Joined: 15 May 2007 Posts: 774 Location: Baton Rouge, LA
Posted: Thu Feb 21, 2008 8:26 pm Post subject: Actual Time Billing, Debating A Sticking Point
I have long advocated actual time billing rather than flat rate, and consider it a cornerstone of my business. With actual time billing clients are charged for the actual time the technician works on the vehicle. For instance if a starter can be replaced in one hour, the shop charges for one hour, with no regard to what a flat-rate manual states.
In my experience clients have no problem with this method. They are quite accustomed to paying for what they get. People do not seem to mind paying for what they get, but do want to get what they pay for. Technicians too generally have no problem. Shop owners are another matter. One hypothetical question always seems to arise:
“Suppose the book says a transmission replacement should take four hours. One tech does it in three and another takes five, wouldn’t that be unfair to the client?”
I suspect the resistance has more to do with not being able to charge four hours for work done in three, than concern for the client. In over ten years of billing in this manner, I have never had this situation occur, but will open debate on this question none the less.
What is being suggested by the question is a fifty-percent variance in time on the “same job.” My thought would be, why would there be a fifty-percent variance? I can think of a few reasons.
It might be, one tech is trained and the other is not. This points to a fundamental flaw in the operation of the shop. Why aren’t the technicians being allocated work based on their qualifications? If under-skilled technicians are to be used, it brings up another point. Under-skilled technicians are likely not paid the same rate as the higher skilled technicians. Why should their time be billed at the same rate? In either case one technician taking fifty-percent more time to perform the same work is a management issue. Flat-rate billing would simply avoid the problem. It would attempt to pass off part of the loss to one technician, while reaping a gain with the other. In either case the shop may not be aware they are losing time that might have been billed in one case and possibly a client in the other. The problem is merely disguised, rather than exposed.
It could also be one tech is lazy or intentionally working slower than they could. Perhaps this is the basis of the fear that seems to be in place. Managers do not trust their staff to work at full effort or do not trust their ability to lead their staff. In either case this concern will not be solved by billing, rather by the manager addressing their problems. People intentionally working slower than they could suggest a larger problem and cost a great deal of money. This issue should be addressed not covered up by a billing method. Actual time billing would expose such a problem very quickly.
Perhaps the jobs were not the same at all. For instance, one vehicle was heavily rusted and the other was not. In this case, it is hardly fair for the person with the easier vehicle to subsidize the repair on the more difficult vehicle. Billing a client four hours when only three were spent, does not make up for spending five hours on the next. It simply overcharges one client and undercharges the other. Rather, billing in accordance with the condition of the vehicle is more equitable, in my opinion.
If fairness to the client were the only concern, why not bill only book-time when more time is taken and refund the difference when less is taken? Not many shops would embrace such a method. With actual time billing, accounting for every minute is not the point. A more equitable billing method that is fair to the shop and the client is the point.
The method has the added benefit of placing the responsibility for improvement where it belongs, with management. If a service, billed at actual time is out of line with the market price, there is a problem. I feel it should be found and corrected rather than covered by flat rate billing. Properly managed, the result is lower prices for the client while providing adequate profit for the shop.
Joined: 19 May 2007 Posts: 206 Location: Camp Verde, AZ
Posted: Sat Feb 23, 2008 3:05 pm Post subject:
Partly it depends on weather we are we billing by the job or by the hour?
If we are billing by the job, Flat Rate gives a “time” that it should take for an average technician to do a given job. This “time” is then multiplied by the shop rate, the parts are added in and a total price for the job is computed. This price is what the customer should be charged. It makes no difference if more or less parts are needed, nor if more time is needed or the job is done quicker.
Most products and some services are sold ‘by the job’. Food in a restaurant is sold by the job. You pay one price for the meal. It makes no difference how long the cook takes to prepare the meal (Flat Rate) or the size differences in the portions of food (parts). Did a new cook prepare the food or an experienced chef? It makes no difference to the price the customer pays.
A concern that I have with Flat Rate is why is there such variation between labor guides. Pick several jobs and compare them between Shop Key, AllData and Real Time. I have seen the time for some jobs vary by as much as 100%. To add more confusion, check out the dealer times. Who’s Flat Rate time is accurate?
