Automotive Service Management Newsletter
Vol 1, No 9, September 2007
Quit Losing Money Over Quality Issues
Part 3: The Cost of Repeat Repairs and
Poor Customer Handling
What is even scarier is the total lack of understanding of the lost dollars associated with poor repairs resulting in repeat repairs. Customers always get even for how they are treated and one of their favorites is to fire their service department if they continue to have repair problems, especially due to a lack of parts requiring a second visit for the repair completion.
So I guess the first place to start is to decide if your service department is tired of losing money due to dealing with comeback repairs. Years ago, I posted a worksheet for an average service department generating about 200 repairs orders a week to figure how much money they are losing if 5 percent of the work was resulting in repeat repairs. That worksheet showed that if the average labor rate was $75, the service department was losing about $145,000 a year in labor only. It did not include extra parts that might have been needed to complete the repair properly.
Adding to the mix is the fact that special ordered parts that require a return visit are not considered a comeback repair in many organizations. This is foolish because the time it took on the first visit to establish the needed part generated no income and took away from a money repair.. We also have to consider the employee time ordering the part, tracking and properly stocking it as a special ordered part and contacting the customer to set up the appointment to complete the repair. Then when it returns again, though it may generate income, it is time being spent again by several of the employees to complete the repair. Folks, I hate to tell you this, but these little minutes turn into hours and a lot of lost income over a year.
To help us get a handle on how serious the cost of repeat repairs can be, let's look at some costs involved in a repeat repair incident and where I got that $145,000 per year loss due to repeat repairs. We will be using a form I created called, "Calculating the Cost of Repeat Repairs." In the first area of this form, Employee Costs Per Repeat Repair, we want to take an average repeat repair incident and look at the employees involved and their average cost per incident. On the form, we have listed the employees involved in a repeat repair and the approximate time and cost needed for each employee's involvement to create a total employee cost:
Depending on your staffing, the total time per incident can vary. For our purposes, we will consider that all of these folks are on the staff and will give the total cost for their involvement as $20.40 for each repeat repair incident. In the next part of our form, Weekly Employee Costs, we will calculate the weekly employee costs. For our example we will consider that this shop is having 10 repeat repairs a week. So the weekly employee cost would be $204.00.
- Service Advisor, who will set the return appointment, write-up the customer, track the repair through the shop, contact the customer with status updates and deliver the vehicle back to the customer - 20 minutes - $5 @ $15/hr
- Cashier, finalize the paperwork and close out the repair order with the customer - 5 minutes - $.80 @ $7/hr
- Dispatcher, optional position in service departments, is responsible for getting the repair order to the proper technician based on symptoms listed - 5 minutes - $1.25 @ $15/hr
- Shop Foreman, can also be called the lead technician, optional position in service departments, will usually review the diagnosis of the repeat repair to determine cause - 20 minutes - $6.50 @ $20/hr
- Service Manager, may have to visit with upset customer, review the diagnosis to determine the reason for the repeat repair if no shop foreman is on staff, and confirm that repeat repair is properly completed - 10 minutes - $4 @ $25/hr
- Parts Person, if new parts are needed will be responsible for locating parts and distributing them to the technician - 10 minutes - $1.25 @ $8/h
- Warranty Administrator, if it is a warranty repair, this person is responsible for updating the warranty claim and submitting it - 10 minutes - $1.60 @ $10/hr
Now let's look at the Weekly Lost Labor Hours and Costs. If we discover that our average labor hours for a repeat repair is 1.5 labor hours, then we would be using 15 labor hours each week. With a Labor Rate of $75 per hour, then our weekly labor costs would be $1,125.00.
Unfortunately, for each labor hour spent on a repeat repair we could have been making new income. So the 15 labor hours each week spent on repeat repairs is also the amount of lost income, which is $1,125.00, and documented on the Lost Weekly Labor Rate Income from Repeat Repairs section.
We can't forget that we may be spending money to help with any inconvenience experienced by the customer due to the repeat repair. We will use the Weekly Customer Compensation Costs for Inconvenience to figure these numbers. Let's use an average of $35 per incident which will result in $350 being spent each week.
The next step is to calculate the Total Weekly Cost of Repeat Repairs by simply adding up all the numbers from the previous charts. Our weekly costs would be $2,804.00.
Finally, we will calculate the Yearly Cost of Repeat Repairs for a grand total of $145,808. I hope this example gets your attention because I have been as conservative as possible with the calculations. A very large service department can be losing two to three times this amount.
There is another financial cost we did not include because it is virtually impossible to accurately track, and that is the hidden costs of these repeat repairs. These hidden costs are created by unsatisfied customers who will never return and the people the customer tells about the repeat repair problems that will never use the service department or use that dealership for any type of vehicle purchase. If we assume that a customer tells at least 5 folks about their experience, multiply that by the 520 repeat repairs per year that we used in our example, then we could be losing more than 2,500 possible new customers each year.
However, there is another problem that adds to these hidden costs that we need to address. It happens when a customer experiences a defect in the service process by poor treatment, missed status callback times, or poor pricing on repairs, to name a few. The results are still the same. We lose these customers and anyone that they tell about their poor service experience.
The numbers are staggering when put to paper. Yet there are some key things we can do to learn from our repeat repairs and customer service challenges that are costing us hundreds of thousands of dollars per year in lost income.
Next Month: Part 4: Tracking and Analyzing Repeat Repairs
© Copyright, 2007, J. Daniel Emmanuel