Debating Important Service Metrics With A Consultant

Today we revisit a caller from the past. Chris Ford, who was a service manager. Now is something else. We answer his riddle also. We create a ringtone that you can download and we cover all the important measurables that you should know in your department. That and more coming up on Service Drive Revolution.

Hey, Christian, I got a surprise for you.

Really?

What is it?

Remember the guy that called with the riddle that if you walked up a hill and then you dunked yourself in the water and then your effective labor rate was poisoned by pickles and you ate cheesecake, what would your efficiency be?

How did you memorize that whole thing?

Remember that guy?

Yeah, for sure.

Noah located him and going to talk to him right now. Are you ready? Do you know the answer?

No.

So we'd like to welcome Mr. Chris Ford to the show. How are you doing, Chris?

Doing great, Chris.

Nice. Nice beard there.

Hey, you know what? It's not as good as yours, but I like it.

So Mr. Mr. Ford called in a question on the the hotline, the 8333, ask SDR and asked a question, and I think you. You said you're a service manager from a Honda dealership, right?

Well, I was. Yes.

That was a little disguise.

Well, no, I was one.

Yes, you were one. Okay, so you want to repeat the question or do you want me to? Because we've. We've made your question into a ringtone.

You said you were going to read it.

Or you want me to play you the ringtone?

You can play it.

It's pretty catchy.

I hope you can hear this.

If my average technician cost is $21 an hour and my weighted cost is $22.60, and I give a raise that is equal to the average of $1.25, which brings my new average cost of $22.25 and my weighted cost of $23.85, how much does my effective rate need to go up to retire the $25 increase in cost and still hold 77% gross profit?

So that's my new ringtone on my phone.

That's awesome.

So now I honestly did Chris, when I heard that, I thought there's no way that he's a service manager. I thought he has to be a consultant because it's totally a consultant question ends up, you are a consultant, right? So you have a company, advanced auto service training. Is that.

Is that the company?

Because that is what consultants would ask that question. Now, you were telling me in the pre. Pre interview that it was actually a client that posed that to You. Right?

That is correct.

And so was he testing you or like, what's the purpose? What the is the purpose of that question, except to show off and be a consultant? What would be the purpose?

I think his goal was to see if I was worthy of assisting his team, which his, you know, his managers. I don't think any of them. I think he has 12 or 13 stores. I don't think any of them had the answer to it. Okay. Not something that would typically be asked of most service managers, as you said, but he sent that out, just asking, hey, if I have this, what is this? And, you know, I looked through it, I read over it, I did some numbers, and I didn't know if I was coming up with the right answer or not. And that's honestly the reason I called into the show.

Oh, because you were thinking like, Christian or I would know the answer to that right off the top of our head. Well, yeah, I want to lower your expectations dramatically.

There was no chance, Chris.

Sorry.

Not only. Not only. Well, I don't know. I'm sure I could figure it out, but I would never try to figure it out.

Like, I don't understand the purpose of it. What is the purpose of the question? So I think I have the spreadsheet you sent Noah.

Right?

Correct.

And so the answer is 128.79.

Correct. So that sheet would show you your required overall effective labor rate. Breaking it down if you, you know, obviously, as you see there, the $123 ELR and then breaking it down the way that we were talking about. And I know that you said that you didn't. You didn't quite understand why the question was put out there, but I think it's probably a pretty valid question if you're wanting to give a technician a race. So a lot of service managers just think, oh, well, you know, this guy finished whatever brand it is, Honda. He finished all of his Honda training. So we're going to. He's now considered a master. We're going to give him $4. Well, how does that impact the effective labor rate? And how do you retire that or recoup it and keep your. And maintain your cost, you know, your effect, your current effective labor rate, how do you keep that? And that's what the formula breaks down for you.

Yeah.

I think that the be all, end all in it is how do you give technicians a raise and still move your effective labor enough to keep the gross margin that you had before? Am I right, Chris?

That is correct. Because if you don't then you give a tech a raise, you're still charging the same door rate. You're losing money. So how do you compensate for that? That's technically the whole question is instead of a service manager saying, yes, let's give him an extra $2 because Johnny's going to go down the, you know, down the road, so I'll throw money at him. Well, what's it really costing you to do that?

