Traditional vs. KPI Behavior Management Pay Plans

Transcription

1 Traditional vs. KPI Behavior Management Pay Plans Presented by: Ray Branch President The KEEPS Corporation Dealer s Edge July 17,

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14 ELR: Notes: Traditional Pay Plans KPI Based Pay Plans ELR Opps/Done/% Pent Notes: Hours/RO Notes: Share Value Notes: %Labor + Parts Notes: Op-Code Notes: 14

15 FHRs per CPRO is one of the most misunderstood and misused economic indicators in the world of fixed operations TODAY! It is the opinion of the ROAMS coaches that FRHs per CPRO is a non-issue. The real focus should be on how many qualified Ups were on the drive and how many full menus were closed at the point of sale, and then, how many were qualified for the free diagnostic courtesy inspections, and how many were done, and what was the average value for each one done. Focus on FRHs per CPRO results in some customers don t get sold anything and some get sold a lot. When customers don t get sold anything you have problems with lack of maintenance work, brand loyalty begins to erode, major repair work takes a hit and there is no service loyalty to the dealer. Work goes to the competition. If the customer gets sold a lot they you start to validate the customer s perception of high prices and loss of trust with you. They start looking at the competition for their service needs and only considers the dealer for complex problems. All the gravy work goes to the competition. It really becomes a lose lose situation for both the dealer and the customer. So, the real focus must be on the opportunity available vs. the sales performance. Then whenever the FRHs per CPRO falls it is OK. Measuring/paying on this process will prevent some customer being sold a lot and some being sold nothing. 15

16 What does visibility mean? Simply stated, when a customer can compare your price to your competition s price two distinct ways quickly and accurately. The most visible labor operation number (OpCode) that we use in the service department is the LOF (Lube Oil and Filter). The days of simply managing overall Effective Labor Rate are GONE! The market has created the need to divide ELR into 3 components. We use a pyramid to represent those components. At the top, the most visible, is the LOF Competitive ELR. In the middle, not quite as visible, is the Maintenance ELR. At the bottom, the foundation of all ELR is the Repair ELR. In today s world, you really need to manage each type of ELR to maximize overall profitability. 16

17 Line 5 in ROAMS Report 4 tells us how well we are capitalizing on the higher ELR and labor GP% opportunities coming across the drive EACH day. The use of an effective ELR control process requires watching each line item on each Customer Pay Repair Order for non-compliance of the Service Department s Pricing Policy. A Repair opportunity occurs when a Labor Operation is being quoted and it falls into the Low Visibility Repair category. In other words, the customer cannot quickly and easily establish a price to compare your price to. Labor Operations that fall into the Repair category should be defined within the Dealer Management System (DMS) with specific Labor Operation Numbers (LONs or Op-Codes). This KPI is measuring how compliant the Service Consultants are in using the Labor Rate Matrix or Grid. When a Repair opportunity presents itself, is the price EXACTLY what the Grid said it was supposed to be to the penny, or not? If it is, it s a DONE. Let s say that our shop is using the Variable Labor Rate Matrix in our previous example. If a repair requires 2.6 hours, the Labor Rate Matrix calls for $ If the Service Consultant actually charges $ for the labor, that s considered a DONE. If they charge $266.74, that s not a DONE. The goal is to get 95% compliance to the Labor Rate Matrix. The KPI calls this % Penetration, the percentage of time the pricing is done according to the shop s pricing policy. 17

18 Why is Effective Labor Rate control even important? One of the biggest reasons why Effective Labor Rate control is needed is the unauthorized use of discounts, or adjusting repair orders if an estimate has gone out-of-control. By using and watching the KPIs for ELR and their Standards, you are assured of a precise way of keeping each Service Consultant on the ELR Control Pricing System you put in place. On the other hand, if the Service Manager is OK with making an exception, he/she can do so and the Service Consultant (or whoever is closing ROs) is not penalized. The Service Manager had a good reason to give a discount, which is OK. On the other hand, when the Service Manger is Ok ing so many exceptions that the penetration level falls below 95%, it s time to ask the Service Manager WHY? Implementing an ELR Control system will have the following impacts It will make all of the Service Consultants and Service Managers aware that exceptions to the new ELR Control Process will be noticed immediately. It assures that the new ELR Control Process is successful right out-of-the-gate. It gives the Service Manager the ability to be in the KNOW on exceptions to the new pricing policy It gives the Dealer/Client the ability to see exactly who is on or not on the program. With this level of detail it is not uncommon to find $6 or more of hidden ELR in a week or less! 18

