Unapplied Labor Was Made by the Devil (And It’s Costing You Big Money)

Welcome to the big show. Today we're going to talk about unapplied labor was made by the devil. It is something that is very prominent. It is a big topic that we're going to take on today and explain the nuances of it and how you can overcome it. Adam is here. Hoagie is here. I am here. Christian is not here. He's off. But he will be back very, very soon. We talk about that and much, much more coming up on this edition of Service Drive Revolution. I was thinking instead of talking about service, we should just talk about the Bears. The Chicago Bears, the best football team in the NFL this year.

Now, I feel like you're just making fun of me, but, yes, we're getting there.

Well, if you guys are going to talk football, I'm just going to sit back for a minute because the.

Because it's over.

Chiefs are done for for a while this year for sure, and looks like a pretty good. Pretty good chunk of next year. But I know that makes a lot of people happy.

So it made me kind of sad because I had Mahomes on the fantasy league and I lost playoffs because he was gone. So I'm sorry and I feel bad.

Yeah.

So, yeah, it's real tough after all those Super Bowls. Poor you. Poor you.

But Ben Johnson and the Bears got that going.

Yeah.

For those who don't know, Ben Johnson is the head coach. He came over from the Detroit Lions one year. He's completely turned it around. They went from mediocre to the. The envy of everybody.

Yeah.

Looking pretty good. It's looking pretty good.

Dub airs. We'll do that.

Yeah. Did I tell you about my Bears thing with Christian in Vegas?

No, I did. No, you did not.

So we were. So we had. We had, like, walked around looking for a place to eat for dinner, and we were both tired. So we finally just, like, stopped at this restaurant in the hotel that we were at and we ate and we were tired and we were walking back and he's like, do you want to. Do you want to play a little bit of roulette? I was like, sure, if you don't play roulette, I'll play roulette for a little bit. And, like, so we're playing a little bit. And he had never played before. And I was kind of, like, explaining to him, like, you can bet inside or. But outside or whatever. And so I was doing. Doing one of them, and I had an odd amount of chips and I had $1 25 chip. So I said, what's your Favorite football player ever. And Christian also being from Chicagoland. What did he say?

Walter Payton.

Walter Payton. So what was Walter Payton's number?

34.

So the. The. It was like one of those gambling stories you tell and you don't ever believe because. And so, like, the. The thing's running around, right? And the person hasn't waved it off yet or whatever. So I put that chip down on 34, and it hits. And so I take off from the table, like, ready to jump. Like, I don't g. Any amount, you know, of money. Like, it's not me. And so I'd never experienced anything like that before. So I'm, like, running. And. And so I come back to the table, and Christian says, what does that mean? I'm like, we just won, like, 900 bucks. It's like, I've never. You know.

Sweet.

Anyway, it was funny. So that's. That's the most the Chicago Bears have ever done for me. But I'm super happy for you.

Thank you.

It's going so well.

Yeah. I'm super happy for you. It's funny. So, you know, Adam named his. His first daughter Peyton, and his wife had no idea that she was named after.

Well, yeah, kind of. Oh.

So when the second daughter was coming, he was suggesting the name Jordan, and she caught on.

Yes.

She almost pulled it off.

Yes.

So he almost said pton and Jordan.

Instead, it was Marin. Totally different. If who.

What would. Who would I name a kid after on the Seahawks? Oh, Dave Craig. Interception. Name my daughter interception. Dave Craig Bosworth.

I heard that name in a long time.

Who would I name?

Hasselback.

No.

Has a nice. Rolls off the tongue hassle. Oh, man, that's funny.

Who's the greatest? I mean, I think the. My favorite Seahawk of all time is Cam Chancellor. That's not a girl's name. Could you name a girl Chancellor?

I don't know. Today I feel like you can get away with anything. You can't.

But should you?

No. I don't know that you should, but it's.

It's so funny when you meet kids nowadays, and it's like, oh, my name's Thursday.

