5 Ways to Fix High Unapplied Labor in Any Shop | SDR #275
Chris Collins and Christian break down five reasons shops have high unapplied labor: accounting errors, inefficiencies like low flagging skill, two-person crews on simple jobs, training time, and advisors flagging wrong amounts. They stress getting detailed reports and reviewing payroll to find where the money leaks.
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Welcome everybody to the big show. Today we're going to talk about unapplied labor. We're going to dissect it front and center, sideways, upside down, dump it on the table, move it around, put it back in the glass.
Eat it.
No, we're not going to eat it. Also, we're going to talk about unnamed Christmas gifts, Christian's New Year's Eve hangover, and much, much more. Coming up on this edition of Service Drive Evolution.
Welcome everybody to the big show.
How did you do for New Year's Eve? Christone.
So for the first time.
Party. Did you go to a big party?
Okay, so for me, yes, that's a big party. But for the average Joe, probably not. So the first really big win from New Year's is that I actually did see 12 o'. Clock. Now I fell asleep by 12:05, but at 12 o' clock I was upright only because my son and girlfriend really wanted me to participate in that. But earlier in the evening we went to the.
Family themed New Year's party at the LA Zoo.
Which was actually kind of neat. I'd never really done anything like that before.
And you stayed there until midnight?
No, we stayed there till nine.
Oh, but you were up until midnight?
Yeah.
Oh, nice.
So came home.
Do you watch it on TV or.
What do you do? Yeah, yeah, watched on tv, watch it. There was a, there was like a Morgan Wallen New Year's thing special on was not just Morgan, but it was a lot of country artists. So did that. We listened to records, which is fun.
That's really fun.
Yeah, that was great.
I think we, we've got everybody hooked on records. I think one of the gifts, one of the Christmas gifts was a record. What was a system? A stereo system. Not a record player. A record player is a part of it Sounds good though, right?
Oh, it's, it's amazing.
Yeah, it's a lot of fun. Those guys over there at Audio Element are pretty good. They're pretty on it. Okay, well, I think I was in bed by 10.
Okay. So that's my normal New Year's.
I was going to a party and then I decided not to and I don't know why I thought I was gonna go to a party.
There's just no way I was going to a party. It seems like amateur hour.
I don't. It sounds painful. I don't know why.
I'm.
I'm. I think that I'm just not as social as I used to be when it comes to parties.
I got too much stuff Going on.
I was. I was checking emails. At 11 o', clock, I was up.
I was at. I was at a dinner thing last night and I didn't get home until 11:30. I'm up at 5 to go to the gym. Yeah, I just don't. It isn't my.
System. I don't like it.
If you. If you need any creatine, I know a guy.
You're the guy.
That's funny. Also, one odd thing that happened before. We kind of get into this over Christmas.
This has happened sporadically before, but I.
Got.
A bunch of them this year. Gifts that have no name attached to them. And oddly, some of them came to my house, which I don't know how people have my home address.
Yeah.
Patricia speculated that people had been there for like, elite meetings and things.
Oh, maybe took a picture of the.
But even then, how would they know?
I'm not sure. But it's weird that there's no but no name.
Like. And like, of course, like one of the. Get. What do you. You want to guess what one of the gifts was that I got a few of?
So I'm gonna go out in a lemon limb here. And only because I believe that you have more of these than the factory that produces them do.
There's a box of them.
It's Bulldog Ice Cube makers.
Little ice cube molds for bulldogs. I got a couple of those different. I got a.
Cocktail, like a really nice cocktail set thing where you can smoke the cocktail, like you. It has like a torch and wood and you can infuse the drink with like the taste of hickory or something. Something like that.
Interesting.
No name.
A couple other things. Couple books.
Yeah, but no, nobody signed their name. It's the oddest thing.
Take credit for that, please. When. Whenever you send Chris something. Cause he's grateful.
Yeah, please. Also, it feels creepy.
To get stuff when there's no name.
Do you want me to start giving you stuff with no name on it?
No, that doesn't need to be a thing.
All right.