19 First, let s define what Effective Labor Rate is. Effective Labor Rate (ELR) is Labor Sales Dollars divided by the hours paid to the technician. A customer needs to have a water pump replaced. Obviously there is a parts cost for the water pump and possibly some other materials, but the dollars sold for the labor to install the pump is what we are concerned with. If the shop has a door rate of $112.00/hour and Chilton s says it should take 2.5 hours to replace the pump, the labor charged should be $ If the Service Consultant charged $280.00, the ELR is $112.00, the same as the door rate. 19

20 Effective Labor Rate erosion can happen very easily and quickly. For example, a customer comes in to get their water pump replaced. Based on the Chilton guide for this service, it will take 2.5 hours to complete. The Service Consultant puts together a customer job estimate that consists of 2.5 hours x the door rate of $112 for $280 in labor. The water pump is $240 for a total of $520. The customer hands the Service Consultant a coupon good for 10% off of the labor. 10% of $280 is $28. So now the ELR is $280 - $28 or $ hours = $ Next when the Service Consultant takes the job out to Freddie to do, Freddie complains that he needs 2.6 hours and can t do the job in 2.5 hours. (Then the Service Consultant caves again and concedes!!) So now the ELR is $ hours = $96.92 Finally Freddie needs a tube of blue gooie to seal the new pump. He gets it from parts and tells the Service Consultant. The Service Consultant can t get parts to give it to him for free and he doesn t want to call the customer and tell them it s going to be $20 more, so he takes it from labor. So now he s getting $252 - $20 = $232 for labor. $ hours = $89.23 ELR. So his ELR has eroded by $22.77 almost in the blink of an eye. Of course this is all fictional. It doesn t happen in the real world! 20

21 If a shop had a $22.77 erosion to it s ELR and was doing 1400 CP FRHs per month, it would be losing $31,878 / month. That s $382,536 per year! 21

22 This matrix is designed using a Variable Labor Rate. It was designed for a specific shop and that shop s work mix so that if all of their Repair work were done based on their historical work mix, they would have a Repair ELR of $ This doesn t mean that if you divide the cell amount by the hours like we did in the non-variable example, you won t always get $100. Notice that if we priced the 2.6 hours for the Repair from this matrix, we get $ vs $ in the non-variable matrix. That s a difference of $6.75. In this case, for that particular labor amount, the hourly rate is actually $ If the work mix changed and more of this higher level work were being done than the was in the original design, and they always got their pricing from the matrix, the Repair ELR could be more than $100. So why use a variable labor rate? The concept behind using a Variable Labor Rate Matrix is that on the easier, possibly more competitive Repair work, the labor rate allows you to me more competitive without impacting your pricing policy. On the more involved, more expensive Repair work, the labor rate allows you to get compensated appropriately. As you can see, it s a small difference, something the customer won t balk at, especially if you are doing one price quoting and estimating. We won t dig into this here, but ROAMS has tools for identifying how often certain labor hours are being used. Armed with that knowledge, you can use those tools to tweak individual labor rates as appropriate to maximize profit on those labor operations without negatively impacting sales or customer satisfaction. Talk with your ROAMS Coach for more on this topic. 22

23 This is the same Variable Labor Rate Matrix we saw before, except that the.88/.99 Technique has been applied to it. What that means is that any value in the matrix that had the cents component between.00 and.49 was changed to.88. Any value that had its cents component between.50 and.99 was changed to.99. On average this technique will raise the ELR of the matrix by $0.30 or so. Multiply that times the number of Flat Rate Hours turned in a month or a year and the dollars add up! 23

