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Issue link: http://read.dmtmag.com/i/83158
By Jim Yount COVER STORY Increasing Shop Profitability (Part V): HOW TO ESTABLISH A FAIR MARKET Fifth article in a series HOURLY LABOR RATE A t this juncture in "How to establish a fair market hourly labor rate," it's time to determine annual cost of an experienced, qualified and certified technician. Step 10 The following chart establishes standards to measure and calculate technician efficiency. EXAMPLE: Suggested allowance for measuring Technician Operating Efficiency Ratio (TOER): Technician will work a standard 8-hour day for 5 days: Annual payroll hours, 40-hour work week multiplied by 52 weeks: Allocated Hours Subtract time off for 2-week vacation: Subtract time off for 1-week sick leave: Subtract time off for 6 holidays: 40-hour week 2,080 hours 80 hours 40 hours 48 hours Subtract hours allocated to company (equipment setup): 112 hours Subtract total allocated hours from 2,080 payroll hours: 280 hours Technician annual hours available for billing to customers: 1,800 hours This exercise reveals the relationship between cost of operation, shop's hourly labor rate, technician billing efficiency, and how each impacts the service department's ability to earn a profit. It is important to remember that no two markets and shops are identical. Technician annual wages and benefits equate to $37,000 for this exercise only and may not represent your market. Our experience 16 reveals technician annual earnings range from a low of $22,000 to more than $70,000. A. Estimate: 40-hour work week in round numbers ($37,000) Annual cost of tech number one: $37,000 B. Transfer from Step 8 (see Part IV in August 2012 OPE for Steps 1-9), the department's share of applied hard cost: C. Add the two numbers from lines "A" and "B" to determine department's cost of operation with one technician: D. At your current hourly labor rate ($70), how many customer billing hours are required to pay the break-even cost of operation? $75,655 $112,655 1,609 hours Math: Enter into your calculator the department's applied hard cost ($112,655) and divide by the hourly labor rate ($70). Number of hours will be revealed. E. Technician operating efficiency ratio (TOER) is: 89.38% Annual hours available for billing: Math: Enter into your calculator the number of break-even hours billed to customers (1,609 hours), and then divide by 1,800, representing available hours for billing customers. EXAMPLE: Profit analysis and efficiency ratios. Technician minimum acceptable operating efficiency ratio (TOER) is 50 percent. With TOER at 50 percent, the profit window is the difference between 50-85 percent. In this case, it's 35 points. (I do not know any shop billing 100 percent of tech real time.) OUTDOOR POWER EQUIPMENT www.outdoorpowerequipment.com 1,800 hours