Unapplied labor in Fixed Ops is one of the most misunderstood — and dangerous — problems inside dealership service departments. It doesn’t show up loudly. It doesn’t trigger alarms. However, it quietly erodes profitability month after month.
In Service Drive Revolution #338, the conversation breaks down what unapplied labor really is, where it hides, and why ignoring it creates massive financial blind spots for service managers and Fixed Ops leaders.
If you manage technicians, track labor efficiency, or are responsible for departmental profitability, this is an issue you cannot afford to ignore.
What Is Unapplied Labor in Fixed Ops?
Unapplied labor is any technician time that gets paid but is not billed to a repair order. That includes customer pay, warranty, or internal work.
In simple terms:
- The technician gets paid
- The dealership does not get paid
This includes time spent on:
- Non-billed shop work
- Inefficient workflows
- Poor dispatching
- Misclassified training time
- Mapping or accounting errors
When unapplied labor grows unchecked, it inflates your cost of labor and destroys effective labor rate — even when sales look strong.
Why Unapplied Labor Is So Dangerous for SERVICE MANAGERS
Unapplied labor doesn’t always show up where people expect it. In many dealerships, it’s:
- Hidden in cost of sales
- Buried in training accounts
- Spread across departments
- Mis-mapped in the DMS
That’s why SERVICE MANAGERS often feel like something is “off” financially but can’t pinpoint why.
A simple test reveals the truth:
If your technicians average $20–$30 per hour, but your effective labor cost shows $45–$50 per hour, unapplied labor is the culprit.
This is a common issue in both flat-rate and hourly environments — especially in quick lube and truck operations.
Where Unapplied Labor Hides Most Often
Unapplied labor in Fixed Ops typically shows up in a few predictable places:
1. Incorrect Accounting and DMS Mapping
When dealerships switch DMS systems, labor often gets mapped incorrectly. If no one audits it, the problem compounds for years.
2. Training Used as a Dumping Ground
Training is a legitimate expense. However, when unapplied labor gets mislabeled as training, managers lose visibility and accountability.
3. Inefficient Staffing Models
Two technicians doing the work of one does not cut time in half. In many cases, it doubles labor cost without improving throughput.
4. Lack of Time Manufacturing
Service departments are manufacturing facilities. The product is time. If time isn’t tracked and managed, waste becomes inevitable.
This is a leadership issue — not a technician issue.
Why “Throwing More People at the Problem” Makes It Worse
One of the biggest mistakes in Fixed Ops is treating symptoms instead of systems.
When oil changes take too long, the instinct is to add more technicians. However, without fixing dispatching, standards, and workflow, this only increases unapplied labor.
More people without structure equals:
- Lower efficiency
- Higher costs
- Less accountability
Systems fix problems. Headcount often hides them.
How SERVICE MANAGERS Should Track Unapplied Labor Correctly
The first step to fixing unapplied labor in Fixed Ops is honest accounting.
That means:
- Stop hiding it
- Stop spreading it across other lines
- Charge unapplied labor where it belongs
‘
Only when the number is real can you make real decisions.
Anything tracked improves exponentially.This principle applies across leadership, profitability, and culture. It’s also explored in depth in this related post on Service Manager Leadership and accountability systems.
The Role of Minimum Standards and Shop Culture
High-performing shops set minimum standards and enforce them consistently.
That includes:
- Expected efficiency levels
- Clear dispatch rules
- Defined labor targets
- Posted benchmarks
‘
When technicians know the standards — and see them enforced — unapplied labor drops.
This approach aligns closely with the principles discussed in our Fixed Ops performance frameworks.
Why Growing Technicians the Right Way Matters
Many dealerships rely on entry-level technicians to fill gaps. However, leaving them isolated increases unapplied labor and slows development.
Technicians grow faster when:
- They work within structured teams
- Expectations are clear
- Performance is visible
- Leadership is present
‘
Unstructured environments create wasted time. Structured systems create profit.
Final Takeaway: Unapplied Labor Is a Leadership Metric
Unapplied labor in Fixed Ops is not a technician problem. It’s a leadership and systems problem.