So what is. What does it say about me that I don't think about it that way?

I don't know. You tell me.

Way to answer a question with a question. Consultant.

No. So, so let me explain this. When I was. I was running the second largest Honda dealership in the country, Curry Honda in Shambly, Georgia, okay, I had 62 technicians, 18 service advisors, my parts, you know, department plus my support staff, you know, with NBDC. And I was the only manager. I was the only, you know, everything came to me. I was that, that sprocket, so to speak, and, or the hub. And when I would give raises there, it didn't really occur to me how much I was giving up. By not raising the labor, pricing or structuring it to make sure that we maintained, you know, our current gross profit percentages because we were printing money. I mean, we were doing 1.2 million a month and fixed 650,000 in just labor gross every month. So when you're making huge numbers like that, it's easier to cover up when you give somebody a couple dollar raise here, a couple dollar raise there. But when you go to, you know, go to a little stor South Georgia that has two advisors and six technicians and nobody coming through the door these days wanting to be a technician, you know, and Johnny says, hey, I'm, you know, I'm gonna go down the road to the Firestone because they guaranteed me 40 hours and, and you know, a salary or whatever, if you give them that raise that, you know, we all would because we can't afford to lose technicians, right? Most people. How does it affect you and how do you retire that cost that you give him? And I think a lot of people don't think about that, Kris. And that's something that, you know, as a consultant, obviously as an owner, I would want to. I'd want my management team to have my best interest in, you know, obviously in mind, but how they're going to make up for it. So that was asked to me, okay, you want to give, you know, your shop foreman an extra $2 an hour for what the shop turns how are you going to make it up?

Yeah, so, okay, so there's.

There'S a couple things to that, though. So what, what would you say, Chris, are the most important measurables in fixed?

Well, yeah, I mean, obviously your, your gross and your, your effective labor production. I mean, there's a lot of, lot of measurables that I look at daily when I'm running a store. But your effective labor rate, maintaining that and maintaining, maintaining your, your shop hours, obviously that's a, all of that's going to go hand in hand.

Okay, so there's really two important measurables. So this is where I hate being labeled a consultant because it's way simpler than that. The two most important measurables are net fixed absorption and customer retention. Those are the two most important measurables. Most of the time when I come in behind consultants and I ask for a financial statement, nobody's looked at a financial statement in five years. They say, get more gross. Get more GROSS. In every 20 group I've spoken at in the last five years, and the moderators tell me all the time too, is these dealers say, get more gross, get more gross. And the managers outspend the gross increase in expenses by discounting and trying to drive traffic and chasing traffic. And getting more gross implies getting more traffic. And it's a chase to the bottom and it's an end sum game. So what I want managers to do is focus on net and fixed absorption. Now part of that is the effective labor rate, your gross profit percentage, your expenses, your personnel expense and all that. Now when I'm looking at this equation, the reason why I would never think this way is because this is confusing. And I'm wondering why, since you understand this and I'm looking at this and my add kicks in, where does it take into account how many technicians are in the shop?

Well, it doesn't. It's.

Yeah, so that's the problem is if I got 12 tax, I'm not, I don't need to raise my effective labor rate by anything by giving one guy four. Also the idea here that the gross Profit percentage is 78, I want it to be over 80. So I like, I can get, you know, with our pricing strategies and the way we set things up, we, we shoot for 80% on that. But giving One Tech $4 is not going to affect that. It's going to affect it very little. And you know, with what we do, we can get any effective labor rate we want. And so I just feel like it's, it's something to make service man. It's like, you know, one of my least favorite conversations, Chris, that consultants have trapped me at bars, at conventions and stuff, talking about. And I literally want to shoot myself in the face. Could you guess?

Shoot yourself in the back of the face. What is it?

Proficiency.

Oh, God. You get into proficiency, efficiency, productivity. Yeah.

