Better Business Through Benchmarking

Jan. 1, 2020
Regular measurement, analysis, goal setting and score keeping will help you understand and improve your shop’s financials, as well as its production numbers.
Regular measurement, analysis, goal setting and score keeping will help you understand and improve your shop’s financials, as well as its production numbers.How am I doing? It's a question every shop owner wonders from time to time. Are my technicians as productive as they should be? Are my gross and net profit on parts and labor what they should be? What level of sales do I need to generate the gross profit I'd like? And how does my shop's performance compare to others?Answering those questions is what benchmarking is all about. Dave Dunn, owner of Dave's Auto Body in Galesburg, Ill. and founder of the California-based Masters School of Autobody Management, says that in order to improve your business, you first need a system to regularly track how you are doing.The Benchmarking PlanWant to put benchmarking to work at your shop? Here are the steps to take: Decide what to measure and how to do it. Focus on a weaker area of your business. If you need to increase sales, track jobs sold. If you need to improve productivity, track the number of flat rate or billable hours completed (daily, weekly or monthly) by the number of clock hours worked. If you want to increase repeat business, most of the outside companies that provide customer satisfaction indexing (CSI) provide monthly reports that show how you stack up to their other shop clients. If you use a computerized shop management system, check out the various reports it can produce for you based on information you’re already entering into it. No matter what you measure, make sure it is relatively easy to track the numbers you need. Benchmarking should be a help in running your business, not a distraction from it.Establish goals or benchmarks. Finding out how other shops are doing can help you set realistic and achievable goals for your shop’s performance. Set your goals high enough that you have to make an effort to achieve them, but not so high that you’re bound to fail.Create a scorecard. You probably wouldn’t enjoy a sporting event if you didn’t know the score throughout the game. Set up a system that allows you to visually track what you are measuring and see where you are in relation to the goal you set. If you set a monthly sales goal, for example, record on a calendar the amount of sales you have closed for each week.Keep at it. The process sometimes can be frustrating and occasionally discouraging. But consistency is critical in order for the benchmarking system to help you improve your business. Finding a way to make it a game or competition—including rewards for your success—can help keep you motivated.We all rely on feedback, Dunn explains. Do you know what percentage of the potential customers who come through your door actually end up doing business with your shop? If not, you or your sales staff aren't getting feedback on how you are doing. If you tracked that number regularly and posted it, he says, it will help you focus on finding ways to improve it. And it will enable you to establish benchmarks, or goals, against which your performance can be measured.Join a '20 Group'But measuring your shop's performance may provide only half of the information you need to answer the question of, "How am I doing?" You also need your numbers to stack up against other shops. One way collision repair shops can obtain these numbers is through "20 groups." Used widely by auto dealers and growing in popularity among independent repair shops, "20 groups" bring together non-competing businesses from around the country to compare-and improve-participants' business performance.Larry Edwards, founder of industry consulting company Edwards & Associates of Charlotte, N.C., organizes his "20 groups" based on shops' annual sales, so that all the participants in a group are relatively the same size. Participants each submit a standardized list of financial and business performance data: sales, costs of sales, breakdown of parts and labor, number of invoices, payroll costs, etc.Edwards' firm then compiles that data and provides participants with a detailed report showing how each participant's numbers compare with the others. "They're compared to the top 35 percent of the group and to the group average, so that gives them two benchmarks,"Edwards says. "But the real value of the group comes not from the report but from the friendly competition and interaction that results."At the group's regular meetings (some groups meet twice a year for two or three days, others hold shorter meetings more frequently), participants share ideas for improving their business performance. Each participant leaves the meeting with a list of "action items" or benchmarks they plan to accomplish by the next meeting. "At the start of the next meeting, we'll review those action items to see how everyone has done in those areas," Edwards says. "You have a whole group of people checking up on you and helping you achieve your goals."Bill Filley, owner of B&G Auto in Eugene, Ore., says his computerized shop management system