Service managers who:
- Track unapplied labor accurately
- Build efficient workflows
- Enforce minimum standards
- Treat time like the product it is
will outperform stores that simply react month to month.
Fixing unapplied labor doesn’t require new software, more people, or complex strategies. It requires clarity, discipline, and accountability.
When you manage time correctly, profitability follows.
FULL VIDEO TRANSCRIPT
SDR 338: Unapplied Labor Was Made By The Devil
Intro: Unapplied Labor & The Bears
Welcome to the big show. Today we’re going to talk about Unapplied Labor was made by the devil. It is something that is very prominent. It is a big topic that we’re going to take on today and explain the nuances of it and how you can overcome it. Adam is here. Hogi is here. I am here. Christian is not here. He’s off, but he will be back very soon. We talk about that and much more coming up on this edition of Service Drive Revolution.
I was thinking instead of talking about service, we should just talk about the Bears, the Chicago Bears, the best football team in the NFL this year. Now I feel like you’re just making fun of me, but yes, we’re getting there. Well, if you guys are going to talk football, I’m just going to sit back for a minute because it’s over. Chiefs are done for a while, this year for sure, and it looks like a pretty good chunk of next year, but I know that makes a lot of people happy, so. It made me kind of sad because I had Mahomes on the fantasy league, and I lost playoffs because he was gone, so I’m sorry, and I feel bad. It’s real tough after all those Super Bowls. Poor you, poor you.
Ben Johnson and the Bears got that going. For those who don’t know, Ben Johnson is the head coach; he came over from the Detroit Lions. One year, he’s completely turned it around. They went from mediocre to the envy of everybody.
A Gambling Anecdote
We were at the restaurant in the hotel, We ate, and we were tired. We were walking back and he’s like, “Do you want to play a little bit of roulette?” I was like, “Sure, if you play roulette, I’ll play roulette for a little bit.” So we’re playing a little bit and he had never played before, and I was explaining to him, “You can bet inside or bet outside or whatever.” So I was doing one of them and I had an odd amount of chips. I had one $25 chip.
I said, “What’s your favorite football player ever?” And Christian, also being from Chicagoland, what did he say? “Walter Payton.” So what was Walter Payton’s number? 34. It was like one of those gambling stories you tell and you don’t ever believe. The things running around, and the person hasn’t waved it off yet, so I put that chip down on 34, and it hits. I take off from the table, running, I don’t gamble any amount of money; it’s not me, and I’d never experienced anything like that before, so I’m running. I come back to the table, and Christian says, “What does that mean?” I’m like, “We just won like 900 bucks.”
Naming Kids
She was named after a… oh, you just… well, yeah, kind of. When the second daughter was coming, he was suggesting the name Jordan, then she caught on. Yes, she did catch on with the microphone. Almost. So he almost had Peyton, Jordan. Instead, it was Marin. Totally different. Who would I name a kid after on the Seahawks? Dave Craig? Interception? Name my daughter Interception? Chancellor? That’s not a girl’s name. Could you name a girl Chancellor? I don’t know. Today, I feel like you can get away with anything. You can’t, but should you?
I don’t know that you should, but it’s so funny when you meet kids nowadays and it’s like, “Oh, my name’s Thursday.” “It’s my favorite day of the week.” Look at the parents. You’re like, “No, it’s Tuesday.” “No, that’s my name.” “Was she conceived on Thursday?” “No.” “Oh, okay.” “It’s almost Friday, it’s almost the weekend.” The funniest is that story when you went to what’s his name in Texas to fix his Tesla, and all of his kids were named… Oh yeah, his brother’s George Foreman. So they’re all George. And then his brother, what was his name? Gary. And all his kids were Gary. All his sons, right? Did they name the girls Gary? I don’t think so. I think it was a similar thing. Did they even have girls? It’s like they are pre-wired to only have boys, It’s nuts. It’s pretty epic. It is. It’s so funny. You scream “George,” and nine people turn around. It’s so funny, it’s so true. Adam almost got away with it. I did. Until he did. Got one at two. 50%? That works out. I’ll take it. That’s great. It’s so funny. That’s really funny.
