What key numbers should automotive business owners be monitoring?
The simple mission statement at The Institute for Automotive Business Excellence is “A Better Business, Better Life, Better Industry”.
As a business owner for the last 21 years, I have worked hard to develop my own business for that very goal; to have a better life and to participate in making our industry better. In order to make a difference, I had to learn how to make the business profitable and be effective in growing my team. Remember, this business is not just about fixing cars and making money. It’s about people, both those who we serve, and those we serve with.
In order to be effective on both of these fronts, we have to keep our focus on people and, at the same time, be financially viable and growing. The business has to perform. To that end, I have seen several Key Performance Indicators (KPIs) that can help keep your business performing well, and quickly identify areas that can make or break your week/month/year. I call these the Building Blocks.
The Building Blocks consist of KPIs that work together for strong financial performance. My list includes Gross Sales (GS), Car Count (CC), Average Repair Order Dollars (ARO), Hours Per Repair Order (HPRO), Gross Profit Percentage (GP%), Technician Productivity (TP), and Technician Efficiency (TE). Each of these has a direct effect on the other, and together can raise or lower the most important numbers of all: Net Profit Percentage and Net Profit Dollars. These are all on the sales side of the operation and there are many other critical factors like Labor Rate and Expenses as a Percentage of GS. For today, we'll focus on the core Building Blocks.
Here’s the break-down of the remaining Building Blocks for this situation:
Joe has an HPRO of 2, calculated by dividing the total hours by the total repair orders (24/12). His ARO is then $400 (HPRO multiplied by the hourly rate, 2 x $200) and his GS is roughly $96,000 per month.
If Joe is following good practices, he has at least 55% GP (top tier shops are seeing over 60%) after parts and labor costs are paid, leaving $52,800. The trouble is that Joe's expenses are $48,000 a month (50%of sales), leaving him only $4,800 in Net Profit.
The magic truly comes when we use the Building Blocks to find a solution. If you only look at getting more cars in, it may not change Joe's situation. Take the same number of techs and available hours (24 per day) and add 3 more cars each day. The HPRO is likely to go down to 1.6 (24 hours/15 cars) and ARO will be reduced to $320 (1.6 x $200 per hour) because the technicians now have less time with each car. The Gross Sales remain the same since the Car Count was the only factor to raise in that scenario.
If you focus instead on ARO, HPRO, and TE, you can move the needle pretty fast. Take the same 12 cars each day, but the team focuses on doing more with each car by combining services and being more efficient. The team moves the HPRO up to 2.5, and the ARO grows to $500. Now Joe brings down $120,000 a month with the same crew, same number of cars, and the same labor rate. That means that instead of bringing $4,800 to the bottom line, he will have over $18,000 because the expenses remain about the same.
The real win for any shop owner is learning how to manage these Building Blocks, and finding useful benchmarks to know what to set for goals on each of these KPIs. I found the group model of RLO Training and The Institute to be the most effective way of helping me manage these numbers and set goals. I have loved connecting with other shop owners who have the same challenges and experiences I have every day. It's become easier to see when my Building Blocks are crumbling, and which KPIs are contributing to the problem. And like any good technician, I have to know what the problems are before I try to fix them.
I encourage you to look hard at these Building Blocks in your own automotive shop and see what happens when you change each one. If you need help learning how they work together, and what good benchmarks are for each of these KPIs, contact The Institute or RLO Training and let us show you how to win.
When the Building Blocks and your overall KPIs are in place, you can focus on your most important resource; the people you serve, and those you serve with.
Owner of Heritage Automotive
& RLO Training Group Facilitator