can compile plenty of business performance numbers and reports, but that it wasn't until he joined a 20 group that he really put that information to use."That's really not uncommon," says Dave Turner, owner of Total Quality Consulting, the company that organizes the "bottom line group" in which Filley participates. "We find that most shops are only using 10 to 20 percent of the capability of their computerized management system's capability. So one of our goals for the shops in our groups is to help them make better use of their shop management system."Paint Companies Offer HelpIf you're looking for help with benchmarking, the paint manufacturers may be able to assist you. The value-added programs all of the paint companies offer include various types of benchmarking and 20-group-type programs.Shops enrolled in DuPont's Assurance of Quality (AOQ) program, for example, can participate in "The Business Council," which operates much like other 20 groups, according to Tim Carmack, manager of the program.Mike McKenzie, manager of the Standox Partnership in Excellence (PIE) program and the Spies Hecker Color Club programs, says Color Club offers participation in business focus groups for $150 a month. A similar 20-group program will soon be added to PIE.More than 300 participants in PPG's Maximum Velocity Performance (MVP) program belong to regional round tables, in which 15 to 20 non-competing shops meet several times a year to share best practices, most recently discussing cycle time and production improvements.PPG also says it has expanded the core of the MVP program: a shop benchmarking process based on its database of information from more than 3,000 shops. The company has revised the benchmarking reports making it easier to understand how your shop's financial, production and other numbers compare with industry averages and the top 10 and 25 percent of the industry. It also includes a paint shop performance assessment.BASF believes its new set of Web-based business analysis tools will become a cornerstone of the value-added services it offers customers.The goal of the new offering, according to the company, is to move away from just handing its customers a thick book of financial analysis of their businesses and to actually make it easy for the shops to obtain the specific and current statistics they are looking for, along with easy-to-access tools to improve those numbers.By entering the shop's financial data at the Web site each month-a process that should take less than 15 minutes-the shop has access to financial analysis, graphs, tools and comparisons.Akzo Nobel's Acoat selected program offers management, financial marketing and technical assistance. In addition to educational courses, the program offers the support of a business development manager and 20 group meetings.Likewise, Sherwin-Williams' A-Plus program provides marketing and management training resources. This program also offers Vision Groups, which meet quarterly for financial composite reviews and to discuss success strategies.Filley says another key benefit of the bottom line group is its ongoing nature. "If you go to a one- or two-day class, you may put some of what you learned into effect, but then it deteriorates or stops and you go back to how you were doing things," he says. "With a group that's meeting regularly, it's valuable not just to see how you compare with other shops but also to have them hold you accountable to follow up on the goals discussed at the meetings."The group enables participants to pick and choose the best things that other similar businesses are doing, the things that you think will work best for your shop. "It can really reduce the learning curve," Filley says. "I know a shop owner who has been in business for five years, and after a year-and-a-half in one of these groups, he's at the same point we are in terms of business management, and it's taken us 17 years to learn all this."Keep Score-and Post ItWhile it's great to sit in a 20 group meeting and see how your numbers stack up against other shops, improving those numbers generally requires letting others in your business-the people who can make a difference in those numbers-know them as well. That means creating scorecards, says Chuck Coonradt, author of the best-selling book, "The Game of Work.""If you want defect-free cars rolling out the door, you need something to let your people know how many they're doing right," he says. Post a sign that lets employees know how many cars have gone out in a row without a comeback, and they'll work to protect that streak, Coonradt says. Give positive feedback, reinforcing behaviors you want repeated and "under-criticizing" behaviors you don't want repeated, he says."In today's market, if your business is not doing what you do right 95 percent of the time, you're history," Coonradt explains. "If that's true, don't your employees need to do right what they do 95 percent of the time? But what type of feedback do they get? Do we not, in fact, spend 95 percent of the time giving feedback on the 5 percent of the behavior we don't want repeated? The message we send to our people is: If you get lonely, screw up."If you start offering scorecards that