Defining Unapplied Labor
Okay, let’s talk about unapplied labor was made by the devil. This subject is coming up because it’s something that we see quite often. I would say that a lot of times there’s a disconnection between what it is and how it is communicated, I guess. So, first of all, unapplied labor, the way that I understand it, you guys can correct me, is any labor that isn’t billed to a customer. To a customer could be internal, warranty, customer pay, whatever, but it’s any labor that isn’t billed to a customer on the ticket. Say, for example, you have technicians that are doing shop work or oil changes, whatever work that isn’t billed to a customer, or they’re learning that sort of thing.
I think, too, when I have this conversation and I’m teaching it for the first time, I find the best place to start is talking about flat rate because a flat-rate tech generally would not have unapplied time unless you were paying for them to go to school or fixing a comeback for somebody else, something like that. Even that probably would go to policy, the way I would do it; I wouldn’t put that to unapplied. It is funny that when nobody talks about unapplied and nobody understands it, the crazy stuff you see charged to unapplied is nuts. Or where you see people try to hide unapplied is the other one. Let’s go through those. Where does either a manager, director, or an office manager put unapplied where it shouldn’t be?
Where Managers Hide Unapplied Labor
One would be just back to the cost of the sale, right? You just put it back to the gross. A lot of times you find that because if you take your overall cost of sale, which is the difference between the sales and the gross. If you take your labor sale, and we’re just going to use round numbers for easy math, say you’re selling an hour of labor for a hundred bucks. Your effective labor rate is $100. Your technicians cost you $20 on average. If you take all of your technicians and average them, either cost average, like real weighted average, or just across the board, and you average about $20 a tech, then your cost of labor should be close to $20.
What happens is when you figure out the cost of labor and you divide it by how many hours were sold, and the cost of labor comes in at $45, there’s a pretty good chance that the office manager is charging a bunch of stuff against the cost of sale that doesn’t belong there. Or we’re not flagging. Something is off.
Mismapping and Unresolved Tickets
I think that’s always the place to start. If somebody’s like, “Hogi, we had crazy unapplied time last month,” the first answer always is, “Okay, let’s get with the controller and see how we charge it. Let’s see what’s in there.” Just want to see what’s in there. I’ve seen salespeople in there. I’ve seen different departments charged Unapplied, and it’s just a mapping thing.
If nobody ever looks at it, I’ve seen it where it’s been like that for 10 years, and they’ll say, “Oh, that’s when we switched to a new DMS,” and the DMS was just mapped wrong from the very beginning. Nobody looked, and it just kept going. That’s just crazy to me. So are you more, is that more in a flat-rate shop or is that in an hourly? Well, on the car side, you would mostly have flat rate. The only hourly techs would be Quick Lube for the most part. In truck, you would have an hourly shop more than a flat-rate shop, and it would be all of them. That’s where I feel like the skeletons are hidden in some drawer or some really large ticket. The experience that I’ve always witnessed is like, “Oh man, I don’t know how I’m going to recuperate on this ticket, so I’m just going to figure it out at the end of the month and shove it in a drawer.”
Then at some point in time, when somebody’s actually looking at a WIP report, “What happened to this ticket?” “The vehicle’s not here. That was four months ago. The vehicle’s already done and gone.” You look at it, and you can’t collect on it, and on the same piece, it’s unapplied time to an extreme degree.
Misallocating Unapplied Time to Training
A lot of times when they’re doing unapplied time, what I’ve seen is they’ll put it to training. Training is through the roof. It’s okay to put unapplied time to training, but do you have that much training? How much is the factory really challenging you on training? You’re not going out that much time, and how many technicians, and it’s just lost. That’s what’s kind of crazy to me is with the hourly, we need to treat it like it’s flat rate; give incentives to try and manage that shop time.
I would personally charge tech training to unapplied. If I pay them to do training, I would charge it to unapplied personally, but I wouldn’t charge the unapplied to training. That line is labeled Cost of Goods for other general businesses, but it’s your direct cost of the commodity that you’re selling. I agree. When the tech is doing how they’re spending their time, that’s the cost of labor for that thing, for sure.
