What is a good labor efficiency percentage for a body shop for both the body side and prep/paint side?
Efficiency percentages, or ratios, are important for each shop owner, manager and production manager to know. We need to know that number for each technician, department and the shop as a whole so that we can effectively schedule and forecast.
This seems like a simple question, but it’s not. Unfortunately, efficiency ratios are not good benchmark numbers.
For a national average, 160 to 175 percent is close. It depends on who's measuring and how. But don’t hang your hat on that number!
The formula for efficiency ratio is Sold Hours / Worked Hours x 100. So if the tech produced 80 billed hours while working 40 hours in a week, his efficiency ratio is 200 percent: 80 Sold Hours / 40 Worked Hours x 100 = 200 percent.
It's also difficult to come up with an accurate metal department vs. paint department number because so many paint operations get posted to body. For example, you're able to gain compensation for color, sand and buff, but the insurance adjuster pays that as a body operation to avoid paint material charges. (I'm not saying that’s okay! I'm saying it happens...a lot.) Unless all of those miscellaneous operations are corrected, efficiency ratios are not accurate.
Unfortunately, billed hours are not standard across the country because there is not a standard labor rate. This question came from a California shop. California is the prime example of the problems associated with the use of efficiency ratios as a Key Performance Indicator (KPI). Labor rates in Northern California average $80 per hour, while labor rates in Southern California average $45 per hour. Why? Are shops in Southern California faster? Nope. The techs all work at basically the same speed with the same materials and same tools on the same cars. Fact is, there are regional differences in labor rates.
Using the California example, efficiency ratios in Southern California average 200 to 225 percent, while in Northern California the efficiency ratios range around 120 to 150 percent. There are even differences within the markets, but efficiency ratios are not good benchmark KPIs because they vary by door rate.
So, yes, it's important to know your efficiency ratio. Check with local resources perhaps your paint company has a local business development consultant who can provide a local efficiency benchmark to see how you compare in the market. Then, find ways to improve your number. There are many ways to do this!
Caution: Most in our industry think that efficiency ratios are improved by making the techs work harder. Not so! The easiest way to improve efficiency is to generate more complete damage evaluations. Let’s say an adjuster wrote a repair for four hours and the technician took three hours to complete the repair. The efficiency ratio on this job is 4 Sold Hours / 3 Worked Hours x 100 = 133.3 percent. But if we had reviewed the P-pages and negotiated an additional .5 for the repair, we would have been paid 4.5 hours. Our new efficiency ratio is: 4.5 Sold Hours / 3 Worked Hours x 100 = 150 percent.
Implementing a complete blueprint process results in more complete damage analysis, improved compensation and improved efficiency ratios.