Also, it doesn't. It just goes right in the trash. Because if I don't know who it is.
There'S certain books I don't think you'd put in the trash.
True. You got me a couple cool books.
Do you like them?
Yeah, I got great. I got great books for Christmas. It's fun.
That's good.
There was a. There was one that I was going to get you, but. But it was like a. I don't know if you've gotten on your book purchases, like the suspect Seller where you're like, I don't know, it was like a first edition book signed by Baldessari. And I just didn't have any way to prove that it was real.
Most people aren't forging Baldassari.
No.
He lives here in la. He was at LACMA all the time. He signed a lot of stuff. Okay, we have a lot of signed stuff about the city.
Do you.
All right, that's a good one.
So I didn't get that, but I got something else. I think it was just as good.
But so the subject today is Christian's idea. So he's been seeing this a lot and hearing this on strategy sessions that you're doing. And it's the subject of unapplied labor. And so we kind of thought that we would do it a certain way. We'll talk about the different types of unapplied labor and the fix as we go. So we've broken it in to basically four categories of unapplied labor. If you don't understand what unapplied labor is, this will be a, you know, this will be a good introduction for you. It isn't going to hit everything because some.
Some accounting offices do things different. I've, I've, I've seen salespeople, unapplied labor. What's the, what's the oddest stuff you've seen in unapplied labor? Porters, salespeople, advertising. Advertising, shop tools. I don't know that I've ever seen that, but I believe it.
So the first part of this is you really should get a detailed list of what is charged. Applied labor, which if you've never done that before, you can just ask whoever is the office manager or does the accounting. Hey, can I see the detail? That's how you word it, the detail for unapplied labor. And you might, if you've never asked the first time, you might be surprised what's in there. Yeah, sometimes you don't have an unapplied labor problem. You have an accounting problem.
Yes. And if you haven't asked, no one else has looked.
That should have been, that should have been number one on our list. And we're going to Change this from 4 to 5.
Okay.
And the first one on the list is accounting errors.
Yep.
That's good. And I would say.
That is more common than you would want to.
Admit.
And not because people are purposely doing.
No, nobody's looking at it.
Yeah, no one looks at it. And I think it's also important to point out that this was the second list that we came up with. Well, we. The second list that was brought up suggested for this episode today. The list that Chris thought was, can.
People that are listening to this see you do that weird thing with your head?
I think they hear because my hair hits off the side. But wasn't it advisor Christian, like pulling.
His neck out, pointing at me with his head?
Okay, what's your point? This is the second list.
Yeah, the second list is the unapplied labor. The first list was Chris wanted to go through service advisors favorite lunches.
Oh, yeah, no, no. I wanted to go through like 20, 24, like how they should take care of themselves.
The list we came up with was not taking care of them at all.
Well, that was your list. That wasn't my list.
That's true. Okay, continue on.
Because I, I do think about that. When I was an advisor, I like had a whole workout routine. I had meal prep, the whole thing. Yep. Okay. So number one is accounting errors. You got to get the detail of what is there so you understand what's going on.
Yeah.
You also, when you're looking at the detail, you're. You might have to look at the technicians.
That are hourly or quick lube or unproductive and see where they're being charged because a lot of people do that different.
And the ones that are flat rate make sure that they're costed properly in the system too. So I've seen a lot of cases where in the system a flat rate tech is flagged at 23 in the system, but they're really paid 30. So there's $7 in unapplied labor for every hour that they flag to. So I've seen it where there's.
Just kind of like dotting the I's, crossing the T's, portion. Don't assume that all that stuff's right because chances are no one's looked at it for a long time.
Yeah. And so. And let's talk about that really quick. Why do they do that? Why do they set them up at 30 when they're making 20?
Well, that's a. That's a little different. But 30 at 20 is actually trying to essentially over allow in the instance that there would be unapplied labor so that it minimizes that. Right.
Who else does that in the dealership?
Probably salespeople.
Parts.
They do that with their parts employees?
No, they'll do it with their parts. Oh, so your inventory and service is your tax. But they will, they will put stuff into inventory with a Little vig on there, a little bump.
