What is the Ideal Labor Rate? (Service Drive Revolution)
Chris Collins, Jay, and Christian discuss what labor rate actually matters for service departments. They argue the effective rate beats the posted rate, and that diagnostic fees should stay on the bill as earned work rather than get waived to soften the blow of a $12.95 oil change for life.
Chapters
Let's, let's grab a couple questions before we go.
Oh, question time.
Go to the voice of God.
And the voice of God is here.
So good to hear his voice.
How's the voice of God's microphone? Am I doing okay?
Sounds good.
Okay.
There's power in that voice.
This first question comes from YouTube. What advice would you give a parts manager who wants to transition to service? Let the jokes commence.
Go for it. It's about time. That's all I can say.
Well, it's not what I expected.
That's all I can say.
Did you expect some comment about go work for the post office or DMV's waiting for you? Nothing. Wow, this is a kind.
I think that our dealer versus independence.
Is softened right now.
Yeah, we're in his head. I like it. Next question. Voice of God.
This question comes from email. Is there an ideal percentage for a door rate at an import dealership? Should be striving for. Our door rate is $120.
So if you have a good customer experience, you have well trained advisors and a pricing strategy that the advisors are executing on your door rate means nothing whatsoever. And your effective labor rate is what matters most of the time. Your effective labor rate should be higher than your door rate. Now, without being in our coaching group and in our online training, you're going to think that's crazy, right? Because we hear it all the time when we're doing strategy sessions with new clients. Oh, that's crazy. But it takes you about a week and once you kind of understand the formula, you get that there's a separation and you will stop talking about posted labor aid. It's irrelevant. Effective labor aid is the only thing that matters.
I agree with you. You just got to understand that for the advisors out there, a lot of times that is something that is ingrained in them that, okay, we have to get this much per hour and so the door rate, I can understand where that question comes from. You have to monitor your effective labor rate. I've always gone off of if you're not at 95% of your door rate, you have too much slippage. And you've seen it. You've seen shops that post 140 and they're only getting 80. So there's a lot more to this. It's all about the execution.
We, we talked today with an elite member because when we go through our elite call, we put up the numbers. We have an elite member that manages a very big in import store in the middle of the country. They do $12.95 oil changes for life if you buy the car there.
Yep.
And is effective was 112.
No, it was a little higher than that even.
I think I understand that.
But how much labor do you think is in that 1295 oil change?
5 cents?
No, it's negative.
And so that's in that number.
I get that. I understand that. But a lot of advisors who might be listening to this or watching this don't understand variable rates and how.
But that's a negative effective labor rate. And at the end of the day when he's all said and done, he's at 112 or whatever, which means on.
His repairs and diagnostic work he's charging 130, 140.
What it means is he's got a team of advisors that take those opportunities. Right. Because we have clients that do free oil changes for life and they count as zeros in that number two.
Right.
They have a pricing strategy and advisors that execute on what that strategy is. We're not just throwing it up against the wall and seeing what sticks. It's very thought out and methodical. You know that, you know the system. But I, I would just say effective labor, it's more important. But we could get the effective labor higher than the door rate.
So the answer to that question is getting our coaching. Yeah, there you go.
Good question. God.
This next question.
God just had his car serviced.
Did he really?
He broke down.
God broke down on the freeway.
I offered him to drive the Jeep truck. You know, he didn't want it. He's like, that won't fit in my garage.
He doesn't have room in his garage for that monster.
I thought he said what's funny is that go a garage.
Any jokes for that, Christian? Any garage jokes?
So tempting. But I'm going to leave it for now.
Nice segue. You know what? The garage, I'm not even going to.
Try it cuz I will just blow it up.
My other car is a crucifix.
Oh, now God's getting in on the humor.
I didn't wait. I forgot to tell you guys. True Trump sent me a text message the other day that he.
President Trump.
President Trump. He said that in reviewing the numbers for the economy and to keep us out of a major recession, that service advisors everywhere need to manage their effective labor rate and he felt that the average labor rate in service departments across the country is too low and then we should be charging more.
Wow. Right? From the President of the United States.
Yep.
Unbelievable. I didn't see that press conference. Was that on Fire.
It was a text. He said he got a text.
How do you think I found out that Trump.
You and Jay Z are texting Trump?
Yeah, you heard it here first.
Okay, this next question comes from Alex's knife box.
That's the email.
That's their screen name.
Where did this come from?
YouTube.
Alex's knife box.
Alex's knife box.
What's that mean?
Sounds sharp.
Wow.
Leave the comedy to us.
God, he is on fire today.
If they buy repairs, should the customer get the diagnostic fees applied towards the repair or on top of the. I generally try to apply to build more of a relationship, but just curious, what do you guys think? Is that losing money or building a relationship?
Age old question. Go take it, Jay.
If you give it away, you haven't built enough value in your diagnostic process. So it's my answer to that is once the diagnostic service is performed, the fee for service has been earned and it's a fee that stays on the repair bill. So it's, you've got to build the value in it. You got to have processes and checklists. I think in today's world, the fact that you fix the car right the first time, you should get fairly compensated for that. And the testing is part of it.
I think a bigger part of that question, and maybe it's the wrong question, is what, what value as it as an advisor do you see for your time?
It's more about how you see yourself and the value of your time. Because when I was a service advisor, customers were going to pay. They were going to pay, but I was going to take really, really good care of them. So if you think that, and let's just say 10 cars come in in a week that you have to do diagnosis on and you sell the customers the diagnosis without rolling it in, how many of those are going to get towed out or pulled out because of that?
Hopefully zero.
