bonus program to give incentive to his technicians. He said that a program had been put in place over the last month or so. So I ask you, is the 50% efficiency a result of human nature? "I get paid the same amount no matter how hard I work, so why bust my butt?" There may be some of that element. I think there is more to this than laziness. The shop owner volunteered some more information that started to fill in the gaps.
At this shop they do a courtesy inspection. This is a best practice. It is becoming the industry standard. Not only does it increase business but it helps when someone wants to make a claim against you. This inspection with the car count they have would hit each tech with about 1/2 to 1 hour of time. At 1 hour, This already cuts billed time by one hour.
The shop has a flat fee for diagnosis. The rate is $129 which is equal to 1 hour. I suggested that this is only a starting point. I further explained that I would have the technician record his diagnostics as "tests". For instance, if one scans for codes, that is a diagnostic trouble code test. If one checks the fuses, that is an electrical continuity test. Anything the technician does, should be recorded as a test. This gives value to the work he does. If more time is required, you have some information that can be given to the customer. The picture in the customer's mind is that the technician is focused and honing in on the problem. We can tell the customer what has been eliminated. We are now closer to our goal. There needs to be a way to charge the customer for time looking at wiring diagrams and researching the problem. That could be rolled into testing. This is a prime example of non billed time that could be billed. In my mobile diagnostic and programming business, I average 3 hours a night researching issues that I ran into during the day. I can't bill a specific account for this. It has to be adsorbed into the rate I charge. If a shop is going to be efficient, all at work time needs to be billed.
The owner explained that there were times the technicians were caught up and waiting on authorization and/or parts. The service advisor has become the bottleneck. In this shop's case it costs the owner money. In a flat rate shop, it costs the technician money. When i started with a shop years ago, there were counter people that checked the customers in and out and also took the money. I as a technician worked my own tickets and kept the customer apprised of my progress. It worked well for me. Not sure if it would work in all cases.
So in the case where work slows, what do you do? Send some technicians home early due to lack of work? It makes no sense to pay the techs just to stand around. If they are between jobs, they could clean up a little. If it is really dead, they could pop in a training video or watch them on you tube. Many shops have vehicles that the customer does not want to fix. I used to fix up cars in the winter time and sell them. This kept me busy and able to continue making income when work was slow. If none of this works, maybe someone needs to go home. That is your call.
So in conclusion, I don't think this shop has an efficiency problem due to paying straight time. This shop in fact demonstrates all the time that flat rate techs put in "for free". In this shops case, charging properly for diagnostic time, making sure parts arrive in a timely manner and keeping the help busy is the key to making the shop money and improving efficiency. Managing the time sheet becomes critical in this shop. The owner has to gamble if more work is going to come in. He also needs to cut hours when times are slow unless he can provide work for his team.
What are your thoughts?
The last shop I managed had issues with low proficiency and efficiency. We ended up setting the bonus structure so that anything over 100% proficiency resulted in a bonus ($/hour overall increase), we comped the tech half hour for all inspections. Efficiency does not matter if every hour is not billed properly and proficiency is below 100%, also this was a "team bonus" so these numbers avg out between all the techs so that there were some expectations. Also we organized a weekly meeting to talk about numbers and where everyone was at which also helped everyone stay motivated by the bonus system, kept the technicians talking to each other and one that struggled with their numbers was given a "gravy job" to bring up the AVG.. The inspections ensured the shop always remained busy enough to keep everyone at work but if one chose to stick around they could punch into a separate line and clean/organize if there was nothing else to do.
Why bust my butt? For one I can end up jobless. I do agree with your other points. But this mainly applies to a flat rate shop. Flat rate seems to be more of a cut throat environment, little to no teamwork, no slack given to customers since they have to bill what they pay their techs. I don't see a way for the customer to have to pay for us to learn to fix their car. Shops should work with techs to train(50/50?), but again, in a flat rate system, why would they if they have to give you a bigger cut with the knowledge you acquire. I had great experiences as a flat rate tech, but when it slows down, it's just plain ugly for everybody involved. At least in my experience, the more certifications I acquired, the bigger the elephant got in the room. You can feel the tension, and rightly so. As a tech, accomplishing automotive standards should yield more pay. As a shop owner, you see the talented tech taking the courses, getting their certifications, awards, knowledge, experience, nurturing their ambitions and don't expect them to come knocking for more pay? How will the owner pay? Yes the cost comes down to the customer, but it can be a real fine line at times. Interesting dynamics abounds within the corner auto shops. Just my two cents.
A question for you. From what I gathered from your comment, you don't think it appropriate for a technician to get paid to read service material or look at wiring diagrams? What about test drives? Maybe you can explain this further. I could be misunderstanding.
Not that is inappropriate. But for some shops it may be difficult to get paid for the time the techs take to do these things, proving your point, shops under pay techs, there's a ton of free time given to cars, that's not properly charged for, and some shops may not be able afford to. But it's appropriate to charge correctly for all that is involved in diagnosing a vehicle.
I have been a technician for almost 19 years. The majority of that time has been flatrate, but I've never worked anywhere that was straight hourly. They've all had some kind of commission aspect to the pay. And honestly I wouldn't want to work in a straight hourly shop. The guys I have worked with have always been team players, especially the shop I work at now. If you need help, just ask. I would guess that I could flag another 5-10 hours a week if I didn't help the other techs I work with.