$32. Instead of.
To manipulate their inventory. A lot of parts managers do that.
I love that you made that connection.
Yeah. Cliff.
So the inventory is overvalued just with a big.
Oh, that's really good.
But you only find that stuff out by asking. And like you want to see it on paper because that's the other thing. And I don't think, I don't think office managers are malicious. They have so many things to worry about and so many charts of accounts in so many.
Places things can go and be wrong. And so whenever I'm looking into this sort of thing, I want to see it printed out. Don't tell me. I don't even, I don't even ask for them to tell me until I have it printed out and then I ask them to explain. But they will tell you the idealized version and you're not any better off unless you see it printed out. So you want to see a detail of the payroll most of the time and what is in unapplied labor. But the. You're going to find a bunch of different ways like people are charged there that shouldn't be. They're costed wrong.
And that can go up or down. They could also. This happens often. You give technicians a raise and they don't change it.
That's probably the most common thing that I see personally is that there's been a price, there's been a tech pay adjustment, but they don't go back into the system and readjust.
Because it is another step.
Yes.
Usually that is separate. Then payroll doesn't automatically charge. It's a. It's a manual kind of.
Yeah, it might, it might start from a payroll report, but there's usually at least two kind of like signatures or sign offs that happen before they get paid. And then I was also going to say to you that when I do this exercise, the most common thing that I'll get when something doesn't make sense is that's how we've always done it.
Oh yeah.
Because it's one of the most.
And that's not untrue. Totally true, but irrelevant.
Yes. It doesn't have to be that way. I also don't know. I've done the thing before where I over costed employees to try to like minimize the unapplied labor.
Like. Like a good parts manager.
Yeah. But in hindsight I don't know.
Shenanigans. Really the shenanigans.
Your tech cost is your tech cost.
People that want to Sit around and debate whether you should charge out policy at full rate or at cost. It makes zero difference to the bottom line.
That's right.
And so then there'll be a bunch of people that'll say, well, you should cost it out at the. At the real cost of what an hour is, so you can see it. Okay, if that's what you want to do. To me, that's a lot like my. My Latin fiance that sets her clock 15 minutes ahead.
Yeah.
She's not gonna be late because she sets it ahead, but she knows she said it ahead.
There's a lot of shenanigans.
Yeah.
Why don't you just be on time?
How is that not an option?
Well, it always cracks me up because I'm like, oh, you're. You're late. She's like, oh, no, that one's ahead. And you're like, okay, so we're just. We're adding complexity to the. Why don't we just go by real nuclear world time or whatever it is?
The only way that Apple is.
Apple run the clock now.
Right. The only way that works is if you set the clocks ahead and she doesn't know about it.
Yeah, but then I would be early for stuff, and I'm already early for stuff. I don't need to be earlier for stuff.
Okay, so just to kind of put this in perspective and recap, at the top is when you're looking at unapplied time. And let's say we're looking at a financial. And you have, let's say, 12 technicians, and your unapplied time is $7,000 a month on average, right?
Yep.
Now, let's say you have 12 technicians, and your unapplied time is $100. And I know that you have four quick lube technicians that are hourly.
What does that tell you?
That they're going to 23 or the other. Other salaries and wages typically, or you're over allowing one of the two.
Well, there's a third option.
Oh. That they're doing really well. No, they're actually just booking the hours. So then there's a fourth.
Well, that's a. It's a pipe dream.
Okay.
No, sometimes the business office will just charge it straight to the gross.
So they're hidden in. They're. They're in. They will do a manual adjustment to every ro, Right? No, they will just take all of payroll. They will take whatever's left over, and they will just hit the gross with it. The cost of labor manually. But you don't. Unless you're looking at the sale account and the cost account. You never see it. And so you're like, why is my gross profit percentage 69 in my ER is 155 and my average tech is making 25. Why am I at 69? That doesn't make sense. But the business. So we're just telling you this stuff so you know where to look. Sometimes it will manually adjust it just to the cost of labor. And it's not in unapplied. It's not in personnel. Other. It's in. It's smoke.
