We were recently asked- “We often hear of the importance of Flat Rating in our dealership. Why should we do this, and how do we get this info to start? How does this change with different conditions of equipment brought in?”
So, why should we use Flat or Standard Labor Rates (SLR)? It’s good for both you and your customer. From the customers perspective, it gives them the ability to know what the charge for the work is going to be regardless of the technician’s skill level. If they have an “B” or “C” tech working on their machine, the billable hours could much higher than what a flat rate would be doing an average of the same job utilizing all tech skill levels. On the dealer side, it helps to offset costs for training and equipment used to do repairs as well as making it easier to communicate to our service customers the cost of a repair
So now that we know the “why”, lets cover the “how” of Flat or Standard Labor Rating. The simplest way to create a Flat or SLR rate for a repair is to utilize a combination of your manufacturer’s warranty rate guide along with your warranty recovery rate from that same manufacturer. To calculate your warranty recovery rate by manufacturer, you take the amount of warranty requested vs the amount you were paid. As an example, if you filed a warranty claim for $300 of labor and you received $240 back from the manufacturer, you recovered 80% of what you requested. Your warranty recover for that specific manufacturer would be 80% or $240/$300.
At this point if you wanted to use the manufacturer’s warranty guide as a tool to do Flat or SLR’s you know that your shop time is off the manufacturers time by 20%. Using this method, add enough time to each job so that you are hitting a factor of 110% of your warranty time. In this case (recovering at 70%), you need to add 40% to the warranty times to determine your rate. If you are recovering warranty at 80% you would need to add 30% to the warranty rate times. Your goal is to be at 110% of your manufacturer’s warranty rate time for equipment that is in near new condition.
Equipment condition is an important part of using any Flat or SLR times. If a piece of equipment comes in “near new” just out of warranty condition for a repair and the rate for the repair is 3 hours, it should be possible to do the repair in the 3 hours allocated. On the other hand, if the equipment has been used but not abused, we would recommend that you add 30% more time to the SLR to compensate for any potential issues because of corrosion or mild to medium wear. Instead of telling the customer 3 hours, we would move the rate up to 3.6 hours. If on the other hand the equipment has been abused, we would encourage you to add 50% to the rate. This moves you from 3 hours to a rate at 4.5 hours.
When it all comes down to it you need to use your judgement and make the most educated guess on what condition a unit is in. If you think of “like new” as level 1, “used but not abused” as level 2 and “abused” as level 3 you will be correct with the percentage of time you will need to add on for the majority of your flat or standard labor rate times.