It's my favorite day of the week. Look at the parents.

You're like, no, Tuesday. No, that's my name.

Was she conceived on Thursday?

No.

Oh, okay.

It's almost Friday. It's almost the weekend.

The funniest is that story when you went to what's his name in Texas to fix his Tesla, and all of his kids were named his brothers.

George Foreman.

Yeah. So they're all George and then his brother. What was his name?

Gary.

All his kids were Gary.

Yeah.

All his sons. Right. Did they name the girls Gary?

No, I don't think so. I think it was a similar thing.

Did they even have girls?

Yeah, it's like they are pre wired to only have boys. Like, it's nuts. It's not pretty epic. Yeah. Yeah, it is.

It's so funny. You scream George and everybody, nine people.

Turn around and it's so funny.

So true. Yeah. Adam almost got away with it.

I did. I did. Got one out of two. 50% that works out. I'll take it.

That's great.

Oh, it's so funny. It's really funny. Okay, let's talk about unapplied labor was made by the devil. So this subject is coming up because it's something that we see quite often. I would say that a lot of times there's a disconnection between what it is and how it is communicated, I guess. So first of all, unapplied labor, the way that I understand it, you guys can correct me, is any labor that isn't billed to a customer or, you know, to a customer. Could be internal warranty, customer pay, whatever, but it's. It's any labor that isn't billed to.

A customer, like on the ticket.

Yeah. So say, for example, you have technicians that are doing shop work or oil changes, whatever, work that isn't, you know, build to a customer. They're learning that sort of thing, Right?

Yeah. I think too, like when I have this conversation and I'm teaching it for the first time, I find the best place to start is talking about flat rate. Because if you understand what flat rate is, that you're not paying for the hour until the hour is produced. Once you have that understanding, then it's easier to back up and explain on applied time that you're paying the hour, even though there's been no hour billed to the customer. Flat rate until you're billing it to the customer.

Simple analogy is, say you have a quick lube tech and they work eight hours a day. Quick lube techs are not flat rate because they wouldn't be, you know, it would be very rare that a quick lube tech could run at 100% efficiency. And so you're paying, let's say you're paying a quick lube tech $20 an hour just for a number, and they work eight hours a day. And let's say they. They usually a quick lube tech in most dealerships runs at about 40% efficient. So 60% of their pay. Right. Like five plus hours a day is they're getting paid for it, but it's not billed to a customer. And so that's the unapplied part, right? So the regular tech in the shop, if they worked eight hours and they flagged nine hours, they would get paid for the nine hours. They wouldn't really have a flat rate. Tech generally would not have unapplied time unless you were paying for them to go to school or some sort of fixing a comeback for somebody else, something like that. But even that probably would go to policy in the way I would do it. I wouldn't put that to unapplied. But it is funny that when nobody talks about unapplied and nobody understands it, the crazy stuff you see charged to unapplied is nuts. Or where you see people try to hide unapplied is the other one. So let's kind of go through those. Like where do people try to. Where does a. Either a manager, director or an office manager put unapplied where it shouldn't be? One would be just back to the cost of the sale, right? So you just put it back to the gross. And a lot of times you just find that. Because if you take your overall cost of sale, which is the difference between the sales and the gross. So if you take your labor sale and let's say you're selling labor and we're just going to use round numbers of the math. Easy. Say you're selling an hour of labor for 100 bucks, your effective labor rate is 100 bucks and your technicians cost you 20 bucks on average. If you take all of your technicians and average them either cost average, like real weighted average, or just across the board and you average about 20 bucks a tech, then your cost of labor should be close to 20 bucks. And what happens is when you figure out the cost of labor and you divide it by how many hours were sold and the cost of labor comes in at $45, there's a pretty good chance that the office manager is charging a bunch of stuff against the cost of sale that doesn't belong there, or we're not flagging something is off.

