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
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
HI Mario, 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
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
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
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%…
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