Drive Your Shop To Success
It’s a beautiful sunny Florida morning and I am on my way to Tampa on a training mission. Everything is going perfectly. I know it is because the onboard navigation system shows me southbound on I-75 at 73mph with 320 miles to go. The engine temperature and oil pressure look perfect. The charging system is humming along. There are no warnings and no check engine lights. I can relax because I know everything is going according to plan. Sounds great, right? Now imagine all the instruments disappear and go completely blank! How would you know what was happening? You can look out of the windshield, but that won’t tell you everything you need to know. I think most of us would not take a road trip in a vehicle with no instrumentation. Too much risk flying blind, right?
Most would agree that more information is good when managing anything and that includes a shop. Some owners only have one key performance indicator. Is there any money left in the checkbook at the end of the week? This type of shop survives day to day. There is no vision for the future of the business and no way to monitor the health of the business. Essentially the business is running the owner. This type of shop owner typically works 10-12 hours each day. A normal day is spent bouncing from one crisis to the next. This reactive way of working is not just exhausting, it is not profitable. Shops like this only net about 2-4%.
One of the best ways to be proactive in business management is to monitor and manage by a set of key performance indicators, or KPIs. These will become your dashboard that provides the constant feedback for your management. This provides a definite way to find your starting point if you have not monitored your KPIs previously. As you regularly monitor your business, you will see what is improving and how quickly or slowly it is happening. As a rule, what is monitored is managed. Keep your goals for the company in mind as you begin to look at how your business is growing and improving. Here are a few KPIs to get you started.
AVERAGE REPAIR ORDER
Many shop owners believe the more car count is the silver bullet for success. Making the cars count is the key to more success. Most shops have more car count than they need, but they are not managing those cars correctly. Here’s the formula;
Total revenue DIVIDED BY the number of repair orders
The national average for this is about $250. A high performing shop will average about five times their labor rate as their average repair order. For example, a shop with a labor rate of $100 per hour would have an average repair order in the neighborhood of $500.
The way to improve your average repair order is to have a vehicle inspection program that works well. Every car is inspected every time. The service advisor prepares estimates on all the inspection results, prioritizes them, and presents all the estimates to every customer, every time. This requires motivated technicians, thorough service advisors, and efficient processes that make it happen in a timely manner. To improve this number you have to walk thru the entire process and eliminate the bottle necks so it flows freely. As you work thru the process your average repair order will improve. The big winner is your customer who knows everything their car needs and they know you are looking out for them. This is a WIN, WIN, all the way around.
EFFECTIVE LABOR RATE
Most owners and managers assume that the posted labor rate is what they are collecting. The truth is that many shops are collecting less than their labor rate. Labor is our most profitable and perishable commodity. You cannot afford to undercharge for labor, here’s the formula;
Total Labor $ collected DIVIDED BY Hours sold
The goal for this KPI is at least 100% of your posted labor rate.
The way to improve this number is to eliminate labor discounting of any kind. This means the owner needs to stand by his prices no matter what. Do not let service advisors discount repair orders. Do proper estimates and stop shooting from the hip. Selling more services will improve your effective labor rate. Use diagnostic test packages and do not let technicians spend 2 or 3 hours diagnosing a car that is only authorized for 1 hour. The technician will always want to be paid for his time and your customer only wants to pay for what was authorized. As you begin to monitor this number, you will discover where you are losing your labor dollars. Then it is a matter of fixing the processes to stop this loss.
TECHNICIAN AND SHOP EFFICIENCY
Your labor inventory is a very important asset that must be maximized daily. You may have a few rock star technicians, but it only takes one inefficient technician to drag your shop efficiency down to an unacceptable number. Once labor is gone, it can never be recovered, so regular monitoring is a great idea. Here’s the formula;
Sold hours DIVIDED BY Available hours = Efficiency
This can be calculated by individual technician or for the total shop. The goal for this KPI is 120%.
There are many ways to improve this number. Systems that process the repair order thru the shop smoothly are very important. Dispatching repair orders to the right technician is also key. You need the technician who has the correct talent and skill on the repair. Your technicians must be motivated to get the repairs done quickly and with accuracy. If all your technicians are below a reasonable efficiency, look at your systems and processes to remove those road blocks. If you have one particular technician who is sub-par you need to find out why. Maybe he struggles with certain repairs, he may need some training. It could be the tickets that get dispatched to him exceed his skill set. Understanding the problem is the key to a solution.
There are hundreds of key performance indicators you could monitor. You can look at them daily, weekly, or monthly. The bottom line is that monitoring these KPIs will put some helpful gauges on your dashboard to help you ACCELERATE YOUR SUCCESS and achieve your goals.