24 Line 3 of Report #4 shows Share Value. The norm in the industry is to look for and hire high volume Service Consultants. On the surface this makes perfect sense. Get a Service Consultant who can write 30+ ROs per day, thousands of dollars per month in parts and labor sales. However; over the years our ROAMS coaches have looked closely at what is actually happening. They noticed that high volume Service Consultants are a service department s highest missed gross profit opportunity employees! The first step towards improving CSI and Gross Profit production through the service consultant job function is to be sure the share value is in line AND the repair order to Service Consultant ratio is in the 15 to 18 ROs per day range (includes Customer Pay, Warranty, and Internal ROs). In this example, we ve taken a report on an individual Service Consultant within this dealership that has 8 Service Consultants. Each should be doing approximately 100% 8 = 12.5%. This particular Service Consultant is doing 17.9% 17.0 ROs / day. While this Service Consultant is a little above the percentage, their number of ROs per day is within the 15 to 18 target range, so all is good here. If the Service Consultant were doing 30% of the ROs per day, this person could be considered a Ball Hog and their CSI is probably suffering along with missed opportunities that they just aren t taking time for. Once this KPI is under control, the next step is Point-Of-Sale training and putting Gross Profit production tools in place. Refer to the Gross Profit Improvement Tools module and the how to information needed to help your Service Consultants produce excellent WIN-WIN-WIN situations for your customers each day. 24-1

25 While the concept of Share Value says that each Service Consultant should be doing an equal percentage of the Repair Orders, there is an exception to this. Many service departments have one or more Service Consultants that do only Oil Change or some other specialty assignment work. Some are set up as a Quick Lane, possibly in their own area or even building. These Service Consultants write significantly more Repair Orders than those working for the main shop. These folks could be writing 30 or 40 Repair Orders a day and they aren t Ball Hogs. Let s take an example. A shop has 4 Service Consultants. One is assigned to the Quick Lane and three to the main shop. The Quick Lane actually accounts for 36% of the total number of Repair Orders written. Share Value is going to be applicable to the 3 Service Consultants in the main shop but to figure out what they should be doing, we need to subtract the percentage done by the Quick Lane and divide the remainder among the 3 SCs in the main shop. 100% - 36% = 64%. Therefore each of the SCs in the main shop should be doing 64% 3 = 21%. So our Quick Lane SC does 36% and each of the main shop SCs does 21% of the ROs, not 25% for all

26 As share value comes in line, the first thing that improves is CSI. Customers feel great about spending a few extra minutes with the Service Consultant. This translates into more Point-of-Sale closes per customer. Share Value will improve the day after it starts getting measured and the Service Consultants understand what s good and acceptable. This single small improvement can mean thousands of additional Gross Profit dollars at year s end. Technicians will start to see more quality information on the repair orders and will spend less time waiting on up-sell approvals during the day. Again, when you look at share value very closely, there is a lot more than meets the eye at first glance. All of this working together will result in less come backs, improved sales and profits, and a happier team. 24-3

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28 Line 21 is calculated by taking the number of FRHs sold in line 20 and dividing it by the number of closes in line 18. In this case, = The recommended standard is between 1.0 and 1.5 FRHs. This shop choose 1.2 and based on its performance, this is an area that needs some work. 26

29 Management s first responsibility toward improving each tech s FRHs/day average is TRAINING. The big job is to move their focus from Just doing what is on the RO to becoming part of the Marketing Process. They must be trained on how to become the silent salesman for the Service Consultants through the proper use of the Free Diagnostic Courtesy Inspection process. Even though most Service Departments have some type of Courtesy Inspection System in place, very, very few can get consistent results with it. The KEEPS ROAMS Coaches will conduct training meetings with your techs to help them understand two critical concepts that support the FDCI. 1. The 60/40 Rule: Each tech should only depend on the Dealership (through advertising) to put enough cars in the Service Department for them to turn 60% of their FRHs. They must accept responsibility for the other 40% by using the FDCI and other tools taught by the ROAMS Coach. 2. The Recommend Technique: The tech has no real control over the selling process for additional work/maintenance needed on a customer s car. The concept works like this Always be Recommending. The Tech s real DAILY goal is to turn 9.5 FRHs and recommend 8 FRHs. In other words, don t be concerned about all the stuff the customer doesn t buy, just keep lots of gravy work in the recommended pipeline. This type of attitude and process will produce consistent results with the FDCI while increasing each Tech s current daily FRH average by 1.5 FRHs/day. The Result: Improved Up-sell skills for the Techs, more Gravy work, less comebacks, more FRHs for the Tech equals more pay for the Tech, Happier Techs, More money for the dealership, More money for management. It s a WIN, WIN for all concerned. 27

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38 To receive your Free KPI Behavioral Pay Plan Tool Kit, the following information to David Stonham at Your Name: Your Title: Your Organization: Your Address: Your Phone Number: Or Call David Direct at: Thanks for attending! 37