Metrics in the service department are akin to opinions — everyone has one they consider most crucial. Service managers champion their chosen metric, emphasizing its importance to anyone who will listen, and even louder to those who won't. While promoting consistency is commendable, focusing on the wrong Key Performance Indicator (KPI) can be more than just misguided; it can be detrimental to the growth and success of the service and parts departments.
The effective labor rate is a valuable tool, and hours per repair order, when not manipulated to serve compensation plans, provides a great measure of success. Customer retention holds more significance than a Customer Satisfaction Index (CSI) score on a survey. Capacity, while crucial to success, is a byproduct of Flat Rate Hours (FRH). Closing rate, menu penetration, absorption — all are both significant and essential.
However, there's one metric that reigns supreme — flat rate hours production.
Inventory carries various meanings, but to a service department, it's not just the parts on the shelf to sell — you can replenish those. It's not merely your appointment flow for the day — you can advertise for more. It's the number of hours available to sell for a specific business period. You can't manufacture more hours, minutes, or seconds. Exceptional service managers grasp that each hour is irreplaceable and needs to be sold as quickly as possible. Failure to do so results in lost money and missed opportunities.
Each technician needs a daily objective, understanding the expectation is not sufficient. Advisors must also comprehend their portion of the objective, regardless of the advisor-to-tech ratio. Parts must acknowledge that parts don't sell unless hours are utilized. What is the parts-to-labor ratio? This fundamental metric feeds into FRH inventory, enhancing efficiency in the parts department and prioritizing getting parts to technicians — everyone has skin in the game.
Every hour sold represents both labor and parts sales. Selling more hours translates to selling more parts. While keeping a close eye on the effective labor rate and gross margins is essential for price control, both gross margin and effective labor rate don't generate income; they merely manage it, acting like guardrails. Income generation is what propels the growth of service departments.
Calculate your FRH capacity, multiply it by your effective labor rate, then multiply that by your parts-to-labor ratio. Multiply that number by your desired gross profit percentage. Is it enough? If not, add more inventory by adding more technicians. If you're leaving hours on the table each day, scrutinize your processes, and evaluate personnel performance through the lens of FRH production. Hold your team, and yourself, accountable for their role in managing your inventory.
Avoid getting entangled in fancy math or chasing after the next shiny metric. Instead, focus on increasing hours sold — whether it's oil changes or engine overhauls, tires or transmissions, every service contributes to the bottom line.
