The Flat Rate Mentality

What is the Flat Rate Mentality?

It’s the attitude that “today” is all that really matters. In our society of “instant gratification”, this doesn’t sound so unusual. It is very normal for us to purchase vehicles, clothes, furniture and more on credit so that we can enjoy these items now and worry about paying for them later. So what?... Welcome to America, right?
Flat Rate Mentality is different. It is the pressure of not “instant gratification” but “lone survival”. This mentality has created the attitude that today has to be the focus of everything that we do and tomorrow is another day. From a productivity perspective, this is not a bad thing. After all, labor has no shelf life! What we don’t sell today is no longer available tomorrow.
The problem is the side effects. In a time that “Customer Retention” is the focus of nearly every intelligent business in North America (for the right reasons), the Flat Rate Mentality poses a unique challenge:

• How do we inspire these employees to focus not only on today…but focus on the future as well? After all, we need production today…The basic Flat Rate Mentality.
• Customer Retention is about selling the future, rather than flushing their wallet today.
• With the average ownership cycle at nearly nine years and over 200,000 miles, it is no longer practical to let over 70% of our customers defect by the time their vehicle goes out of warranty – that’s when they are most valuable!
• We need comprehensive “all-good” (green) multi-point inspections and other efforts that create long term loyalty. This concept conflicts with the Flat Rate Mentality. Why spend time doing something today that will not produce results today?
• We need to consider the customer retention risks associated with market changes like the competition scanning codes for free, while we continue to charge $100 or so, arguing that the customer gets what they pay for..
Now, for many of us in management positions, this may all sound simple or elementary. Yet, rarely do I see managers resolve the issue. Generally, management has chosen to ignore it! And it’s easy to understand why. This is a very complex situation! While we are going to primarily examine this mentality from a technician position, it is not always just about technicians; it’s about advisors/consultants and in many cases, managers.

Understanding the Flat Rate Mentality

The Flat Rate Mentality is not really about a pay plan. We have just given the pay plan the blame. It’s about a focus, a very important focus that most successful companies and industries share. The focus is on productivity! Our bills are due monthly…so should be due our profits! Productivity has a major role in our competitiveness and ultimately our profitability. With that focus on productivity come some challenges:
A funny story – A few years ago, I was invited to visit a small dealership that was suffering from poor service absorption:
• The technicians were all paid hourly and productivity was poor (70%+/-)
• The technician morale was great – do whatever they ask me to, we all help each other, etc.
• The atmosphere was definitely ”family-like”
• The only person suffering was the dealer and the financial statement
The dealer did not want to change his technicians to flat rate but was agreeable to an hourly compensation plan with a variable rate based on the previous month’s individual productivity.
We implemented production improvement processes and the new compensation plan to reward the technicians for their hard work. It was a success.
Now that the productivity of the service department had increased, we introduced a multi-point inspection process to “feed-the-hungry-production-machine”. When introduced to the new inspection process, the technicians argued: “Who’s going to pay me to do these inspections?” I was shocked at first, but soon began to recognize this newly-identified behavior. These were “hourly” technicians with a whole new mentality…hooray…The Flat Rate Mentality!
A production or performance-based pay plan (flat rate or deviation of) may be the very worst compensation plan except when compared to any other pay plan! - Simply said: “The pay plan works!” The pay plan can create a very good work-ethic when managed properly.
Once exposed to this reality, many managers embrace the “eliminate flat rate concept”. Which do you want – production or retention? The correct answer is BOTH! Customer retention and great production can and should have a happy marriage and live happily ever-after.

The Technician’s Perspective

In order to find the balance needed in this challenge, we must first understand the technician’s perspective.
1. The Flat Rate Mentality begins with “Sub-Contactor” belief. When we hire technicians, we offer them a wage that, we believe, to be fair, competitive with the market and within our gross profit needs. While the technician may be appreciative of their new opportunity, their concept of the arrangement is probably different than ours. Their “reality” is that you are renting them a “bay” or “stall”. If you are paying them $25.00 per hour and you’re “door rate”, “grid rate” or even, perhaps, “warranty rate” is $100.00 per hour, their perception is that they are paying you $75.00 per hour for the use of your stall or bay. We know this isn’t exactly the truth. First, we only wish that the $100 per hour was our effective rate, not to mention all of the expenses that are related to the production of that hour. While it is not the truth, it is the perception. Perception is reality in the mind of the perceiver! In this case, the “perceiver” is repairing cars in your service department!
2. The next factor is the “I’m alone to survive” belief. Many technicians feel alone in the world of work. Sure, they have buddies that they talk too and even have beer with after hours, but they believe that no one else really cares whether or not they make a living. This belief is confirmed, in their mind, every time that they are asked to do something for nothing. Whether it is scanning a vehicle for codes, installing a license plate or performing a multi-point inspection, they see it as us stealing their productive time. Now we know that is not necessarily true as the technician probably wastes far more time in a day than they ever spend doing “freebies”, but it is a perception. And, perception is reality in the mind of the perceiver! Once again, the “perceiver” is repairing cars in your service department. The survival belief creates a lack of trust in other people and “the system”. While most technicians believe in the concept of inspections, they overall lack of trust that returning vehicles will be given back to them to perform the additional repairs. Further, a lack of trust in the entire flat rate system is created by the technician’s lack of understanding why customer-pay pays more time than warranty.