Yeah, I think that's always the, the place to start. If somebody's like, hoagie, we were crazy on applied time last month. The first answer always is, okay, let's get with the controller and let's get a, let's see how we charge it. See what's in there. Just want to see what's in there.

I've seen salespeople in there. I've seen different departments charge to unapplied. And it's just a mapping thing.

Sure.

If nobody ever looks at it. Yeah, I've seen, I've seen it where it's been like that for 10 years. And then they'll say, oh, that's when we switch to a new dms. And then DMS was just mapped wrong from the very beginning. Nobody looked, man, it just kept going.

That's just crazy to me because like so are you more. Is that more in like a flat rate shop or is that like in an hourly.

Well I mean on the car side you would mostly have flat rate and then the only hourly text would be quick lube for the most part in truck. Yeah, you would, you would have an hourly shop more than a flat rate shop. And it would be all of them.

Yeah, like that's where I feel like the skeletons are always like hidden in some drawer or some really large ticket. And, and it's. And, and the experience that I've always witnessed is like, oh man, I don't know how I'm going to recuperate on this ticket. So I'm just going to figure it out at the end of the month and shove it in a drawer. And then at some point in time when somebody is actually looking at a wiper port. What happened to this ticket? The vehicle's not here. This was four months ago. The vehicle is already done and gone. You look at it and you can't collect on it and nor on the same piece. It's unapplied time to the extent degree and a lot of times when they're doing unapplied time, what I've seen is they'll put it to training. Training is through the roof. Like you were saying, Chris, that. All right, well it's okay to put on applied time, the training, but you have that much training, how much is the factory really challenging you on training? Like you're not going out that much time and how many technicians and it's just lost. And that's what's kind of crazy to me is when the hourly. We need to treat it like it's flat rate, give incentives to try and you know, manage that shop time.

Right now I would personally charge tech training to unapplied. If I pay them to do training I would charge it to unapplied personally, but I wouldn't charge the unapplied to training. That's not the right place. Now if I had to pay for them to go to training. The cost of the class would go to training, but not the pay, you know, their, their direct pay.

Yeah, I agree. Like anything that, just a financial statement as a whole. When we're talking service, we're talking cost of labor. Typically that line is, is labeled cost of goods for other general businesses, but it's your direct cost of the commodity that you're. You're selling. And so I agree, like when the tech is doing how they're spending their time, that's the cost of labor for that thing. And that for sure, the more accurate that line is and you understand cost to sell. Like, we should probably circle back for just a second on the example you were given of if you take the cost and divide it by the hours, there's a real world scenario where with unapplied time, even if your highest paid tech is 30 bucks an hour, you can have a cost of sale of 40 or 50 bucks an hour because of unified time.

Let's just kind of explain how to do that really quick. So you would take your total labor sales, you would subtract your, your total labor gross. So this is less sublet or anything else. You would subtract your gross. The difference between sales and gross is what you're paying the tech. So let's say you had a million dollars in labor sales and your gross profit was $700,000. Then the difference is $300,000. And then you would divide that by how many hours you sold and what happens a lot in truck. And you've seen more truck financials hoagie than I have. And you have too, Adam. But my recollection is that I would say most truck dealerships run at 50% cost. Like, yeah, the way to. So let's say that your average weighted technician is paid $20 an hour, and you figure out that your actual cost is 40. Usually what that means is your shop is running at 50% efficiency. It means you're paying the hourly tax twice as much to do the work as you're collecting. For example, manufacturers on the car side will want the dealerships to have a quick lube, and they will want to have a wet and a dry tech in one stall. So you have a situation already where the quick lube techs are 40% efficient. Now you've added another head to the situation. You just have more unapplied time and not that much of a benefit to the customer. You don't do the, the oil change twice as fast. No, it's like 20% faster. It's not worth the cost.

Sometimes not even that. Like.

No.

The time zone.

I'm trying to be nice when we're.

Working on, on oil change things in store. We'll do the little kitchen timers a lot, you know, to like see where.

The check the tack time or whatever.