Listen, there's eight. You're either on an eight hour day or a ten hour day. What did they flag? Eight hours, seven hours, six hours? I don't like. There's so many times I come into these dealerships that are in 20 groups. They're paying the advisors on gross, they're losing money, the managers are chasing traffic and gross. And the techs are bonused on proficiency. And there's a consultant that just left the building. And now I've been brought in and the technicians can manage proficiency all day long and not be efficient. And I don't just, hey, if you're working an eight hour day, could you flag eight hours in one minute?

And the other thing is the quick lubes, right? So most of the time the text on the quick lube are running at 40 or 50% efficient. So how do we get them out of a quick lube in a situation where they're, you know, they can be 80, 90 sometimes we've had it where they're 100. But that's hard to do and requires a really good leader in that department. But.

That'S why I think this is so funny, honestly, is that it really does nothing. I mean, do you think Rob would ever listen to this so I can tell him, rob, this is a waste of time and it doesn't even account for how many texts. If you have 12 texts, it's going to be like 20 cents or something.

33.

30. God, you're good with the math. He's good with the Christian lately has been like certain things he's been doing, he's like, oh, that's 33%. Oh, that's like. It's because he used to be a desk manager. And so he, he, he was a desk manager when you had to do leases by hand where you, you know, you had rocks on a string and that's how you figured out your lease payment.

So what were those things called that were calculators in the mid.

The abacus.

Yeah, he did lease payments with an.

Abacus and I still had to do four square.

Chris, where's your bourbon?

My what?

Your bourbon.

What do you mean my bourbon?

Where's your bourbon at?

I drink tequila.

Oh, I thought you had I thought you drank bourbon.

You think that? Because I smoke cigars, but I have tequila that goes really good with cigars. Most people don't think tequila and cigars, but I'm a. I'm a tequila guy.

Okay. I'm a bourbon guy.

You know, actually I want to send you a bottle of tequila. Do you smoke cigars?

I don't. I don't. Never picked it up. Sometimes I feel like I should walk out back and sit back and have a cigar and a bourbon, but I haven't ever done it.

Oh, well, if, if. If I ever come your way or you come this way, we should. We should have a cigar. Now I would like to propose something. Chris is. I would love to. If you came up with an equation like this and we put it up, and I'll come up with the prize and we'll give. We'll give our listeners a prize to solve the riddle.

Okay.

But it's got to be different than this one.

Yeah. What do you want to do?

It's got to be something really consultanty. It's got to involve proficiency dominoes. I'm joking. But something like really complicated that would, you know, somebody would have to do kind of what I think you did here. To answer this question, you built an Excel formula, Right. Because you had to take it.

I did it in my head. I just guessed.

It works really well.

And part of, you know, the self deprecation of us making fun of consultants, but also having a little fun because there are a lot of people listening to this that love these sort of problems. Like, Christian would love this. He would love a challenge like this. So if you can think of one, we'd love to have you do that.

I think he gave up after writing down numbers yesterday, listening to the call or whatever it was. It was like I stopped writing numbers.

Yeah, we got it like about 30 seconds into it.

I just wanted to meet you after it.

And we both looked at each other like, oh, my goodness. That is what.

Yeah.

Isn'T it funny though? Like, we got to go back to this Rob guy. He. His formula is wrong.

I'm just telling you what. What he sent us and what we.

Worked up and listen, Mr. Ford, just because he's a dealer doesn't mean he knows what he's doing.

Why you think I sent the question to you.

He doesn't know what he's doing.

I don't take everything at face value, but I sent the question to you to see, you know, see what you guys thought about it.

I'm surprised you didn't catch that. That's something you would catch that the formula is wrong because it doesn't take into account how many texts we have in the shop.

So the question actually when he asked it was that if you gave everybody in the shop $1.25 raise, am I pretty close?

So then that would.

So he was actually talking about a raise for the whole shop.

My bad. I stand corrected.

Okay, but normally if you're talking about. Because you don't give the whole shop a raise at one time, typically. Right. Like you do it one at a time. But I do believe that the actual question was about giving the whole shopper raise.

Well, I think the most important measurable is net to gross and CSI retention. Who's coming back? And then we work backwards from there, you know. But a lot of, A lot of service managers are just taught, get me gross, give me, give me. You know, are we going to hit 400 in gross? And it's like, has not. No relativity to the net.

