Chris Collins and Larry explain how to calculate hours per R.O., a metric that shows average profitability per repair order. The formula: labor sales divided by RO count divided by effective labor rate. A shop with $20,000 in labor sales, 200 ROs, and a $100 effective labor rate averages 1 hour per RO, which reflects ticket value more than actual billed hours.
Terms you should know.
Hours per ro, hours per repair order.
This one is one that service providers get beat up on all the time and confused. Okay, where's the confusion come in at?
So if you ask an advisor, most of the time you say, what is the formula for hours per row? They'll say hours, but it has nothing to do with hours, really.
Okay, so the formula, it's a piece of the calculation.
Barely.
Well, you have to have billed hours to calculate it.
Yeah, but it's. Yeah, it's figured on the effective labor, but not the hours.
Okay.
So it's your labor sales divided by your RO count divided by your effective labor rate. So let me say that again. Your labor sales.
Oh, I see where you're going.
Divided by your effective labor rate divided by the RO account or the RO count by the effective. It doesn't matter what order you do it in, but that gives you your hours pero. So the. The spirit behind it is more what are you averaging per ticket than it is how many hours. Right. Because it also the thing too is like a lot of times you can go into a shop and their effective labor, it's really, really low.
So quick calculation. If I had $20,000 in labor sales divided by 200 ros divided by $100 an hour effective labor rate, I'm averaging one hour per ro.
Yep, that's it. So that's the formula for hours per ro. It does not really have anything to do with shop hours, although effective labor it represents.
I like how you calculate that. A lot of shops will take their build hours out of their management program and then divide that by the ros, and then that's how they're calculating their hours per hour. But then they're not looking at the profitability of it, which is designed in the effective labor rate.
Yeah, and you know, a fun thing to do here too is if you really want hours per RO to be immeasurable, which I. It's immeasurable in some of our advisor competitions, but I never put it in pay plans.
Okay.
Because I don't want advisors walking by an oil change or a tire rotation.
Come on. They never do that.
They would do that, Larry. I don't put it in pay plans. But the. You could figure it instead of effective, you could figure it on your posted too. So like, if your posted labor, it's 120, but your ELR is 89. Just for fun, figure it on your posted and see what happens. It makes it.
We used to lose 20% of our pay if we weren't within 5% of the posted rate at Commonwealth.
Volkswagen. Those dirty dogs.
Oh, no.
It was a Penske store.
Now it is. Absolutely.
Did you know that?
I did. Speaking of effective labor. And I had a coaching call this week, and we were looking at the effective labor rate.
Well, who is this coaching call with?
One of our clients up in Nova Scotia.
They don't have a name. Nova Scotia, Canada.
Yeah.
Did they say sorry a lot?
No, they're great people. But labor rates are interesting. Right? So, like, out here on the West coast were 135 to 150, 200 bucks an hour. No problem. They're still at 83 an hour. So I was looking at some numbers, and I'm like, okay, number one, we need to do a labor survey, because I just feel that that labor rate's a little low. Just my personal opinion. But then the effective labor rate for the month was down at 72 an hour. So what's happening to the profitability of the store? So I'm looking at it going down the drain. Right. If I think the labor rate's low already, and. And we're getting 88% of what we should get on the effective rate, we're giving money away. So it's just a small calculation. When we're estimating these tickets to move that number up, and realistically, customers don't even notice the additional labor charge on a ticket. They're gonna say yes anyways. This is not about fleecing customers or overcharging them. It's about getting the shop fairly compensated for the labor that we're providing, which is a specialized skill and a specialized team. We have to protect that labor today. We can't give it away.
I agree. I mean, what does it cost to get your computer worked on?
Depends on if you have a Mac or a PC.
Either one, though, it's over. It's like 150 bucks an hour.
Well, plumbing, for instance. How much has plumbing changed in the last 40 years?
I don't know. How much?
Not very much. They use PEX now or plastic pipes, and I mean, they've always used that.
But how much is it an hour?
Some are 150 to 200 bucks an hour.
Yeah. So you. You know, it's all in your head.
Correct. Mindset.
Who's the prime minister in Canada?
I have no idea.
Jordan Peterson.
Okay. Yeah, it's. Have you watched the news out there? I mean, when you go to Canada, it's very fascinating to turn the news on because they totally make fun of Americans.
What's fascinating to me is how much were our politics are in the news up there.
That's one of the only things they have to talk about besides the snow outside.
We're entertaining to them. Our Trump.
Of course, they do play a real sport up there, which is hockey. So we could talk about that.
That's a real sport.
It is.
What are you trying to say? Soccer isn't real or what? What, what sport are you picking on.
By saying I'm not picking on any sport?
Because who said hockey wasn't?
Well, hold on. I gotta be careful because this conversation is probably gonna go down the path where you start to point at my dark spot on my soul or my soul.
That really hurt your feelings, didn't it?
I thought about that all winter. Yes.
What do you think I meant about a dark spot spot in your soul?
I. I don't know. Maybe you were talking.
I don't remember the context. What were we talking about?
Oh, I don't know. Religion and politics, Something like that.
Oh, here we go.
Absolutely.
Thank you so much for watching this clip of Service Drive Revolution. Now you can catch the full episode on YouTube, iTunes, or Spotify or wherever you consume your podcast. If you have any questions, go ahead and post them. And in the comments below, make sure you subscribe and hit the bell icon so you're notified when we post new episodes. I'm Chris Collins and you can find me on Facebook and Instagram at chrisbulldogcollins. And I'll see you again on the next episode.