It just happened.
It's a cost of sale that's manually inputted. And I would say that I would probably see that one out of five times. It's pretty common.
Okay. I don't know.
Because they just need to. They need to clean the payroll and they don't know where to put it. So they just put it to the.
So it's just a month end adjustment.
Yes.
Either. I haven't seen that before. I haven't caught it.
Oh my gosh. Yeah, you're not, you're just not looking.
Yeah.
Because you got. The only way you find that is to run the chart of accounts. No, just. Well, just two. You, you'll have the sale account and the debit account. The cost account.
Yeah. Okay.
Those, those will print. It's a long report. But you start going through there and looking.
And then you say negative 2,400, usually one chunk.
It's like $12,000 from payroll. That's for quick lube. Then you're like, oh, okay. But that should probably go to unapplied. I would rather see it in unapplied than somewhere where I can't look at the report.
Yeah. As I look at more of these things, that's what I think too is I want unapplied to be true and not all unapplied, which you guys will see is not all unapplied is bad. But you want to know what the number really is.
Totally. Okay. So accounting is the first one. The second one is inefficiencies. And in inefficiencies come in many colors, sizes and forms. So.
One is just. You're not very good. Like you can't flag. You can't run in 100%. Save your life. You probably never did.
So you're. You have some sort of guarantee. You're paid. You're guaranteed 40 hours a week or 35 hours a week. That, that sort of thing never is consistent or rational.
Yeah. So the.
Even where you're from. It never makes any sense. So they would.
They would say I did. Right.
Maybe. We never talked about this. This is.
Wasn't my idea.
No.
How do you know?
Because I did it.
But what if I was like, in your ear, in your sleep, like, going, christian, I got an idea for you.
I don't know. I don't debate that that stuff happened, but there are times I'd wake up and be like, what do you think he just said? Oh, gosh, those are such fun times. I'll never forget how cold it was the first time we met.
As long as I live in Illinois.
Yeah. And you walked in in a.
Like a.
Like a la coat.
Yeah. Not smart, but.
I'll never forget how funny you were really out of the gate.
Oh, we were texting.
You're always funny.
We were texting for at first and.
We were talking, just busting dogs constantly.
Bus each other's jobs for sure. But what I used to do is I doubled my guarantee as minimum performance standards.
Explain.
So in my shop, the guarantee was 35 hours. So if you had a really, really rough week, you would still get paid 35 hours. I also had it where the minimum standard performance for a technician was 35 hours.
So if you didn't hit guarantee, there was a plus and a minus to that thing, so.
Oh, it's a trick.
Yes, it's a. What would you say? That's a.
Sleight of hand, if you will.
It offsets.
Yeah. So it offsets.
Offsetting mathematical equation.
Yeah. So normally in shops that I've gone into as a coach, and if it's Tuesday and the tech has six hours for the week, they literally have a new gear. They call it. It's not quite reverse, but it's not going forward either. Right. Where it's like, I've only got four hours. I'm gonna hit my guarantee this week. Whereas in my shop, if it was Tuesday and they had four hours, you know where they were at 4:30? They were in my office saying, hey, Christian, I need a lot of work. What can you do? Can you help me out? Do you have any of this? Do you have any of that? Can I stay late? Can I do this? Totally change the dynamic of the guarantee.
Yeah. Many times in parts of the country where it snows, and I would be like, why are the guarantees so high? And the answer would be, oh, well, it snows. And I'm like, okay, well what about the other 10? How many days a year does it snow that were closed or whatever, and they'll be like, oh, we never closed. Then I'm like, okay, well, the thing that I know about the snow is it makes cars break.
Yeah.
What are we doing here?
People run into stuff when it snows.
I would just create snow days.
Yeah.
And so they had so many mulligans.
Yeah. So I gave my Texan mulligan a couple of mulligans a year. But it worked out really well, and it changed the dynamic of that was an expectation of performance as opposed to a safety net. So I don't know if that helps or not, but.
