Chris Collins and Dan argue flat-rate pay drives higher shop productivity and profit than hourly wages. At 60% efficiency, a $30/hr technician costs shops roughly $60/hr in actual labor. Moving to hourly adds 20-25% shrinkage in billable time.
Questions this video answers
September 7, 2021
Around 60% (often below; some shops worse; some up to ~75; rarely 80%)
$30 per hour
About $60 per produced hour
20–25% shrinkage in billable time
Chapters
So, Dan, I have a, I have a interesting.
You know, insight into this because I'm in different industries and one industry that, that we're in and deeply involved in is the heavy duty truck. And heavy duty truck is, for the most part like a very small percentage of those dealerships are flat rate. And so what do you think the efficiency is across the board in those shops? Like if you take the national efficiency, what would you guess it is in an environment where flat rate doesn't really exist?
I mean, are we exceeding 100% efficiency? Is that where we're going with that?
No, we're closer to 60 or below.
Okay. Because that's where I would have guessed like 70, but I thought you were.
About to tell me it's common to see 40. But we're saying the average across. Right. Because some are going to be a little better at 75. You rarely ever see 80, but for the most part, 60 is, is the, is the number and you'll, you'll have a lot worse. Right. So now just think about from a, from a business model, if your, if Your production is 60% and your cost of the technician per hour, let's just say it's 30 bucks to use a nice round number. So if you're running it 60%, what does that make your cost to produce an hour?
You got me.
It's, it's close. It's like around 50. Right. Because you're going to take, you're almost. Well, if we said that they're running at 50%, our cost to produce that hour would be 60 bucks. Right, because they're spending two hours to produce one hour.
Yeah.
So if my cost of labor is $50 in a shop that is hourly, what I have found is it's better to pay $40 an hour for good flat rate tax than to flip to an hourly thing and have your production go down. Because the other thing that happens in an hourly shop is the technicians no longer have to write good stories. They no longer care about that hour of diagnosis. So you have 20 to 25% shrinkage in your billable time because they're not incentivized to get the most out of each row. The advisors can give it away. They don't care. And so I was talking about this earlier on, on something else I was doing where when you put a flat rate tech in that environment, like let's say you have 10 hourly text and you put a flat rate one in, it's like a bowl in a china shop. Because he's like, I want to get paid for diagnosis. I want you to look up this time because the book says five hours and you're paying me four. And all of a sudden, because they. They want to get paid, they want you to close out the ros, right? Because open ros become a big issue. Because the text. So nobody cares if it's closed out because nobody's incentivized. You got advisors that are hourly, you got techs that are hourly. So you, you know, have hundreds of thousands of dollars in open ros and it becomes very loose and very unpredictable, and everybody's not rowing in the same direction. So in, you know, in everything I design, in my outlook going forward and anything I'm involved in, I would pay the technicians more per hour to be flat rate. Like, if I had to pay a tech$50 an hour to be flat rate, I still would be better than a $30 an hour tech that's 50% efficient. And a lot of times I go into these shops and the technicians aren't flat rate, and they think their cost of labor is 30 bucks. And when I show them that their actual cost of labor, 60, because they're running at 50 efficient. And their leakage, we'll go through them, through some repair orders and actually look at the billable times and why isn't their diagnosis on this and that sort of thing. And the shrinkage on top of the efficiency makes it very, very hard to be profitable and. And have a business that's healthy and scalable.
There's obviously a problem. I don't think any one person knows how to solve it yet. It's. I do love flat rate, don't get me wrong. But I, you know, it's. I feel like something. Something has to change.
No, it is funny when I talk to people, Dan, and they're like, you can't hire techs. Like, okay, good to know.
Then you find them a tech.
Yeah, most of the time. Then we help them find techs. Yeah, I think. I don't. I was trying to figure out. And I'd have to ask Christian, but he's not here with the bad jokes. I believe last month, just in a handful of clients, we maybe hired over 60 techs. So we're hiring techs.
But we're, you know, we're not saying that you can't hire techs. We have to. What else? We got to get good at it or we're out of business. Right?
Yeah, without a doubt. It's like I said, it's a problem that I know that will solve.
Because what other choice do we have but to figure it out? Yeah. Obviously, the automotive business is not going to go away because technicians dried up. I mean, you know, it's a business that has to survive. You know, it's as long as automobiles exist, there's going to have to be people that fix them, especially if they keep building them the way that they're building them now. So. Yep.
Awesome. We appreciate you coming on. Keep it up. If there's anything we can do for you, let us know.
I appreciate it very much. Thank you.
Thanks so much for watching this clip of Service Driver 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 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.chriscollinsinc.com now that's offers.chris collins, inc.com I'm Chris Collins, and I'll see you in the next video.