The other method is billing by the hour or T&M, time and materials. Using this method the customer pays for the total time it takes to do the job as well as all parts used. It is simple and straight forward. The issue that I see with T&M is that not everybody works at the same speed, but they may charge the same per hour. When working on straight time the slow guy gets rewarded. Some people think that a given job will take the same amount of time so why hire the expensive guy to do it, it will just cost more.
I think that services are mostly sold using T&M. A housekeeper may clean houses for xx.xx per hour plus supplies. A dump truck driver may deliver gravel for xx.xx per hour plus the cost of the gavel.
One problem I see, is that most managers in this field want the best of both worlds. When a job is done in less time, than Flat Rate, they want to charge the full time. If the job takes longer they want to charge for the total time involved in doing the job. Could this be because we are not charging enough to start with, so we have to grab every little thing we can?
I do agree that these are management issues that need to be dealt with. Most of us are techs turned manager. Down deep we know we are not managers and are afraid of our abilities as managers. Flat Rate give us an easy way out. It shifts some of the responsibility onto the techs shoulders.
_________________ David Wittmayer
Owner / Manager
Hansen Enterprises Fleet Repair, LLC
Camp Verde, AZ
www.hefrshop.com
Joined: 15 May 2007 Posts: 774 Location: Baton Rouge, LA
Posted: Sat Feb 23, 2008 4:07 pm Post subject:
Hi Dave,
Dave wrote:
Partly it depends on weather we are we billing by the job or by the hour?
If we are billing by the job, Flat Rate gives a “time” that it should take for an average technician to do a given job. This “time” is then multiplied by the shop rate, the parts are added in and a total price for the job is computed. This price is what the customer should be charged. It makes no difference if more or less parts are needed, nor if more time is needed or the job is done quicker.
I would argue that ALL auto repair is sold by the hour. The "by the job" terminology is simple a way some people feel they are getting around the legality of charging for more than delivered, in my opinion. HOURS are used to calculate the price and HOURS are sold. Just because a book makes them up instead of a shop employee, has little to do with it.
I have heard this argument many times. "A flat rate hour is not an hour it's a unit." Some avoid the use of the word hour at all. In the end, the "book" is talking about time required. This is measured in hours and portions of an hour. An hour is a discrete unit, 60 minutes. Call it what they will, it's nothing more than conscience salve.
Dave wrote:
Most products and some services are sold ‘by the job’. Food in a restaurant is sold by the job. You pay one price for the meal. It makes no difference how long the cook takes to prepare the meal (Flat Rate) or the size differences in the portions of food (parts). Did a new cook prepare the food or an experienced chef? It makes no difference to the price the customer pays.
This is a product and not a service. There is no labor rate because the restaurant is not selling time, they are selling food. A repair shop is selling time, skilled service. The cost of time is a major portion of the bill and jobs are billed based on the amount of time taken. Whether the time comes from a labor guide or a clock, it is still being sold based on hours to do the job.
Dave wrote:
A concern that I have with Flat Rate is why is there such variation between labor guides. Pick several jobs and compare them between Shop Key, AllData and Real Time. I have seen the time for some jobs vary by as much as 100%. To add more confusion, check out the dealer times. Who’s Flat Rate time is accurate?
My point is, none are accurate because they cannot possibly tell how long a technician will take to accurately perform the job. They were never intended to be more than a guide, but have evolved into something totally different.
Dave wrote:
The other method is billing by the hour or T&M, time and materials. Using this method the customer pays for the total time it takes to do the job as well as all parts used. It is simple and straight forward. The issue that I see with T&M is that not everybody works at the same speed, but they may charge the same per hour.
The fastest technician, on any given job, should be assigned that job. This gives efficiency and the lowest price to the client. It also allows the shop to charge a higher rate and still be competitive. If they choose the shop may also charge a lower price, make the same money [as others] and capture the market.
All of my techs perform the same jobs in very nearly the same amount of time. Except as explained in my post above, I see no reason any other techs would not do the same.