You have said it. I believe in your episodes. And if not, I certainly have heard it several times. Most of the, you know, dealers, they just, they take their, which happened with me, by the way, they take their, you know, their top performer and they shoot them in and say, go be the service manager and make everybody do what you do. And that's literally what happened to me. Adam Zuckerman, great guy, loved a guy to death. You know, I was a shining star, making well over 150,000 a year at a Honda store as an advisor, like new customers, building my rapport, really showing people that I care. You know, they, as you guys have said, you got key tossers, you know, just come in. What do you need done? I don't know. Call me when you figure it out. And I love doing what I did. I really, really did. And I thought, well, I want to try, you know, I'm going to try my hand at teaching these other advisors and showing them, you know, what I've done to make me successful and build them. And you know, when we, when we started, when I took over, we had six technician or six advisors and 21 technicians, which was a big store. Well, then we grew in the 5 years to 18 advisors and 62 technicians. Had to build a whole new store. 12 and a half million dollar project to do that, to just accommodate the growth that we had in that area.

And you lose focus on where you really started at that point. Point of growing people. And I spent eight years in the army as a drill sergeant and breaking somebody down. And building them back up to be successful is not something you just take a productive service advisor, throw them into that role and expect them to do. They actually have to have that ability. And a lot of dealers that do that are setting not only themselves up, but their customers and that manager and their team up for failure. And that's where I think, you know, if we had a. And I've been through nada. I've been through fixed ops with them and, you know, great guys and a lot of good information. But I think if we had people that really, really cared doing this and showing people, because I don't need the money, I love doing it to help other people and see that look in their eyes when they succeed and come back two years later, which I'm sure you guys have had many times over. Hey, Chris, you know, thanks for showing me this. And let me tell you what I did this one time. You told me this and I did it, and I'll tell you, I've done it ever since. You know, those kind of things are what make me love doing what I do, unfortunately. And I use this a lot. You said that nobody breaks out the statement. Don't look at it. That was daily. Every single day I'm pulling a statement, looking at it and something that I use when I go into stores and talk. Try to Talk with the GMs most time they want to blow you off, as you know. You know, there's a line on that statement for training. Are we going to use it or are we going to let the GMs abuse it? Because we know that they're going to put stuff there, you know, whatever. Maybe their golf game or something's going to go on the training category and they just don't actually use it for training. And I think it's one of the most bastardized things that in the department, you know, you got the most people coming through the service department with your least trained people.

How do we fix that? And that's what I'm here wanting to do, you know, on a very small scale, being one person.

You know, I've worked, I work day in, day out going to these stores and talking with people. And half the managers and the GMs don't want to give you time to, you know, even. Even say, hey, nevertheless let you put a brochure in their hand and show them how you can help them make more money and their employees happier because they're making more money. Obviously, it's just a domino effect, as you said earlier, dominoes. And that's true.

So through the years, I want to tell you I've appreciated watching your videos. I've got your book. You know, I've done a lot of. A lot of research and spent a lot of time listening to you, and I just appreciate you. I want you to know that. So.

Oh, that. That means a lot. And thank you. And. Yeah, let's. Let's do this together. Come up with a. Come up with a riddle, and we'll have a contest, and then you can judge them. It would be fun.

I think it'd be fun. I think it was a lot of.

Smart guys out there. So make it tricky, and then when you come up with it, let us know and we'll have you back on and we'll put the challenge out there. Christian and I will think about what the prize will be. Well, I guess it would depend on how hard the riddle is. Yeah, to a varying degree, it could.

Be either a Chili's gift card or a PlayStation. Like, you can go. You go anywhere in between there, Chris, but lean towards PlayStation.

Wait, how much is on the Chili's gift card?

30 bucks. 32. 74.

Well, that isn't even. That's barely a couple tequilas.

They didn't have good tequila at Chili's.

Thanks, Chris, for coming on. Let us know when you come up with that riddle. Okay?

Hey, I appreciate you guys.

And.

And I will. I'll send that over to Noah.

Thanks.

All right. See you guys.

So, interestingly, this. This kind of feeds into a question we had. So Jesse from Maine called the number the 8333 ask SDR. Good job. And he was asking about, what are the important measurables? Right.