Okay, Then the other thing with inefficiencies is the quick lube. Of course. Right.
Do you want to talk about different type of inefficiencies that can exist in a quick lube or just say that it's inefficient?
Well, number two is one of those. So number three, I mean, change my numbers here. Okay. So guarantees hourly tax, quick lube, anything, or just Charlie Browns, it just aren't very productive.
Right.
Then number three is two people to a car or truck. Two people to. To a vehicle.
Never has made any sense whatsoever. I've. I don't know how many manufacturers I've been round and round with about this, like, literally there with the stopwatch, like. Okay. Having a wet and a dry tech makes this go. It's five minutes quicker, but it costs twice as much.
Yes.
So we're shaving five minutes off.
The five minutes is when you're recording it. When they're just out in the wild doing it.
It is point.
It is exactly the same amount of time.
Yeah. So having a wet in a dry tack, I mean, if you got pits, that's. That's a different story because you're forced.
Into it, and you can have the pit guys hopping back. If you have a pit with two. Two cars on it, the bottom guy can hop back and forth. That helps a little bit, but it's still expensive.
Yeah. So you got. You got to think about it this way. If you. If you have a quick lube tech and you're not making a lot of money on oil changes and quick loop to begin with, so your revenue is pretty low. It's a volume game that you never really win. Yeah.
So it changes the focus.
You're not printing money. Um, but if you look. So what is a quick lube tech make an hour now?
20 bucks, say anywhere between 15 and 20 for sure. Depending on the parts of the country.
Well, the first of this year, minimum wage is 16 in most places.
So 16 to 20.
Yeah. Okay, so let's say they're making 20 and then you have two of them. What does that cost?
40. The main reason I like, I would like everyone to pay 20 because the math is easier to do. Do. Yes. So 40.
So 40.
Your cost is 40.
Yeah. To do oil changes.
Yeah.
Yeah. It's very often. It's very often that your lube team has the highest paid tech in the shop.
What if you have guarantees in place and your technicians running at 50% and he makes $30 an hour, what's your cost?
60.
Yeah, it's double. So you're, you know, it is.
They.
We talk about expenses all the time. Your.
Biggest gap is usually that your inefficiencies and unapplied time are killing you.
Yeah. My favorite thing is when we'll go through in a store, we'll be paying on average $60 for an hour for tax. And they can't find tax.
Oh, yeah. I'm always like, hey, could you. Could you hire some good, talented techs for 45? They'd be like, oh, yeah. I'm like, we'd be saving 15.
You could do 50 and still be better off.
Like, you can do 60 and be better off. Really?
Yeah. Because at least then you get more hours. Yeah, Right.
Eventually you'll make it up. Okay. The next one we have is training. Not everybody puts unapplied. Not everybody puts training to unapplied. Some financials have a training account.
Correct.
But they all don't. And sometimes the training account will be zero and the office just puts it to unapplied. So it just depends on the personality of the. The person in charge of the financial statement.
I do like to call that good unapplied.
Sometimes.
Oh, I like when we train people.
Yeah. But in some. Some shops, bro, like, they'll be like, what are those guys doing over there? And they're like, they're training.
And you're like, I'm talking.
Looks like they're organizing the special tools to me. We're paying them $30 an hour to do that.
I'm sorry. I'm talking about real training.
Oh, but that isn't always how it is.
That's arbitrary. Gift money is what you're talking about.
Yeah. I don't know. Trading is.
Left to the eye of the beholder, I guess.
I remember there was a time. There was a time where I actually had to. It didn't last very long because I fixed it, but I had to report every week. If I had my lube text, like, Cleaning the shop and taking out garbage and crap like that because they had to. They wanted to attach how many tents they were doing janitorial. Like literally. It was that. It was that arbitrary area of an exercise. But yeah, that's what I think of when I think of training pay is that they actually go to school or something. That effect.
Yeah. Another one too that they will put to training that doesn't make sense is when somewhere somebody made a deal with the text that they're going to pay him 0.3 to do inspections.
Yeah.