If a shop has a wide variation in skill levels, work should be assigned on the basis of ability. If the shop wishes to use people who are not proficient in the work assigned, they might need to adjust their service rate. Just as a very experienced technician commands a higher salary.
Dave wrote:
When working on straight time the slow guy gets rewarded.
Not so, he makes $XX per hour and spends XX hours per week. There is no reward in going slow. The shop loses, because they have less time to sell to others. The slower the tech, the lower the rate that may be billed per hour or the shop will no longer be competitive on price. This may cause them to lose clients. There is no reward when anyone waste time.
Dave wrote:
Some people think that a given job will take the same amount of time so why hire the expensive guy to do it, it will just cost more.
A better [more expensive?] technician should do the job in less time. A shop may charge more for his time and still remain competitive on price. The client gets their vehicle back faster, the shop makes more money by serving more clients and the price stays competitive. The shop also needs not play games with hours, charging for four and supplying three. Waste benefits no one.
The shop may also choose to lower the price of the job, by charging the same rate [as others,] make the same money as others [in less time] and capture the market, while still making money.
Dave wrote:
I think that services are mostly sold using T&M. A housekeeper may clean houses for xx.xx per hour plus supplies. A dump truck driver may deliver gravel for xx.xx per hour plus the cost of the gavel.
This is simple business sense. Cost can easily be calculated per hour. Profit too can be calculated per hour. This yields a rate that when multiplied by the hours used produces the profit desired. I know of no such way a price could be as easily established otherwise and produce the same results.
Making up prices and hoping for profit is very risky. Even basing prices on the rest of the market [that calculates prices based on hours] is simply another way of avoiding the truth. The method has the added benefit that hours are [supposed to be] a discrete measure that everyone understands.
Dave wrote:
One problem I see, is that most managers in this field want the best of both worlds. When a job is done in less time, than Flat Rate, they want to charge the full time. If the job takes longer they want to charge for the total time involved in doing the job.
"It is not difficult to see the difference in right and wrong, it is the wrong that benefits a man that tends to cloud his judgement."
Dave wrote:
Could this be because we are not charging enough to start with, so we have to grab every little thing we can?
I think it is because shop owners lack the back-bone and/or knowledge to calculate cost, add profit needed and bill that amount per hour. For some weird reason it seems they prefer to play some silly game. A game where they claim to charge less than they actually do and inflate the hours to make up the difference. I think this foolishness often makes them seem crooked in the eyes of the client.
Why the games? We are [supposed to be] "big boys" here, business owners. When is this foolishness going to end? What is there to fear?
Dave wrote:
I do agree that these are management issues that need to be dealt with. Most of us are techs turned manager. Down deep we know we are not managers and are afraid of our abilities as managers. Flat Rate give us an easy way out. It shifts some of the responsibility onto the techs shoulders.
And largely makes the trade look dishonest to clients and runs good technicians away much faster than they can be replaced. I see no benefit to the present system and huge benefits in a more honest system. Have I ever sent you a copy of The Cave, from Plato's Republic?
Fortunes are earned by those with courage to be different. Those that cling stubbornly to that which does not work, for the sake of fear to change, make a living, at best.
In most other businesses, it is common practice to strive to become more profecient, thus reducing costs and improving quality. All that lowers the cost of producing and warrantying the product or service.
Those lower costs are a competetive advantage. They allow a lower selling price, and therefore a larger market share and overall greater profits. From cars to TVs, if you can make it better and sell it cheaper, you can grab a bigger part of the market.
Not so in auto repair. This is a rare practice, as few people see it that way. Why bother improve proceedures or train people?
Besides, if you want something, simply offer incentives and bonuses for it. Increased production gets a bonus. Lower comebacks gets a bonus. See how easy it is to be a manager?
Second, that was one of several problems with Honda service. Every tech had to do everything on every type of car. There were no special areas of expertise, no time-saving proceedures. On any given day you could say that 40% of the techs were doing something they were not good at.
Naturally that transalates into poor service from a shop that is seen as commanding the highest prices. What a weird market position. No wonder customers don't return and techs run out of work early in the days.