Calculating The Real Cost of Sell
The more accurate that line is, and you understand Cost to Sell, we should probably circle back for just a second on the example you were given. If you take the cost and divide it by the hours, there is a real-world scenario where, with unapplied time, even if your highest paid tech is $30 an hour, you can have a cost of sell of $40 or $50 an hour because of unapplied time.
Let’s explain how to do that really quick. You would take your total labor sales, subtract your total labor gross. This is less sublet or anything else. You would subtract your gross. The difference between sales and gross is what you’re paying the tech. Let’s say you had a million dollars in labor sales and your gross profit was $700,000. The difference is $300,000. Then you would divide that by how many hours he sold.
The Inefficiency of Two-Man Lube Teams
What happens a lot in truck, and you’ve seen more truck financials, Hogi, than I have, and you have too, Adam. My recollection is that I would say most truck dealerships run at 50% cost.
Let’s say that your average weighted technician is paid $20 an hour. Will want the dealerships to have a Quick Lube, and they will want to have a wet and a dry tech in one stall. You have a situation already where the Quick Lube techs are 40% efficient. Now you’ve added another head to the situation. You just have more unapplied time, and not that much of a benefit to the customer. You don’t do the oil change twice as fast. No, it’s like 20% faster. It’s not worth the cost. Sometimes not even that.
Trying to be nice, when we’re working on oil change things in the store, we’ll do the little kitchen timers a lot to see the time. It’s funny, a one-man team sometimes even beats the two-man team. It’s interesting.
The Real Hourly Cost
Even if you put math to that basic little thing, if you have a lube tech, I’ll say $25 an hour again so we can do the math in our heads. If a lube tech is making $25 an hour, he’s getting paid $200 for the day, right? He only produces four hours for the day. He produces four sold hours or four billable hours to the customer, even though he got paid eight. He’s costing us $100.
Where people begin to put all that together is if you take that $200, when it hits the statement, it’s divided by the four hours, not divided by the eight hours. It’s an eye-opening thing. If you’ve got two guys that are costing you $50 an hour in one stall, $100 an hour cost on an oil change is a hard thing to make pencil. We attempt stuff like that.
Unapplied Labor as an Investment
I think that’s an important part of this conversation, whether it’s a two-man lube team or my mentor training program. We’re joking around saying unapplied time is the devil or made by the devil.
If you’re going to have a mentor program, if you’re going to put somebody on a 30-day guarantee when you hire them, there are different situations where maybe I’m going to do some of it as an investment training, certain things like that. But understanding this math, there’s a way to do it. The manufacturers read in different surveys that oil changes are taking too long. The solution they come up with was, “We’ll throw more people at it,” which is treating the symptom. They’re not fixing the actual system because the system is what’s broken. A lot of times when you throw people at a problem, it just gets more expensive and worse, not better.
The Solution: Real Accounting and Production Culture
The first thing that I have in my notes, if you want to fix your unapplied or you want to use unapplied as a tool, the first thing I would do is make sure that you’re accounting for it. Stop trying to make it look good. I don’t know how many times I’m in the situation where the manager is trying to make it look good instead of trying to fix it. So putting it in a bunch of different places, make it as real and as truthful as you possibly can. Charge the stuff to unapplied labor that should be there, and then you know what you’re looking at. If you’re putting it in a bunch of different places or hiding it in the gross, it’s harder to figure out.
It’s an easy thing. You want a culture of performance. The thing you’re selling is time. You want to manufacture time. It’s a manufacturing facility. There are no manufacturing facilities that don’t track manufacturing. There’s no factory out there that doesn’t know how many lawnmowers they made in a day. For us not to know how many hours we’re selling in a day, or by the hour, there are a lot of businesses that are tracking that on an hourly basis. It’s a production facility.
Hiring the Wrong Technicians
Shops will be booked out, and their idea is to just hire the lowest common denominators. Say they hire a bunch of Quick Lube techs or a bunch of entry-level journeymen techs, and then they can’t fix anything, so their unapplied goes up.
