Drive By: Flat-Rate vs. Hourly: The Debate Continues (Service Drive Revolution Drive By)

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Welcome everybody to service drive Revolution and a Friday drive by. I'm Chris Collins and say hello to Christian.

Hello everyone.

We haven't done a drive by in a while but we're going to change up the format and we're going to do questions on Friday as drive bys. So if you have a question, a burning question that you need advice and it can be about the service drive, it could be about the parts department, it could be about customers hiring, how to stop volcanoes from erupting, relationship advice maybe relationship advice, how to tell a long setup and a joke and then a kind of slow punchline. Any of that. We are here for you. The number is get a pencil or a pen. A lot of people probably don't use pencils anymore. Get a pen. Write this down. 8333-ASK SDR. 8333 Ask SDR. And remember, if you don't have your Top Dog tickets, October 22nd, 23rd, 24th.

I wouldn't wait too long on those things. This is going to be off the chain as they say.

John from Bar rescue. Taffer Cialdini, Robert Cialdini, the doctor. I feel great that I'm on a one to one relationship. Brian, call him Bob.

That's huge. Huge.

Chase Hughes, the amazing Chase Hughes. And Matt Biamonte, trainer, celebrity trainer to the stars.

Funny man.

Also, you're gonna leave the top dog event weaponized. Honestly, you're gonna be weaponized. This will be an event that will be talked about for years to come. You do not want to miss it. Incredible. What's going to happen at that event. I getting really excited. So we're going to get to the question. We have a question. Chris Jones, gonna be great. Can we roll the question?

Morning guys. My name is Greg. I sent Chris an email the other day and he requested I call the line. So I will put them in my question here. Hey Chris and possibly Christian or Mia, thank you for taking my question. My name is Greg Schnar. I am a Canadian aftermarket heavy truck repair shop co owner. I listened to the show and I just finished reading both of your books. I really love the Millionaire service advisor story format and I thought the content of both books was extremely valuable. I have a burning question about flat rate but before I get to that, I'd like to ask a quick question regarding the Express Liens podcast that aired on Monday. When discussing your cost of labor, more specifically the labor dollars shown in the cost of goods section of the P and L, do you recommend including payroll taxes, vacation benefits Christmas bonuses, et cetera, or just the cost of the hourly wages? Then list all the extras in the expense column of your P and L. Now onto my burning question. In your opinion, why does the trucking industry not operate on flat rate? Please discuss this in detail. Also, how does the car industry deal with coaching and mentoring apprentices while on a flat rate system where I would assume the technicians are more interested in making money than teaching and coaching apprentices?

Lastly, in your opinion, does flat rate benefit the customer or just the bottom line for the shop? I'd like to think the uptime improvement would be the benefit for the customer. However, I am a little concerned about possible repair quality issues. Thanks again for taking my question on service Drive revolution and have fun with Top Dog in October.

Great questions, Greg.

There's a lot going on there.

A lot going on there. So the first thing is.

When we're talking about expenses, it doesn't change the bottom line number. If, if you put other things into your cost of labor, I, I kind of have a preference that I would put things like, you know, health care, vacations, training, that sort of stuff not to the cost of sale, but the cost of sale would have the technician and any direct costs the technician would have. So I don't. You don't have this in your scenario, but let's say there's a scenario where there's a union and so we're paying union dues or I have, there's one union that we have where we're making up for.

Pension that was, you know, mis invested or whatever previously. Those things are going to the direct cost of the, of the sale. I don't, I don't put training there either in a sense, but unproductive wages I would put there. So if I have technicians that are unproductive, I put those wages there. So this doesn't apply in your scenario, but let's say I have quick lube techs that aren't flagging or are flagging, but it's not enough to cover their expense. I put those to the actual cost of labor. So I hope that helps with, with that. So basically the spirit of the question here is flat rate. How did we, how did truck miss that boat in a sense. And then does it have a negative effect on the customer experience.

And then how do they do training and that sort of thing? So I, I believe that shops where the technicians are flat rate, the, the.

Mindset of the technicians is a little bit different. There's a, there's a deeper ownership and professionalism in technicians that are flat rate, they just, they believe that they come to work and they provide a certain value and it's more like the world's happening for them than the world's happening to them, in a sense. Now I know we're going to get tons of comments on YouTube of technicians debating that. And that's okay. I'm not painting that with a really broad brush, but there are a lot of commonalities that flat rate technicians do expect something a little higher of themselves, which in turn does have a connection to the quality of work. So, so there's less, there's usually less comebacks in a flat rate shop because the technicians are vested, they're vested in the outcome.

Yeah, you could make a case that actually flat rate technicians should have less comebacks. Right. So if I'm an hourly technician and I have a comeback and I have to fix it, I still get paid. But if I'm a flat rate technician and I did a job and I got paid two hours for that job and then it comes back and I fix it for free, that's on my dimension and it's definitely a detractor.