Joined: 19 May 2007 Posts: 206 Location: Camp Verde, AZ
Posted: Sun Feb 24, 2008 8:25 pm Post subject:
louis wrote:
Why the games? We are [supposed to be] "big boys" here, business owners. When is this foolishness going to end? What is there to fear?
Change.
Most of us (techs and owners) live in fear. We are afraid that the job we just did will have a problem. We are afraid that the tech left a greasy finger print on the steering wheel. We are afraid that when the customer says “ever sense you did this, my car does that” it is something we did incorrectly. We are afraid of over charging. We are afraid that the customer will not pay what we really need to charge. Most of the fear is not logical, nor is it factual, but we still make decisions based on it.
louis wrote:
Have I ever sent you a copy of The Cave, from Plato's Republic?
Nope, never heard of it. Please do.
_________________ David Wittmayer
Owner / Manager
Hansen Enterprises Fleet Repair, LLC
Camp Verde, AZ
www.hefrshop.com
Joined: 15 May 2007 Posts: 774 Location: Baton Rouge, LA
Posted: Mon Feb 25, 2008 12:50 pm Post subject:
Hi Bud,
Bud wrote:
Two things here:
In most other businesses, it is common practice to strive to become more profecient, thus reducing costs and improving quality. All that lowers the cost of producing and warrantying the product or service.
Those lower costs are a competetive advantage. They allow a lower selling price, and therefore a larger market share and overall greater profits. From cars to TVs, if you can make it better and sell it cheaper, you can grab a bigger part of the market.
Not so in auto repair. This is a rare practice, as few people see it that way. Why bother improve proceedures or train people?
Besides, if you want something, simply offer incentives and bonuses for it. Increased production gets a bonus. Lower comebacks gets a bonus. See how easy it is to be a manager?
One thing I love about the auto repair trade is the enormous potential for improvement. Overall I would estimate about 50% waste in the best run shops. Reducing this loss, either prices could be cut in half or profits could be more than doubled.
The scary thing is, most shops do not even seem to be the least concerned. They eek out a living, even while clients are leaving because prices are too high. Perhaps it's time to try a different approach?
Bud wrote:
Second, that was one of several problems with Honda service. Every tech had to do everything on every type of car. There were no special areas of expertise, no time-saving proceedures. On any given day you could say that 40% of the techs were doing something they were not good at.
Naturally that transalates into poor service from a shop that is seen as commanding the highest prices. What a weird market position. No wonder customers don't return and techs run out of work early in the days.
That's a sad testimony in my opinion. So much improvement needed and so much effort wasted on ineffective techniques.
Joined: 15 May 2007 Posts: 774 Location: Baton Rouge, LA
Posted: Mon Feb 25, 2008 1:18 pm Post subject:
Hi Dave,
Dave wrote:
louis wrote:
Why the games? We are [supposed to be] "big boys" here, business owners. When is this foolishness going to end? What is there to fear?
Change.
Most of us (techs and owners) live in fear. We are afraid that the job we just did will have a problem. We are afraid that the tech left a greasy finger print on the steering wheel. We are afraid that when the customer says “ever sense you did this, my car does that” it is something we did incorrectly. We are afraid of over charging. We are afraid that the customer will not pay what we really need to charge. Most of the fear is not logical, nor is it factual, but we still make decisions based on it.
I have never considered myself a brave person, but I have known brave people. I believe courage is not the absence of fear, it is taking needed action in the face of fear.
Dave wrote:
louis wrote:
Have I ever sent you a copy of The Cave, from Plato's Republic?
Nope, never heard of it. Please do.
Socrates wrote down many of the thoughts of Plato, in several volumes known as Plato's republic. Amazing, but it seems as though he is discussing people today.
The chapter I found most interesting is "The Cave." In it he describes people who have been in a cave since birth. They can only face forward and their only reality is images of people walking behind them, casting shadows on the wall.
They debate about the shadows, predict which shadow might come next, etc. If a person were to try to take them from the cave, they would fight. Brought into the light of day, they would not be able to see and think it horrible, until they adjust. In time they would realize the truer reality. If they went back into the cave, those still inside would not believe them. They would resist with all their being being taken from the cave.
Not as eloquent as Plato, but that's the gist of it.
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