AM Online

Sewells Best Practise: Addressing the costs of high staff turnover

'Speaking at the recent AM Aftermarket Conference, Guy Liddall, of Motor Trade Selection, revealed how the present shortage of vehicle technicians could build into a crisis. Using data from the RMI/Sewells Pay Guide for his analysis, he highlighted the cost of an empty service bay as £2,500 per week for a typical franchised dealer in terms of lost gross profit.

But the cost of an empty service bay is potentially much more because an empty service bay means staff turnover – and the cost of staff turnover can be crippling to any business.

Let's look at a simple example of what it could cost when a service technician leaves and you have to recruit another. There is a direct and an indirect cost to replacing a technician. The direct cost is primarily concerned with job advertising, or utilising a recruitment company. Obviously advertising costs vary considerably, but will certainly be hundreds of pounds – depending on local rates, the size and style of advert, and how many times you have to advertise before recruiting someone.

The indirect cost relates to productivity. The technician who is leaving will not work at peak efficiency during the notice period. And no matter how well qualified and experienced new arrivals may be, it takes about a month for them to become fully productive. Losing technicians and replacing them is disruptive.

To cost this, let's take the case of a technician where the changeover is relatively smooth. The factors influencing indirect costs include a lower overall labour efficiency during the notice period because the leaver is 'demob happy'.

Then there is an equivalent loss of labour efficiency as the new starter settles in. It is easy to show that this loss of productivity amounts to a lost gross profit of at least £2,000 at average margins for sales of labour, oils and lubricants, and parts.

Then you can add the loss of profit caused by the empty service bay – say £2,500 a week for two weeks. So in total, including all direct and indirect costs, plus the service manager's time spent on job applications and interviews, the cost of replacing a technician easily exceeds £8,000.

But this assumes an empty service bay for only two weeks. What if it takes longer and you have an empty service bay for three or four weeks? The answer is that losses escalate by at least £2,500 a week. Clearly the best way of tackling the technician shortage, and staff turnover, is to retain staff. The 'how' is all about improving staff relations.

'Investors in People' is an excellent approach to better staff relations, and most of the companies receiving the award report a significant drop in staff turnover. You may not want to join the scheme, but a review of its recommendations will certainly put you on the right track to improving staff retention.

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