And those are. Those shops always have the worst inspections. Nobody's doing them, but they're going to.
Take the free money. Yeah.
For them. And it's a huge expense.
Yeah.
And that's one of those. Oh, that's how we've always done it. And you can trace it back to Larry. Three managers ago and nobody changed.
It is. It is pretty tough to undo sometimes.
I love when, I love when I run into that one and I call text in and I'm like, so I'll re rack a couple cars. So I'll go to the cashier, grab an RO re, inspect it and then I'll be like, hey, Christian, so you get paid to inspect every car. Right. What do you get? 0.2.3.
What is it?
You'll be like, oh, point three. Oh, that's. That's pretty cool. You know, in most places they, they want to inspect them because they want the work. And then they get real quiet and I go, it's odd. I looked at a couple of these cars and.
I don't. Did you maybe you inspected a different car? You got the RO number messed up. Like, but across the board, when they're getting paid to do them, they usually aren't doing it.
Yeah. You'll Never see more 200,000 mile cars that are perfect.
And then you ask the techs that are like real performers in the shop and they'll be like, oh, it's stupid. We get paid for them. I'm doing it either way.
Right.
Like, it's just funny.
Number five is the advisors over flagging. And we run into this a lot in shops that are hourly.
Yes.
Because the techs are not vested in what they're getting paid. So the advisors can. Can over flag. Under flag, there's. There's usually about 25% shrinkage in a shop that is hourly just from the stories, the diagnosis. Because the technicians aren't fighting for the time because it makes no difference to them.
That's right.
And then what happens when you throw a flat rate tech into that is everybody's like, oh, we can't go flat rate. This guy's a pain in the butt because he wants to get paid for everything. But really what that's telling you is you have a lot of shrinkage. Right. Because he wants to get the diagnosis. He, he's writing the story. So he gets paid the right way.
And that leaks over to. That leaks over. Not just customer pay stuff, it leaks over into warranty.
Oh yeah. They don't. So they don't care.
The warranty just doesn't, you know, on the warranty side, they just don't care if they get the extra 310 for doing the thing or the diag or whatever it is. But 25 might be conservative. I know that's probably. I'm trying to conservative but yeah, think about that. A quarter of the revenue you should have is missing because people don't care about how much they get paid for a job.
Yeah. And just imagine the. We see this all the time. Right. They're 50% efficient. So they're paying $60 an hour and they're not collecting anything on the back end. It's like a double whammy.
Overpaying under collecting.
Yeah.
Yeah.
Win, win.
How do you run a business?
So that's, that's unapplied labor. So just to kind of recap, you want to make sure that you get a detail of what is charged to unapplied. And then if there are, if they're, you know, quick loop text or things that you know should be applied. I would get your, your sale and your cost accounts printed out which will be big accounts. But you, you probably should go through those anyways and just see how people are costed out and how, how it's done. And then you have inefficiencies where texts are hourly guaranteed. The next one is you have two people on a car, then four is training and five is over flagged by the advisor under flagged. You know, just freedom to do it however they want with no real system or pricing strategy in place.
Yeah. And there's. This is the best time of year to fix all this.
Yeah. And you can fix it if you put energy into it. It will get better like anything.
If you need help, give us a call.
Christian loves doing strategy sessions with, with dealerships that have high unapplied.
It is fun.
It makes his day.
Yep. I love doing that because then not.
As much as when they laugh at his jokes though.
I usually like when they're like Yeah, I watch the podcast. I usually say I'm sorry about my jokes. They're like, it's okay.
It'S okay.
Thanks, everybody. Have a great week. We'll see you next time on Service Drive Revolution. Thanks so much for watching this episode of Service Job Revolution. We're uploading new stuff every day, so make sure you subscribe and click the bell icon so you don't miss out. If you have a question you'd like us to answer on the show, call 8333 I ask SDR and we'll answer your question on the show. That's 8333 ask SDR. For special deals on our books and training, head over to offers.chris collinsinc.com that's offers.chris collins inc.com I'm Chris Collins, and I'll see you in the next video.