Yeah.

And so I talked about on our call there with Mr. Ford, that net to gross is probably the most important. And so I was trying to think of an analogy for our audience to understand. So imagine, Christian, if I said, will you make me dinner?

Yes.

And so you make me dinner. So, I don't know, I come over to your place, you come over to my place. But when you get there, there's a hundred people.

And you thought you were just making.

Me do planning for one. Yeah.

So when we talk about you preparing dinner, an important question might be, how many people?

Yeah.

And so when we talk about the important measurables.

The most important place to start is what are we making or losing in most cases. Right. So what is our profitability? Because. And I had this conversation with somebody on a strategy session a couple days ago. They were like, well, my effective labor aid. I Want it to be 95. Oh, you were on that call.

I sure was.

95. And I'm like, well, how did you come up with 95? And then they. I forget what the answer was.

Yeah, there was a lot of reasons why 95 was the right number for him, but none of them necessarily were valid. He also didn't answer that question.

Meanwhile, the whole time I'm looking and he's losing. Losing money.

Yeah.

And so that's the problem when you're not focused on net to gross is you don't know what your effective labor rate should be. You don't know what your personnel as a percentage of gross should be. You don't. None of. None of that makes any sense until you know what we're making or losing.

Yeah.

Making or not making. Right. So the most important measurable is, what is our net to gross? Now, the formula for net to gross is taking your profit, your net profit and dividing it into your gross profit. So if you made $10,000 in profit and you had $100,000 in gross, what would be your net to gross? If you had what, $10,000 in profit?

We have 10,000. We didn't lose money.

And $100,000 of gross.

I believe that our net to gross would be 10%.

You are correct.

I threw you for a loop.

What if. What if we made 20,000 in profit and our gross was 100,000?

20% net to gross.

There you go. So that's the first thing I look at. And then I look at it.

Retention, depending on the brand retention, csi, that sort of thing. Then I would go and I would. I would look at the ELR next. That's the next thing I would look at.

Yep.

I would. I would look at RO count. So when you talk about elr, what is the formula for elr? And ELR stands for effective labor rate. You were making the point. A lot of people don't even know how to calculate elr, let alone what it should be.

Right. So I spend a good portion of my life asking people if they know what ELR means. Right.

Like randomly on the street.

Yeah. Just going down the mime on Figueroa does a really good job with it, actually. But what is this, 1982?

That there's mimes.

Yeah.

That's good.

Right.

So the thing that I know, when I ask somebody about effective labor rate, if it takes them more than seven words to describe effective labor rate, they do not know what it is.

So how do people describe effective labor?

Oh, they'll throw in, like, tech Cost and gross profit. And like all these other formulas into it, they're like, okay, so effective labor. And I know I should know it, but I really just rely on the report from the dms. But effective labor aid is my sales minus my tech cost, times my days out minus PI. But really. Yeah, but really all it is is its labor sales divided by labor hours sold.

Yeah. So it's your labor dollars divided by hours flagged in the shop. That's it.

Keep it simple.

Yeah. Okay. So that would be the next place I would go.

Me too.

Right. Then I would look at our gross profit percentage. Okay, so gross profit percentage. This is another one that is misunderstood. Gross profit percentage is your effective labor rate less. Your cost of technician gives you your gross. So the difference between gross and sales is the cost of the technician, the direct cost.

Well said.

And that should, you know, I know that. Nada. And different places say that should be 70%. Usually we're shooting for closer to 80.

Yeah. I think that we have, like, a little thing. Right. So when we get closer to 80, if we go too far over, it means you got some flexibility if you need to go out and recruit and pay a little bit more for better tax. Like the 80 is a magic number. For sure.

Yeah. The. Then the next thing I would probably do is.

Because I know the net to gross, I know the expenses as a percentage of gross. Right. Because there can only be 100%. So if.

We do $10,000 in profit and we have 100,000 in gross, what are our expenses?

Ninety thousand would be my guess.

Ninety percent.

Ninety percent expense of gross.

So it's just the. Whatever the difference is of 100. Right. So if your net to gross is 20%, then you know your expenses are 80%. So that's another number I would look at is my expenses as a percentage of gross. And then I would dial in and I would say, what is my personnel?

