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There are seven things you control that directly influence your Service bottom line.
1 Calendar Utilization 2 Daily Clock Hours 3 Number of Technicians 4 Proficiency 5 Effective Labor Rate 6 Gross Retention Rate 7 Expenses This installment deals with Gross Profit Retention Rate. As I mentioned in an earlier post, the only thing a service oriented organization has to sell is time. Everything else follows that. You buy time from an employee and sell it to a customer. What you have left over is gross profit. Gross retention rate is how you measure it. It is the percentage of the sale that you retain after wages. Gross profit is what pays the bills and if there is more of it than there are bills, what remains is net profit. Net is what you keep. It is yours! We’ll discuss this further in the next post. Any time you want to make a decision about pricing and compensation you need to consider your Gross Retention Rate. It seems like it should be simple to understand and control. Raising sale prices without raising wages increases it. Raising wages without raising sale prices decreases it. It is far more complex than that. In the last post I talked about your Effective Labor Rate and how it varies. You can post a rate, but you are never going to collect that exact amount. Unless you are tracking Effective Labor Rate closely, you really don’t know how much you are collecting for every hour you purchase. It is the same with how much you pay for labor, or technician wages. Let me illustrate how this all impacts gross retention rate. The very simplest example would be a shop with only one technician who gets paid flat rate. Flat rate pay is a fixed amount per hour billed to a customer. You would think you have absolute control over your cost of labor per hour. It should be the same for every hour you sell to a customer. Here is the catch. If there are hours you pay the technician for that you cannot sell to a customer or need to discount, your gross retention rate is going to take a hit. You are paying for time that you cannot sell, or sell at full rate. Gross retention only gets more complex from there. If your technicians are paid hourly or a salary, you labor expense is fixed regardless of how many of those hours you sell.. You have a break even point. Let’s say you want to retain 70% of your sales. You will need $3.30 of sales for every one dollar of wages. Until you sell that much your gross retention rate will be below 70%. Once you sell above that amount it all goes directly to your bottom line. If you have a shop with several technicians with several pay levels it really gets interesting and adds to the complexity. Now, the type of work and who is doing it has an impact on how much your gross retention will be. Work mix makes a huge difference. If you give your highest paid technicians jobs that are not your highest priced work, gross retention suffers. The opposite is true. If your lower paid technicians can competently perform higher paid work, the gross retention increases. Why is it important? The higher you increase your gross retention, the sooner you retire you expenses. The sooner you retire expenses, the more money you have left over to enjoy. What to do? Use the Numbers worksheet to track your gross retention rate every day so you can make adjustments if you need to. Don’t wait till the end of the month. Match the work you bring in to the pay level of your techs and vice versa, match the pay level of your techs to the work you bring in. In other words, unless you have an empty shop you need to fill, don’t advertise price leaders. Advertise the value of higher priced items. When you do bring in discounted items ensure they go to the lower paid technicians. This means balancing your workforce to match what you are offering in your market. It would be great if you had all master technicians. Unfortunately, unless you are a specialty shop that provides a service no one else does, you need to be competitive. To be competitive you need to control your cost of labor. Next: Controllable #7 - Expenses
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The moments when managers are most needed and create the strongest bonds are often the most uncomfortable and overlooked. Everyone seems to be talking about engagement. Are we engaging our customers? How engaged are our employees? After working with retail organizations for 40 years, I know exactly the one question to ask to discover the answers. How engaged are the managers? Let me explain. With all the talk about engagement I find few people who can define it. For me, the term reminds me of a clutch in a car or lawn mower. “Engage the clutch”. What it means to me is that people are active. They are working, not idle, either physically or mentally. Some people can describe it when they see it. “Look at how Sarah is with that customer. She has them fully engaged in the conversation”. In stores where I see high employee engagement it isn’t being created by the fabulous building, great pay plan, generous benefits, company picnics, recognition plaques, employee of the month parking, consistent training or name tags with years of loyal service. Although these are all nice, we all have seen highly engaged employees in places where none of this happens. What I have discovered, and clearly makes the difference, is the amount of time a manager spends alongside their employees at the moments of truth. I know you already know this if you