I think that dramatically less comebacks in a flat rate shop, that's my experience as well. Dramatically like it's night, night and day. Because there's, there is just a level of accountability built in.

But I would say the outside looking in, that would be a normal fear of someone that if you're flat rate, you're just turning work, you're just chucking it out, but it just doesn't seem to be the case.

Yeah. And then the, the other thing to take into consideration is like, so when we talk about flat rate versus hourly tax, there is a pretty good system in car and truck where there are book times, there's manuals. Right. Like Mitchell, the manufacturer, they have manuals of what a job should take. And those are usually pretty generous. In fact, in most situations what we're doing on the retail end is we're taking warranty times times 150%. And so it's kind of built into the equation that those times are pretty generous. And if you're working on the same sort of trucks or cars over and over again, maybe the first time you do a water pump you're at a hundred percent. But if you've done that thing five times, you're going to be very efficient and at a job that you've done over and over again. So it really does benefit the technician that's motivated, especially if you're working on the same car line over and over again or the same types of cars. There's just a built in.

Efficiency that, that happens that you don't see in hourly shops. Because a lot of times, like I tell this analogy all the time. But if you take a truck shop and I throw one flat rate tech in there, it implodes the shop because that flat rate tech is writing better stories. He expects to get paid for the time. The advisors can't give away diagnosis like it does create a problem. But we estimate that there's about a 25% shrinkage between what the advisors actually charge and what work is actually performed in the shop. In the difference between flat rate and hourly technicians. It's a, it's a dramatic difference. When you have a flat rate tech that's actually looking up the times is actually like writing stories, paying attention. Especially if you have a dealership and warranty time, their stories are better which then the communication is better to the technician, the history is better. There's, you know, and then yeah, the customer experience is better because we're, we're turning them quicker and the quality is, is higher. So the other thing like I just want, I want you to think about this. And I don't know Greg, how we got to where we're at with truck being predominantly hourly. I don't, I don't know that. And if you find out, let me know.

But I will say this, that in a lot of situations when we're coaching somebody with a, with a truck service department and they, they perceive that their technicians are making $30 an hour and then we actually figure out their cost of labor when we, when we go through most of the time they're running at 50% efficiency which means their cost to produce an hour of labor is 60 bucks. And then I always make the point, could you hire a flat rate tech for 45? And the answer is always yes. So if you could hire a quality tech that's flat rate for 45, you're lowering your cost of labor, you're increasing your efficiency and the shop is going to move along with your business. So the real thing to understand is when your shop is running at 50 or 60% efficient and you have the shrinkage because the techs aren't vested in what they collect on the ro, there's really no connection between what is billed and what they get paid. The shrinkage and that inefficiency is a lot of money that you could pay technicians more and have, have a better relationship with the shop because it's it's working with you in a sense.

Yeah. And I think, and I think another thing he'd asked about, Greg had asked about was that I think uptime is greatly improved on the flat rate system. And I think it is hard.

I think the texture, like, give it to me, I'm hungry. Like, let's go. Where hourly tech seem to somehow, like, plan out their day, they. The walk to the parts department can take 20 minutes. And once again, I'm not saying all technicians are that way, but there is a huge culture difference there between technicians that are vested in the outcome like we are, versus ones that are there to work and they're going to do it at their own pace. There's a big difference.

Yeah. I think overall, I look at flat rate as a reward for experience. So like you said, if you get a job that you, you know, you start out, the first time you do it, it's two hours and it pays two hours and it gets down to 1 4, 1 2. If you get really, really good at that stuff, that is literally just paying for years of experience on also the thousands of dollars in tools to try to make the job easier, like all that stuff. I think the technician deserves to keep all that. So that's why I'm such a huge fan of the flat rate. But I think that if I had to guess, I mean, think about that like, as a manager, like wrapping your head around the fact that paying somebody $15 more saves you $15 an hour. It's hard to put your head around that stuff.

Well, I mean, I just think I would rather have technicians that were vested in it like we are. So the customer's paying for the tech. I'm not.

It's a good point.

I could run a business at a higher, higher rate if, If I can control the quality and the turn.

Yeah. Then it's. It's more valuable anyway.

Yeah. I can charge more and I'd rather pay tax more in that scenario. So. Thanks so much, Greg, for the question. I. I appreciate you calling it in. I know you did email me, but I thought that this question would help a lot of other people. And so thank you so much. So great, great. You know, Service Driver revolution.

Yeah, it was pretty good.

Yeah. So thanks, everybody. We'll see you next time on Service Drive Revolution. Thanks for watching this week's Drive By. I hope we gave you something to think about over the weekend. 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.chriscollinsInc.com I'm Chris Collins and I'll see you in the next video.