And I don't see how flatrate has anything to do with getting paid more if you better yourself. Doesn't matter how you are paid, if you put in the effort and become a better tech then you should get paid more. If you don't then you need to find a shop that will.
Customers pay for us to learn all the time. Sometimes part of the diag is research. We can't know everything, so sometimes we have to research the code or system in order to diag properly and the customer should pay for that. And with experience comes knowledge of the systems. Car comes in for a code and because you know the system well you diagnose t in 20 minutes, customer still pays the full diag fee.
Why shouldn't the customer pay for everything that we do? Let's look at laminate flooring. I recently sold my house but I had to replace the carpet in a bedroom because my dog chewed it. We decided to go with laminate flooring to match the living room. The combination of being busy and lazy caused me to pay for the install. I was quoted $670, so I asked how long it would take. He said about 4 hours, so I agreed. Install day comes, 2 guys showed up and they are in and out in 2 hours and 10 minutes. That's $160/hr to install linate flooring. How much knowledge and tooling do they have to install laminate flooring? But if we want to charge our worth and get paid our worth we are looked at as overcharging or flat out stealing
I agree with you completely. But I also believe it to be a privilege to work flat rate among team players. I've only seen free for all flat rate, yet to see teamwork flat rate. And i didn't mean that we shouldn't get paid for our research, but that it's difficult for some shops to pass it down to the customer, some might not be able to. But with great technicians, there's no reason why they shouldn't.
Before I reply I would like to define how I perceive efficiencies.
Efficiency=The time a job takes to complete vs book time.
Productive hours/Productivity=The percentage of time you are on a billed job
Proficiency= The average of Productivity and Efficiency.
The most important factor in profitability while staying competitively priced is productivity. If productivity or productive hours are lost then the technician has less available time to work with and has to work harder in order to bring back sold hours to where they were before the productive hours were lost.
In a very good shop I bet realistically the tech only has 7 out of 8 productive hours to work. Which means he is working on the vehicle and not doing estimates, trying to find parts, cleaning, talking to customers,finding keys, etc. etc. So he has 87.5% of a day to work with at the best of times. So he needs to make up more than 12.5% to make his 8 hour day. He needs to be making 114% efficiency to make up for the 12.5% loss in productive hours because he has less available hours to work with. Proficiency would be 100%
If that same store then does 0.5hr inspections and lets say he now only has 6 out of 8 productive hours to work in a day, then the productive loss is 25%. He needs to work at 133% now to make up for the 25% of un billed non-productive hours to make 8 hours per day. If inspections are added then the shop had better know how many unproductive hours that adds to the mix. In my example of normally having 7 productive hours in a day, if the tech was at 100% efficiency then the shop will make $700 per day. If you drop his available productive hours down to 6 he would need to be operating at 117% efficiency to make up the difference. That is not reasonable in many cases to expect. So when the shop decides to add on another hour of lost productivity on an already 87.5% productive day then they better add 17% to their labor rate and the technicians flat rate pay to cover the loss. There are benefits to inspections for sure, I am not saying don't inspect. Now throw those types of numbers into the warranty world and those techs have less than 50% productive hours because of un billed time and many of them will be 200% plus efficient, but only bill 8 hours or less per day. To me this makes a straight time Indy shop attractive if productively ran. It's nice to say you make $X dollars per hour. but the effective wage (due to loss of productive hours) is closer to $50% in too many cases.
In summary I think a lot of techs efficiency numbers being low have more to do with a lack of productivity, than the actual efficiency of the tech.
Having worked both hourly, and flat rate, I prefer hourly, plus commission, which I have never done. I have had my own shop for a little over 4 years, and I have only had entry level techs, so productivity was never there to discuss commission. When I get to that point, my plan is to have a tiered commission. Not sure exactly how much yet, but maybe 5% of labor at 50% productivity, 10% at 75%, 15% at 100%, and maybe capped at 20% at 125% productivity. I honestly think that's a win/win situation, that way they still get paid a decent wage when it's slow, and they still get paid to clean up the shop.
I would never work for a shop that would send me home for anything other than disciplinary reasons. I make that clear during the interview process. If a shop isn't profitable enough to weather some slow days and needs to punish the technicians by sending them home ,then it probably isn't a very good shop. Now if the shop wants to close when its slow and everyone goes home,I can understand that,but singling out any one employee is ridiculous,IMO.
I also will not pick up customers,parts , take out the trash or any other menial task an employer can think of to keep me "busy". I also clarify that in the interview. Im hired to work on cars. Period. Its what I do. Im not being paid to do just "anything".
When its slow I self train, either by reading trade magazines,online automotive forums,or practicing on known good vehicles with my scope or scanner.
Fortunately Im seasoned enough to recognize a poorly managed shop when I interview the employer. So the above is not something I ve had to deal with in over a dozen years. I work for good shops that recognize a technicians worth and importance.
As for pay,Im strictly hourly. No "incentives." Ive done that song and dance before. I bring a LOT to the table and I want to get paid very well for my effort.
Besides, no amount of "incentives" is going to make a lazy employee work.
You either have a good work ethic or you dont.