Many shop owners look at business operating expenses and try to make cost reductions there to increase their bottom line. The fact is most business expenses incurred today in operating a professional service shop are either non-controllable or common-sense expenses. We fail to acknowledge that management must also be accountable to the business and make better use of their time. It is management’s responsibility to go after the real problems in the business instead of focusing on expenses, thinking it will save the business and bottom line in the long run. Nothing could be further from the truth.
For example: If a technician is averaging 5.5 billed hours per day but is being paid for 8 then 2.5 hours per day are a real cost to the business. If you are paying the person $25 per hour, then $25 X 2.5 = $62.50 per day X 20 days per month = $1,250 per month + the average shop payroll burden = $1,500 PER MONTH off the bottom line or ($18,000 per year from ONE person).
And to add to that, if you were charging $125 per hour labor rate on that individual, then $125 - $25 basic wage cost = $100 per hour lost in gross profit contribution from the lost labor billing that should have been achieved X 2.5 hours = another $250 loss per day X 20 days per month = $5,000 lost additional gross profit per month, which would also drop down to net profit. Total cost to the business from ONE person being unproductive and unaccountable = $6,500 per month ($1500 + $5,000) or $78,000 per year.
From this one calculation we can see the actual cost to the business of only having one person not being held accountable for their time and productivity in the shop.
Now let’s look at the entire shop as an average and keep it simple.
If the entire team were averaging 5.5 billed hours per day as a group average leaving 2.5 hours unaccounted for and you have four techs on the team at an average wage cost of $25 per hour per tech then that works out to a monthly cost of $1,250 X 4. That equals $5,000 per month + payroll burden = $6,000 PER MONTH off the bottom line ($72,000 per year).
Now add in the lost billed labor hours that should have been achieved just for the basic 8 hours in time they were at the shop.
$125 labor rate - $25 average wage cost = $100 X 2.5 unbilled hours = $250 X 20 days per month average = $5,000 X 4 technicians = $20,000 X 12 months = $240,000 per year net profit lost from the tech team. When the lost unbilled labor contribution to gross profit is added in, you get a total net profit loss of $312,000 to the company because the people within the shop are not held to be accountable for their time and productivity.
This is serious money! And this is where management should be spending their time. Fix the accountability issue in the business. Management must be accountable to the business by spending time wisely where it has a real effect on the bottom line. Fixing shop accountability is time very well spent.
Remember: a competent technician should be billing 10 to 12 hours per day and an apprentice should be billing at least 4 hours per day; if they are not achieving those numbers then investigate fully “why not?” Do not guess, don’t listen to rhetoric, find out the facts. That is management’s responsibility to the company.
It is necessary today to focus on accountability in business by embracing all the processes and management education you have been shown, taught and exposed to. If you cherry pick the processes or what you were taught, then it will not work. If you assume the processes are being followed in the shop, then it won’t work. Every owner and manager must “Inspect what you Expect” from your team and determine why something happened or did not happen or why that member of the team is not performing his/her position properly and focus on fixing it. This will be the quickest way to turn any business around.
Educate every staff member as to why accountability is necessary and as professionals in this industry, we must take it seriously. If the business is not profitable then everyone’s income is affected and ultimately the commercial client is affected because the shop does not have the cash to invest in training and keeping on top of the latest shop technology and equipment.
Stand your ground on this issue and stop babysitting the staff because you are afraid they might quit. That means they are holding you hostage. Professional people want accountability in the business because that will show everyone where they shine. The others are scared of accountability because they know it would show where they cut corners, prove that they are lazy, show that they are only looking for a paycheck at the end of the week. They really do not care about the business or the customers the business looks after and these people must be cut loose. Many of us in the industry wish that these people would leave the industry all together.
Make every single person in the company accountable. When you improve the accountability throughout your company it will have 5 to 10 times more of an impact on your bottom line than trying to save money by picking away at individual operating expenses. Do the math and insert your own numbers into the equations I have provided. Follow the math in your business, not your emotions. The math does not lie; it will help you to truly work smarter instead of harder.