The Technician’s Perspective on Customer Retention
Technicians believe in the logic and philosophy of customer retention. Unfortunately, the “Flat Rate Mentality” causes a technician to believe that customer retention is someone else’s responsibility. The “Subcontractor” belief says: I pay the dealership 75 bucks an hour to use their bay, the least they can do is keep me busy. The “I’m alone to survive” belief says: That’s someone else’s problem, I have to get my “xx” hours, today.

Using Flat Rate Mentality to Improve Customer Retention
You might be lucky that you’ve survived! Face it…no-one has experienced the impact from competition more than the automobile business. More competition, both in nameplates and independent service providers has continued to gobble up our customer base and vehicles are much higher quality, causing less repair opportunities. Many of us sit back, business as usual, hoping for something good to happen. These attitudes allow Flat Rate Mentality to prosper.
A perfect example of this lack of adaptability is check-engine light diagnosis. Twenty years ago, drivability diagnosis was a nightmare. Most of the time, the diagnosis required a well-trained, highly skilled technician many hours to diagnose a concern. In fact, the manufacturer’s flat rate times were usually one hour or more just to perform the preliminary diagnosis. Since then, technology has improved the procedures and made diagnosis far less complicated. As a result, most manufacturers specify two or three tenths for the preliminary diagnosis. Yet, in our service departments, many of us still charge the retail customer the same thing we did 15 or 20 years ago, an hour. Meanwhile, our independent competition has seized the opportunity to steal our customers by offering free or discounted rate “scans”.
We challenge their position by saying that the “customer will end up here anyway”; or we justify our position by saying “this is one of the last opportunities that I have to make money”. What we need to be saying is “How many customers am I losing? and; “Would it really cost me money to do things differently?”
All of that was said to say this: Improving Customer Retention in a Flat Rate Mentality environment involves CHANGE! We must learn to change to an ever-changing world. So, how do we do this?
Before we talk about the actual changes of a successful plan, let’s talk about the most important part, your role as a manager.

Customer Retention must be a key focus of everything we do!

Customer retention is critical to our future success. If you don’t believe this, no one else will.

1. Set Your Vision
Your vision must be stronger than reality! Many dealers and service managers have attempted, on many occasions, to implement change, only to hit a wall of opposition. The wall is opposition to change itself, not necessarily what is being changed. If you understand why you are doing something and believe from the bottom of your heart that it is the right thing – set it as your vision. Employees see this vision as strength and they will respect and honor the strength.

2. Communicate Your Vision
Develop a focus for your department! Through many years of studying dealership CSI, we’ve discovered that the primary difference between dealerships that are truly successful in customer satisfaction and dealerships are not so successful in customer satisfaction is communication. The successful dealerships talk about CSI often, like every day, and it comes from the dealer down. Everyone understands the importance. In the fast pace of our everyday world, we tend to tell our staff what to do rather than setting their vision. We must work “with and for” and not “to and against”.
As an example, many dealerships have had unsuccessful Saturday service for years. The dealer told the manager to open on Saturday’s and the service manager told the staff. Week after week, Saturday’s are sabotaged by advisors, technicians and even managers who would like to see Saturday’s stopped. Meanwhile, the independent service providers continue to enjoy Saturday as their busiest day of the week. What If you, as a manager, set your vision for Saturday’s to be your biggest day and you communicated this with all of your staff, daily, and encouraged their feedback in making it happen. As you do this, remember that most people understand logic. And the logic in this case is that 60%+ of our customers defect and the main reason is inconvenience. If you don’t believe it, take a field trip to one of your Independent Service Provider competitors one Saturday morning.

3. Consistency in Communication
The #1 concern that employees express is a lack of involvement and communication. Employees will complain about having meetings, but they complain loudest about not having meetings. In fact, a lack of meetings reinforces a technician’s “sub-contractor” and “all-alone” beliefs which is opposite of what we want or need.
Have meetings often, but remain brief. We actually suggest, and highly encourage, daily technician meetings. While we’ll discuss this in further detail in the “Actual Changes” portion of his article, these meetings allow discussion of the previous day’s production, ongoing discussion of the “Vision” and encourages employees to be at work on time. Consistently means, if you are going to have daily meetings – HAVE MEETINGS EVERY DAY. If you don’t, you are showing a sign of weakness in your focus on the vision.