Yeah. Stuff. And it's funny like. Yeah. A one man team sometimes even beats the two man team. Like it's, it's interesting. But, but yeah, even if you put mass to, to that basic little thing, if you have a, you know, say a lube tech and I'll say 25 bucks an hour again. So we can do the math in our heads, but for Lube Tech's making 25 bucks an hour, he's getting paid 200 bucks for the day. Right. Like we're all cool with that now he only produces four hours for the day. He produces four sold hours or four billable hours to the customer, even though he got paid 8.

So I think he's costing us a hundred dollars.

Yeah. Where people begin to put that, put all that together is, you know, if you take that 200 bucks, when it hits the statement, it's divided by the four hours, not divided by the eight hours. Right. And yeah. And it's an eye opening thing. So then if you got two guys that are costing you 50 bucks an hour in one stall, $100 an hour cost on an oil change is a hard thing to make pencil. And so we attempt stuff like that. So I think that's an important part of this conversation. Whether it's a two man lube team, whether it's my mentor training program, you know, we're kind of joking around saying unapplied time is the devil or made by the devil or whatever. You know, if you're going to have a mentor program, if you're going to put somebody on a 30 day guarantee when you hire them, like there's different situations where maybe I'm going to do some of it as an investment training certain things like that. But understanding this math, there's a way to do it and make really good business decisions. And if you understand this basic math, you will never ever put somebody on a guarantee with no expiration or no intentional plan of what you're accomplishing with it, because it's not an investment at that point.

What you're, what you're doing in that scenario is you're treating the symptom, not the cause. So what happens is the manufacturers read in, in the different surveys that oil changes are taking too Long. So the. The solution they come up with was will throw more people at it, which is treating the symptom. They're not fixing the actual system because the system is what's broken. And a lot of times when you throw people at a problem, it just gets more expensive and worse, not. Not better. So, you know, the first thing that I have in my notes, if you. If you want to. If you want to fix your unapplied or you want to use unapplied as a tool, the first thing I would do is make sure that you're accounting for it. Right. And stop trying to make it look good. Like, I don't know how many times I'm in the situation where the manager is trying to make it look good instead of trying to fix it. Yeah. So putting it in a bunch of different place, like, make it as real and as truthful as you possibly can. Like, charge this stuff to unapplied labor that should be there. And then you know what you're looking at.

Yeah.

If you're putting it in a bunch of different places or hiding it in the gross, it's harder to figure out. And it's like, you know, it's just like an easy thing to ignore when you're not actually looking at it. A real number. And then the first, you know, thing to fix it to me is the system. Like, you have to have a system in the shop that is based on flat rate and performance. You know, a shop is producing time. You want a culture of performance. Performance. You're. The thing you're selling is time. You want to manufacture time. It's a manufacturing facility. There are no manufacturing facilities that don't track manufacturing. Like, there's no factory out there that doesn't know how many lawnmowers they made in a day. Like, so for us to not know how many hours we're selling in a day or by the hour. There's a lot of businesses that are tracking that on an hourly basis. But it's a production facility. Everybody working in there is in support of production. So, you know, the system is. We're tracking it. We have the numbers posted. We're looking at it. We're hiring, you know, people that have a track record of putting up numbers. And then we're building a system where we grow our own and, you know, lateral support, to me, in the way we set up lateral support, which is a much longer conversation, is a way for your quick lube techs to become 100% efficient. If, you know, 80 or 90 at least, but double what it is in most places. And then they learn and they become flat rate techs a lot sooner. But the other thing too that happens is like a lot of times shops will be booked out and their idea is to just hire the lowest common denominator. Say they hire a bunch of quick loop techs or a bunch of entry level techs, journey men, and then they can't fix anything and so then they're unapplied. Goes up. And I would say just like with advisors, don't go hire a bunch of baristas that you think can be advisors. Take one at a time and do that because it, you know, the fallout is pretty, pretty high in, in, in that scenario in my experience. But if you have one barista you're trying to turn into an advisor or one journeyman tech you're trying to turn into a B or an A tech, the culture will help you in that. But you're losing the culture when you have 12 quick lube techs that are all by themselves over in a building and standing around half the time. It just doesn't make any sense. And so when you look at the real number, it forces you to make real decisions.

