Service Excellence: Proficiency, the King of KPIs

In my 40 years of experience, I have seen numerous definitions of productivity, utilization, efficiency, etc. Those are all reasonable and effective. However, based on my experience, here’s how proficiency should be defined and managed.

Proficiency Defined

Proficiency is made up of two elements: productivity and efficiency.

Productivity is Flat Rate Hours (FRHs) divided by clock hours. For example, Technician Fred clocks in for 40 hours an average week. During those 40 hours, Fred flags 32 FRHs. Therefore, Fred’s Proficiency is 80% (32/40). However, Fred is only actually “turning wrenches” (diagnostics and repair) for 28 clock hours. Therefore, his Productivity is 70% (28/40).

How is this possible? Fred may be waiting for parts, or for the service advisor to get a customer approval, taking a quick break, being unproductive, waiting for a part, or any number of other reasons.

As for efficiency, it’s calculated as FRHs flagged / actual clock hours in the stall.

In above example, Fred is “turning wrenches” for 28 clock hours but he’s flagging 32 FRHs so his efficiency is 114% (32/28).

There are three primary areas that are benefits of high proficiency:

1. Service and Parts Department profitability

As throughput is increased (defined as the amount of service product – measured in FRH – that can be produced in a specific time period), then, this equates into additional Labor and Parts Gross Profit dollars.

2. Customer Retention

We are currently in a national tech shortage and if we are booking out more than a week, then we are losing customer-pay business since a dealership is too busy with internal and warranty and likely building negative customer perceptions by being inconvenient.

3. Technician Retention

Assuming you pay your technicians through an incentive pay plan such as flat rate or a hybrid, then when their proficiency is increased, so does their earnings. We typically place a lot of focus on finding and training new technicians, but we should also place emphasis on retaining our current technical staff. Remember that your competitors are aggressively courting YOUR technicians. And, independent shops only work on customer pay work (higher efficiency than warranty) and they are not typically open on Saturdays. Dealerships need to find ways to keep your technicians around long term.

Financial Analysis of Proficiency

Here is an example with general numbers to help indicate where adjustments impact your bottom line.

• Effective Labor Rate: $200
• Labor Gross Profit %: 70%
• Average FRHs per RO: 3.0
• Technician Count: 10
• Current Proficiency: 80%
• Average Month Workdays: 25
• Labor Gross Profit: $200 * 70% * 3.0 * 10 * 80% * 25 = $84,000 labor gross profit per month

What if we increase our Proficiency by just 10 points to 90%?

Labor Gross Profit: $200 * 70% * 3.0 * 10 * 90% * 25 = $94,500 labor gross profit per month

That’s an additional $10,500 Labor Gross Profit per month, or $126,000 per year AND that does not include the additional parts gross profit!

Bottom line, regardless of your numbers, a 10% increase in proficiency will produce parts and labor gross profit increases of around $180,000 per year and give the technical staff each a $10,000 raise with no more working hours with improved customer turnaround time and retention.