Ways to Create Customer Retention Focused Flat Rate Technicians

1. Implement Production Objectives – Every technician shows up to work, each day, with a number in their head. That is the number of flat rate hours that they need to produce to be able to make a living. At the end of the day we can tell if they accomplished this number by the look on their face, happy or frustrated. The frustrating days support the “I’m alone in this world to survive” theory. No one else really cares. What are the alternatives? Implement formal Production Objectives. There are three ways to do this, two wrong and one right.
a. Assign every technician a minimum number to hit each day or week – WRONG! This technique would be your production objective, net theirs.
b. Assign objectives based on their current skill category; A Tech – 10 hours, B Tech – 9 hours, C Tech 8 hours, etc. – WRONG! A technician’s skill level does not necessarily determine their productivity…some of the best technicians around are not big hour producers, but they fix cars!
c. Develop objective based on previous performance, get buy-in and concurrence from technician
i. Meet with technicians individually
• Solicit feedback regarding roadblocks
• Address concerns with one of three responses
     1. We’ll resolve this issue

     2. I’ll look into this and get back to you by (date)
     3. Welcome to the car business
• Reach agreement on increase, based on removing roadblocks

Production objectives, when properly implemented, help tremendously in conquering the “I’m alone in the world to survive” mentality. But feedback is mandatory. As we discussed earlier, performance against production objectives must be monitored and communicated daily, weekly and monthly. Morning Production Meetings, we discussed earlier, are the perfect opportunity to do so. Without feedback, the objective is only a number. Daily meetings give management an opportunity to discuss a plan of action to resolve poor productivity prior to it being too late. It makes dispatch inadequacies obvious. This gives the technicians the assurance that someone else cares.
In addition, production objectives provide the service department the information needed to effectively schedule and load work into the shop. Now the advisor can better forecast accurate promise and/or status times.
The bonuses are that a typical service department that correctly implements production objectives realizes an eight to twelve percent increase in productivity. Do the math on that one! Most technicians, dealers or managers won’t complain about an 8-12% raise. In addition, morning meetings give the managers an opportunity to assure that technicians arrive on time and the chance to share any additional communication.
The manager should single out any technician that has missed their objective for three days in a row, to discuss the problems or issues that are causing the sub-par performance. Objectives should be re-evaluated on a regular basis.

2. Establish and Communicate Vehicle Inspection Process – including returning vehicle to original technician for repairs.     
a. Designate, solicit volunteers or elect a group of technicians as a Process Implementation Team (PIT Crew). With the manager’s guidance go through every single item on the inspection document and write a description of how that inspection should be performed. Also, identify whose role it will be to perform that particular inspection (Example: in some dealerships, the technician tests batteries; in others, the advisor tests the battery; and in others, a porter tests the batteries). You might be surprised by the different opinions of how a tire tread depth should be measured. This helps to eliminate the controversy. The manager’s role is to keep logic and reason in the process and constantly remind the PIT Crew that every decision made should consider the fairness to the customer, the technician and to the dealership. If it’s fair to all, it is probably the right decision.
b. Once the process is written and agreed upon, arrange a meeting for all technicians. The manager introduces the new process, explains the importance to our business and customer retention then asks the PIT Crew to go over it.
c. Solicit input from each member of the staff and set a date for implementation. Measure the results! Just like with implementation of Production Objectives, it is critical to measure and manage your process. If it’s not worth the manager’s time – then it’s not worth the staff’s time!
d. Create a Written Policy for returning vehicles to the technician who made the recommendation, whenever possible. Technicians, regularly, lack confidence that this happens. While this practice typically happens anyway, a written policy assures that everyone understands the procedure and creates comfort in the technician’s mind.

Summary

While fair and focused pay plans are very important, we sometimes expect pay plans to do everything. This will not happen. Remember Newton’s theory of physics: “For every action, there’s an equal reaction.” As it comes to technicians, we can manage their “Action” by paying them hourly and “whipping” them into producing. Or, we can compensate them based on production (flat rate), and manage the “Reaction” by helping them to be a part of a bigger picture and showing care and concern for their needs.
If we consider two three important factors in EVERY decision that we make, we will succeed in this endeavor:
1. Will it support and improve customer loyalty retention?
2. Will it support and improve employee loyalty and retention?
3. Does it support the dealership’s profit needs?
While we mentioned a couple specific ways to improve in this quest, there are many, many ways to build on this. These examples might include: specific recognition or rewards for improvements in customer retention; funding or supplementing 401K programs with profit sharing. Most of all, we must include retention in every meeting and conversation that we have with our staff.