And in a day and time where we're having to grow so many of our own techs also, it's amazing how much faster a tech comes along when he's on a team and he's in between, you know, a C tech and an A tech and the team leaders dispatch and work to him and he gets to see on both sides of him what a good job looks like.

Oh for sure.

But when they're all off on their own like that. Yeah. It's crazy how much longer it takes to, to grow text that way. Like they just stay.

In my experience, when you like, let's say you take a quick lube that has eight or 12 quick lube techs and then you roll them out into our system of lateral support, you usually lose like 30 or 40% of them just because they don't want to show up on time and they've already, they're already in the habit of just goofing off all day. And then when they're in a scenario where they actually have to work and their work is being tracked and there's a plan and all that, some of that can be hedged with having a real career path designed for them. Right. But for the most part, if they're left to their own devices, it's much harder to pull somebody back.

Well, the one thing I was also thinking when you were going through that list, Chris, is like minimum standards. When you have those systems in there, putting minimum standards and managing the shop, you know, especially within the trucking, that isn't so much flat rate. You can estimate the flat rate of the repair. And having a foreman to manage that. Not working foreman, but an actual foreman to manage a shop and having those minimum standards, as you said posted, we are not going to fall below this line. That's driving that culture and having performers and managing and fostering that culture has really been the truth to where we've seen. I've seen numbers where it's not the 50%. It's closer to that 80%. You know, everyone thinks, oh, I'm 100% plus. It's possible. But it's going to take some work. It's going to have to. You know, I kind of wrote down here and from a management perspective, inspect what you expect, you know, really kind of to foster that, you know, growth.

Yeah. Anything tracked improves exponentially.

And I would. I would also just add in there. Unapplied time or unapplied labor is really made by the packers just throwing that out there.

Of course.

Christian did make it after all. I think we were going to get any bad.

I got you.

Christian's.

The.

Christian's the most. How would you say? Passive Bears fan. Yeah, there is.

Yeah.

Yeah.

Do you think he could name the quarterback?

Yeah.

Well, the scary thing is, is I don't think that's a good indicator of his level of fanatic for the Bears because he could probably name a lot of quarterbacks from a lot of different teams. He has that weird memory thing. Yeah. It's almost savant. Yeah. He can pull a lot of stuff.

Out of his blessing and a curse.

I know when I've asked him before, he didn't know, but he might know now because everybody's making a big deal out of Caleb. Like, oh, he's the. I love it when Ben the coach says were were successful despite our. Our quarterback or whatever. What did he say?

I don't recall. I feel like he's been trying to level him up. I know I wasn't on board, but I'm on board now. I am. It's hard.

But I watched a Ben Johnson press conference with. With Adam today and they have those. The Seahawks do it too. They have those inside reporters that ask the question. Oh, yeah, that's the coach on his way out hands somebody like ask me these questions. It's all plants, but they're like the question was something like, so how, you know, how great is Caleb Williams this year and he's such a difference maker or whatever.

It's like coaching.

It's not really a question. It's a statement. But okay, yeah, like coaching and, and Ben's kind of like, well, I don't, I don't know if I'd word it like that.

It's very matter of fact. Okay.

Unapplied labor was made by the devil. The key to managing it the right way is to track it correctly, know what's going in there, make sure it's the right stuff going in there. Basically time that isn't charged on an ro and then have a better system, hire better people and, you know, better design your, your world around Production, not a community center.

Ooh, like that.

Yes, Production, not a community center. And you know, we wish all the best to the bears. 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 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 no, that's offers chriscollinsinc.com I'm Chris Collins and I'll see you in the next video.