Now, usually the personnel should be, you know, around 40 to 45, depending on the brand of the gross. And then I dig in even further and see what are my advisors as a percentage of gross. Right.

Another one with the expense as a percentage of gross to be aware of. It gets tricky when you're losing money.

Yeah.

Sometimes that screws people up, too. Right. So if you lose $10,000 and you have a gross of 100,000, what is your expense as a percentage of gross?

Then the next two things I probably want to know is open hours.

That tells me a lot about what's going on. And so.

I'll just Ask, you know, random. Hey, can I see an open repair order list? And then usually it's sorted by the date of the oldest one. And so.

I'm gonna say the many times I've seen Ros open over a couple years.

Which is. Which is odd, but that right there kind of tells you what's going on.

And it really is a good indicator of. Of the leadership and the manager.

Yeah.

So.

Let'S say. Let's say that I look at the open ros and there's one that's 10 months old. Let's just be nice. There's a couple that are 10 months old or whatever. So then I will say, like, you pretend you're the serviceman manager, and I'm going to pretend I'm Chris Collins.

All right.

Unless you want to flip.

No, you be Chris Collins.

So.

This. This RO from June of last year, Thompson. What's going on with that?

Yeah, so that is. We're waiting on.

Just say you don't know.

Yeah, so. So he went.

My favorite one there.

My favorite answer there is, oh, that was the previous manager.

Oh, that's a good one, too. I wish I would have thought of that. Dang it.

That was the previous manager. Like, well, it's not going to go away.

I would have been like, thompson. Who's Thompson?

Okay, now, how. How long should our OS be open?

I feel like as long as the car's here and then it goes. So realistically, anything over, bro and.

No. I've been in dealerships where the. The cars were there two years too.

Yeah. That's just not right. Like in a week.

That's crazy.

In a week. I get nervous.

Yeah. So I don't. 30 days is kind of like alarm should be going off at 30 days.

Yeah.

But nothing. It's not. It's not like wine. It's not aging every day past 30 days, the chances of us close collecting all the money just go down.

Yeah. We were saying that for a while, weren't we saying, like, milk, not wine.

Yeah, milk. It's spoiled, turning into get better to curds. Stinky milk. It's not. It's not getting better. Then. It's not some rare parmesan. Yeah.

It's funny that you say that. It's definitely an indicator of how tight the ship is run. That one report, the Open Arrow report, tells you so much.

Now, because I'm a glutton for punishment at this point, I still. Still ask for this next thing, but I can tell by the open ros what the next thing I asked for is going to be.

Like. I know, I have a sense. It's funny how these things like are very, you know.

Can I guess what the next thing is?

Sure.

Special order parts.

No. So that's not. That would go hand in hand too. So that's a good guess.

Okay.

Receivables.

Yep.

And so I'm looking at the warranty, receivables, fleet receivables, whatever, whatever.

The receivables are bob on a handshake.

Now, in some situations the ros are pretty clean, but the receivables are a disaster. So a manager has learned how to close things out to an account, but nobody's collecting on that account. And I've. So I've seen that where there's an account of over a million dollars that will never collect ever. But the manager's really good at closing things to that at the end of the month.

Oh, that hurts.

So receivables tell you a lot too. So same sort of thing, you go to the receivables, you know, nothing should be over 30 days there. A lot of manufacturers pay warranty pretty quick.

That's gotten a lot better over the years for sure.

So then, then the next thing I'm probably going to want to look at is shop efficiency. I don't care about proficiency. Could care less. Oftentimes I'll have to figure it out manually because they're doing some cockamamie thing.

Yeah.

And so I just. Like I said, if a tech works an eight hour day, how many hours do you flag in that? Eight hours. That's, that's my version of efficiency. I know in truck they call that proficiency and they're the opposite.

That's been a little bit of a challenge is to undo that when we're talking to them.

Yeah, but I don't, I don't care. They understand in principle that an eight hour day is an eight hour day.

Yeah. Now what do you think about overall shop capacity? How important is that to you when you've got 50 stalls but 40 techs?

In what sense?

In.