I would say, just like with advisors, don’t hire a bunch of baristas that you think can be advisors; take one at a time and do that because the fallout is pretty high. They are all by themselves over in a building, standing around half the time; it just doesn’t make any sense. When you look at the real number, it forces you to make real decisions. In a day and time where we’re having to grow so many of our own techs, it’s amazing how much faster a tech comes along when he’s on a team, and he’s in between a C-tech and an A-tech, and the team leaders dispatch work to him, and he gets to see on both sides of him what a good job looks like.
For sure. But when they’re all off on their own like that, it’s crazy how much longer it takes to grow techs that way. They just stay.
Management, Standards, and Growth
In my experience, let’s say you take a Quick Lube that has eight or twelve Quick Lube techs, and then you roll them out into our system of lateral support, you usually lose 30 or 40% of them just because they don’t want to show up on time, and they’re already in the habit of just goofing off all day. When they’re in a scenario where they actually have to work, and their work is being tracked, and there’s a plan, some of that can be hedged with having a real career path designed for them, right? For the most part, if they’re left to their own devices, it’s much harder to pull somebody back.
The one thing I was also thinking when you were going through that list is minimum standards. When you have those systems in there, putting minimum standards and managing the shop, especially within trucking that isn’t so much flat rate, you can estimate the flat rate of the repair. Having a foreman to manage that—not a working foreman, but an actual foreman—and having those minimum standards, as you said, posted. “We are not going to fall below this line” is driving that culture. Having performers and managing and fostering that culture has really been the truth. I’ve seen numbers where it’s not 50%, it’s closer to 80%. Everyone thinks, “I’m 100% plus.” It’s possible, but it’s going to take some work. I kind of wrote down here, from a management perspective, “Inspect what you expect,” really to foster that growth. Anything tracked improves exponentially. I would also just add in their unapplied time or unapplied labor is really made by the Packers, just throwing that out there.
Final Thoughts
Of course. Christian did make it after all. I think we were going to get any bad jokes. I got you, Christian. Christian’s the most, how would you say, passive Bears fan there is. Do you think he could name the quarterback? The scary thing is, I don’t think that’s a good indicator of his level as a fanatic for the Bears because he could probably name a lot of quarterbacks from a lot of different teams. He has that weird memory thing. It’s almost savant. He can pull a lot of stuff out of us. Blessing and a curse. I know when I’ve asked him before, he didn’t know, but he might know now because everybody’s making a big deal out of Caleb. I’m like, “Oh, he’s the…”
I love it when Ben, the coach, says, “We’re successful despite our quarterback,” or whatever. I don’t recall, I feel like he’s been trying to level him up I wasn’t on board, but I’m on board now, I am. It’s hard, but I’m there. I watched a Ben Johnson press conference with Adam today, and they have those—the Seahawks do it too—those inside reporters that ask the question. It’s the coach on his way out, hands somebody questions; it’s all plants. The question was something like, “So how great is Caleb Williams this year, and he’s such a difference maker,” or whatever. It’s like coaching. It’s not really a question; it’s a statement, but okay. Ben’s kind of like, “Well, I don’t know if I’d word it like that.” It’s very matter-of-fact.
The True Key to Management
Unapplied labor was made by the devil. The key to managing it the right way is to track it correctly, know what’s going in there, make sure it’s the right stuff going in there, basically time that isn’t charged on an RO. So do I. We’ll see you next time on Service Drive Revolution.
We’ll see you next time on Service Drive Revolution!
Thanks so much for watching this episode of Service Drive Revolution. We’re uploading new stuff every day, so make sure you subscribe and click the bell icon so you don’t miss out. If you have a question you’d like us to answer on the show, call 833-ASK-SDR, and we’ll answer your question on the show. That’s 833-ASK-SDR. For special deals on our books and training, head over to offers.chriscollinsinc.com. I’m Chris Collins, and I’ll see you in the next video.
đź”— Related Resources
- Service Department Culture Killers: The Hidden Factors Destroying Team Performance
- Low Hanging Fruit in Fixed Ops: The Fastest Wins Service Managers Can Grab Today
- How to Reset a Toxic Shop Culture and Get Your Technicians Back on Your Team
Feel free to explore the linked articles above for deeper insights into each strategy. If you have any further questions or need additional resources, don’t hesitate to ask!
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