Yeah, like it just doesn't happen. And so it's in your head and you are thinking with your wallet and you're not, you're not putting a value on your time and how much you care about customers and how you're going to take care of them and customers will pay for better service. So change the, change the way that you look at it and start looking at it like, hey, customers are going to pay for me, but I'm going to take really, really good care of them and I'm gonna be the best advisor they ever had. And there's a premium for that.
You know where this really comes in is at the moment when that customer asks you that question, your emotional response as an advisor, it's. You don't have time to think. You have less than 3 seconds to respond to that. And if there's any doubt in your mind or your delivery or your response to that, the customer's gonna understand that you don't believe in your diagnostic charges, and they're gonna roll right over you.
And I would go even a step further. And we teach this in our advisor training. Quoted a customer diagnosis? No, never. You're. You're setting yourself up to do everything twice. So, like, say you come in Jay, and I'm like, okay, you're. You're leaking coolant or whatever. I don't know, whatever it is. So what. What am I going to quote you for diagnosis for that?
It depends.
Just name a car. Tell me. Name a car. So.
Well, BMW is leak cooling all the time, so.
Okay, what. What is it usually on a BMW? It's the radiator.
Right. Okay.
Okay, so.
Leaking coolant, you pretty much know it's the radiator. So what is diagnosis? What's a pressure check? Like, 0.8, 0.6. Okay, so what's your labor at? $3 million an hour. So what are you going to quote me?
2.1 million for the diagnosis?
Yeah. So, okay, so I'm going to sign an RO for 150 bucks, right? And now guess what you got to do.
Sell it again.
Afterwards, you're gonna call me over and over again. Now, do I need the car fixed or not?
You do need the car fixed.
Okay, so what I did when I was an advisor is I never quoted diagnosis. I got a repair authorization. So I would say, jeremy, I'm gonna give myself $2,500 to work with. Looks like it's probably a radiator, but I don't know. We'll have the tech check it out, but that's the worst case scenario. If it's more, I'll give you a call. If it's less, then it's going to be less. So if it's just a hose, it'll just be a hose. But I need something to work with, and I don't want the tech to pull it in and out. If it needs it, it needs it now. What. What matters at that point? Like, you're the customer. You haven't said anything. What matters right now? What's the next thing going on in this exchange?
Time. When are you.
Well, time. I already established I'm saving time. I'm not going to call you five times have the tech come up and back and forth. If it needs a radiator, I want to put in a radiator. Right. And as an advisor, as we've established in my list already, that is so far in your head, you don't know what to do. When you work at a dealership, you kind of get to know that a Volkswagen Jetta does this. And you know the cars, you know what breaks, you know what the problem is. Right. So then what's the next thing in this step?
Do you have any ideas?
I got plenty of ideas, but I'm trying to leave it on you to see.
So 80% of the time, what's the customer going to do? They're going to sign and say, okay, what about that other 20%? What did I just. What did I just save myself?
Well, the second phone call in, the sales objection. You're flushing the objection out up front.
Yeah. So. Oh, no, I just want you to check it out. I'm going to take it to my mechanic.
That never happens.
Yeah, it does.
No way. Never.
Oh, yeah, yeah.
So then how.
Your customers probably are doing that to a dealership right now.
My customers?
Yeah. You guys can't diagnose it, but then they're getting a tech at the Volkswagen store to diagnose it. And then they're having you put the.
Part in the ones that come in and say, I need a water pump. Yeah, like they didn't just wake up in the morning.
Either way, let's not, don't, don't segue into a joke here. Let's be serious. So what, what do I know now when you tell me that I probably.
Don'T want you to fix my car?
Okay. And so now I can say, well, where are you going to take it? Who's your technician? Why would you let them touch it? If you see how good looking our techs are in the back, why would you let that ugly. Whatever. I don't know. But now I know where I stand with you. Right.
I'm still going to try to get your business, but.
That'S powerful.
Now what if you. What if you say, well, no, I'm getting ready to trade it in.
That's easy to deal with at that point.
Yeah, well, let's not even diagnose it. Let's go down and look at some cars and sales will fix it. Don't worry about it.
Yeah, right there.
But in their mind, they have $2,500. Right. So I never quote diagnosis. That's my style.
I love it. I think the other really cool thing that happens during that is. No, not a joke. I can see the look in your eye. But.
But when you do that and you get the repair authorization for 2,500, and let's say that it's 2,750 and you call the customer, how much are they saying? Oh, it's only this much in their head. It's only an additional 250. But if you start out with a diagnosis of 150 and then call them and tell them 2750, it's a very different emotion for the client.
Oh, of course it is. It's a huge negative.
The whole thing is a much better experience. And the thing is that when you have a $2,500 authorization, the tech comes to you and says, it needs this and this or this. And you hand the ro back to the technician, say, go ahead and do it. All of a sudden the world is.
Going, same thing with, like, a runability, right? Cause like. Or a check engine light. Sometimes with the check engine light, you got to put in an O2 sensor to then check the thing. And it's like, are you really going to call five times? Like, once again, as an advisor, you can have a value of your time. Like, be a professional.
Absolutely.
Customers don't come in and expect their cars to get fixed for free. That's all in our head. We do that. Oh, it's going to be 150 in diagnosis. It doesn't even mean no cars get fixed for that. No customer expects their car to get fixed for that. God. When you took in your car, it was leaking coolant or what was it? A noise? It died on you. What happened?
It died on me on the freeway.
Did you expect that it was going to be 100 bucks?
No.
You knew it was going to be a thousand bucks, right? Yes.
Yeah.
See, it didn't go when I pushed the go pedal.
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 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 Chris Bulldog Collins. And I'll see you again on the next episode.
