I am asked several times a month about industry averages or percentages, as it relates to a shops KPIs or other measurements. In other words, how does my shop operation compare to the industry?
While I most always try my best to answer the question with some statistic or known data point, sometimes part of me wants to respond: Do industry averages really matter?
First off we need to understand what "average" really means: a number expressing the central or typical value in a set of data, in particular the mode, median, or (most commonly) the mean, which is calculated by dividing the sum of the values in the set by their number.
Median: a value in an ordered set of values below and above which there is an equal number of values or which is the arithmetic mean of the two middle values if there is no one middle number. This is often used when we do a ranking or percentile where we make a statement such as 50% of shops do … See the final paragraph of this article for more on this.
What is an industry average? It often depends on who you ask. It is a natural human trait to recall and use those facts or figures that support our beliefs. If you were to ask your insurance agent what the average shop pays for garage keepers insurance compared to what you are paying their answer may be that you are paying less (better) than most, this might be accurate it might not be. Does the person you are asking “have a dog in the fight” and if so, could this influence which average they share?
So how do you know if you have a valid industry average to compare your businesses to? One simple answer is to know the source of the industry number that you are inquiring about. Is that data pertinent to your situation. Does the figure come from your peer group? This is where 20 groups generated KPIs have a distinct advantage, as 20 group members look across the room, they see other businesspeople running similar businesses or in other words they are part of your peer group. Most 20 groups are set up with similar types and sizes of businesses.
Not all industry averages are created the equal. The polling size can have a significant impact.
Take a simple number such as P&M reimbursement rate, generally stated as X dollars per refinish hour. Seems simple, ask a bunch of shops and calculate the average, right? Maybe. Calculated from six or twelve shops in your hometown maybe a good number to compare your own rate to. While 100 shops across the nation would probably not be a good average to compare to. This rate can differ significantly regionally.
Back to the original question. Do Industry Averages Matter? What industry averages or KPIs or comparisons should I focus on? Food for thought:
- Is it actionable? Can I use the information to make improvements?
- Is it pertinent, is it derived from my peer group?
- Can I relate this to my situation, my team, our culture?
- Can I get my staff to use this as a comparison or goal that we can all get behind?
Is it actionable? Some industry averages are fine to look at and understand but they may not translate into actionable items in your day to day operations. One example is gross sales per square foot. Simple to calculate with only two inputs and division. For discussion let’s just say this calculation yields a result of $1,000 per sq. ft. per month. To improve this number; you need to either increase sales (this will improve many KPIs and industry averages) or reduce the square footage (which may not be practical, especially if you own the building). So, I rate this and not very actionable in day to day operations. This may be helpful when searching for new building or sites for new locations.
Touch-time is probably one of a select group of industry averages that can be good measures for all, provided that the polling or sampling group is valid. Alternatively stated is your shops culture and facility set up and poised to maximize efficiency?
Can I relate this to my situation? There are many KPIs, Industry Averages that are great for an owner or manager (such as sales per sq. ft. mentioned above) that do not translate into day to day motivators for staff. As discuss in a prior article picking three KPI’s or industry averages to focus on likely works best for that vast majority of your staff, with more than that things can get lost in translation. Send a clear concise message with three bullet points so your staff can easily identify their contribution to the goals and get behind improvements.
My personal favorite KPIs or Industry Averages are based on labor hours. Not only are labor hours a very significant cost and revenue sources for auto body shops, they are also very relatable for the technicians working on the vehicles. Almost every technician I talk with (regardless of pay structure) can relate to labor hours. Touch-time, efficiency (clock-time verse flag-time) P&M costs per labor hour. Estimators can also readily identify with hours with an even broader spectrum including overall labor, repair, replace, refinish, etc.
Probably the best industry average comparison for any shop to use is internal. In other words, how do we compare to what we did last month or last year? Are we making continuous improvements? We can safely assume that our competitors are trying to get better, if we are not getting measurably better, we will likely lose ground competitively.
Maybe the second best industry average is really a regionally focused average?
Regional MSOs also have a significant advantage when comparing KPI’s. These shops operating in the same marketplace with similar market pressures are excellent peer groups in themselves. For many shops working with knowledgeable local jobbers can be a great source of qualified regional industry averages. Be sure to ask where the data comes from, and question is it pertinent, does it come from my peer group?
National industry averages can be helpful. They should be put into context and balanced with closer peer group data, IE: MSO, 20-group and comparisons to your own prior results.
Another term for average is mediocre. There are many doing better and many doing less/worse. Do you really want to measure yourself against this average? Wouldn’t you be better served having more information? For example, some industry averages or KPIs are derived from large enough data sets that other rankings can be broken out into more refined sub averages. For example, what industry averages do the top performers in the sampling group achieve, comparing not only a broad industry average the overall sampling group, but also what do the top performing 10% of these shops average? Wouldn’t that be a better goal for most?
As always, your thoughts and comments are welcome.