raised a child. One of the first high level skills we teach them to do is color with crayons. I am sure you didn’t hand them the crayon box, explain how they work and then leave the room. I would also bet that when they showed you a picture, you didn’t throw it in the trash or say, “Better luck next time”. It ended up on your refrigerator. How about when they got their first bicycle? Did you tell them how it works, ride it around a little to show them and then leave them alone to figure it out? In each case, you stayed with them. You explained, showed them, let them try and helped them master the skill. Depending on what it was, and their skill level, you may have hung in there for years. I am not saying that employees are like children, but they do need the same attention when they are learning a new skill or are performing to less than their potential. Most managers tend to avoid this type of close interaction with their people. They are busy and it is far easier to tell someone what to do, hope that they do it well, and take “corrective actions” when they don’t. It also requires closeness and caring. It is a place where people are exposed and vulnerable. Both manager and employee can be afraid of criticism. I see this all the time when I teach managers how to conduct training that involves role-play. It requires the manager to be fully engaged. When they are engaged, it creates an environment that engages the employee. If done frequently enough it creates healthy relationships and strong loyalty. Because it is time consuming and uncomfortable for some, what happens in its place is that the manager instructs prior to the performance and critiques or criticizes afterward. Here are a few examples you will recognize. A salesperson has already attempted to handle a customer objection and comes to their manager. The manager tells them what they did wrong, tells them what to say, makes them repeat it and sends them back. When that doesn’t work or a different obstacle is hit, the manager does it all over again! A service manager describes an issue to his team. He tells them what information they need to get, what questions to ask and how to behave in front of customers. Unless the issue happens again, it is as if his people are invisible or have left on vacation. When it does happen again the manager does the same thing all over again! Can you imagine a football coach using that approach? I can’t. Good coaches don’t play the game, but are fully engaged during the game and practice. They don’t just create plays, hand them to the team and wait to see what happens. They actively help each player get better. They engage, so their players engage. They are on the field, not commentators or spectators. Studies have shown that people don’t quit businesses. They quit their manager. This explains those places that are not particularly nice, but have fully engaged employees. These are the places where the manager is fully engaged with their employees. These are managers who make it a frequent routine of spending time with each person when they are doing the critical tasks that make them feel successful and the business thrive. No matter how busy I was as a service manager, I would spend the first two hours, an hour in the middle and the last hour of every day with my advisors. I engaged with them. I watched, supported and often guided. So, what to do. As difficult as it can be, you must spend time with your people at the point of contact with customers. It is difficult for two reasons. It takes time you may not think you have. You may not think you need to unless you have consistently bad results. Engagement is personal. It is close. You are talking to people about their performance and talents. A huge benefit, especially for those who are already performing at a high level, is that they get better. By being an engaged manager many of the things that create a great organization happen automatically. Following are the first 12 questions from the Gallup Employee Engagement Survey. Their research indicates that organizations with employees who answer “Yes” to these questions are far more productive and profitable than those that do not. 01. I know what is expected of me at work. 02. I have the materials and equipment I need to do my work right. 03. At work, I have the opportunity to do what I do best every day. 04. In the last seven days, I have received recognition or praise for doing good work. 05. My supervisor, or someone at work, seems to care about me as a person. 06. There is someone at work who encourages my development. 07. At work, my opinions seem to count. 08. The mission or purpose of my company makes me feel my job is important. 09. My associates or fellow employees are committed to doing quality work. 10. I have a best friend at work. 11. In the last six months, someone at work has talked to me about my progress. 12. This last year, I have had opportunities at work to learn and grow. Look at your routine. How much time do you spend with your front line? The answer will tell you who you are. If you spend a lot of time engaged with your people making them better, you are a coach. If you spend your time talking about what they should or didn’t do you are a commentator. If you are buried in other activities, you are merely a spectator sitting on the sidelines. Be the coach! Win the game! |
Ed AlosiThoughtful observer of actions and results in the Retail environment. Archives
February 2022
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