reflect, reward and reinforce the behavior you want repeated, you will not have a quality control issue," Coonradt says. In order to be effective, those scorecards must be objective, just as a touchdown in football is always worth six points, whether it was an easy or hard touchdown. They must be self-administered: Let the employees keep their own scores, Coonradt says."When you trust people, they accept it, and they'll give you more than you think they will," he says. Perhaps most importantly, the scorecards must allow an employee to compare his or her current personal performance with his past personal performance-and with an accepted standard. In golf, for instance, Coonradt says, a player bases his success on how he or she shot today compared with how he or she usually plays. Allowing employees to base their success on their own performance rather than comparing them with other employees maximizes the number of winners.Scorecards also must be dynamic. "The people must know the score while the game is going on so they can change their behavior to win," Coonradt explains. Think about the difference in enthusiasm in the fans at a hockey game versus a figure skating competition. In figure skating, no one knows the score until a minute or two after the performance, so applause is usually just polite until those scores are announced. But in hockey, everyone-players and fans-know the score at all times and can change their behavior to help change the outcome of the game. "If you want to increase the enthusiasm level, increase the frequency of feedback," Coonradt says. "Get into a situation where everyone can see how their behavior today affects the outcome."And finally, get employees invested in the program by offering them some choice, Coonradt says. Let them help you decide what will be measured, how it will be measured and how success will be rewarded.The Bottom Line ImpactEdwards says he likes to use technician proficiency as an example of the power and of the potential added profitability that benchmarking offers. To begin, he suggests that collision repair shop owners think of themselves as produce managers in a grocery store. Just like produce managers, shop owners have a limited time to sell the product they offer before it is no longer salable."If you really stop to think about it, the primary product that you have to sell in your collision repair business is labor," Edwards says. "If you're running a computer shop or a parts store, at least when you leave your business at night, the inventory that wasn't sold that day is still sitting on the shelf. You'd have an opportunity when you came in the next day to sell it. In the collision repair business, however, your inventory is perishable. If you don't sell all of what you have available today, then it is lost income to your business. You get one shot every day to sell that inventory."In a day-long training course offered through the Automotive Management Institute (AMi), Edwards explains how a shop can measure and improve the selling of those perishable labor hours. "Once you know how to measure that, you can determine how your shop can increase both the amount and the profitability of labor it can produce," Edwards says.One of the easiest ways to benchmark your shop's labor profitability is to measure your technicians' proficiency. To do that, divide the number of flat rate or billable hours completed (daily, weekly or monthly) by the number of clock hours available. A technician, for example, that completes 12 flat rate hours in an eight-hour day has a 150 percent proficiency rate."Our study of 200 shops found that collision repair facilities should be operating at a 150 percent to 170 percent proficiency rate," Edwards says. Even a small increase in proficiency can have a dramatic effect on a shop's profitability. Edwards gives this example: Your shop's four technicians are operating at 150 percent proficiency. Each averages 12 flat rate hours in an eight-hour day. At a $30 labor rate, each technician is generating $360 a day in labor sales-or $7,200 in a 20-day month. Now raise the technicians' proficiency 10 percent to 160 percent. In that same month of 20 work days, each technician now generates $384 daily in labor sales. With four technicians, that small boost in proficiency generates an additional $1,920 in labor sales every month.What does it take to get that 10 percent increase in proficiency? In Edward's example, each technician that was turning 12 flat rate hours a day now has to complete 12.8 flat rate hours a day-an increase of less than one flat rate hour per day. All that may require is making sure technicians arrive on time and don't take extended breaks. "By measuring or benchmarking how you're doing now, you can determine some reasonable goals for improvement and what that improvement can mean for your bottom line," Edwards says.Too many shop owners focus on hiring more people or expanding their shops before they take the steps needed-including benchmarking-to boost the proficiency of their current employees and facility."A lot of people say, 'If I had 10 more stalls, let me tell you what I could do,' or 'If I could hire five more techs, let me tell you what I could do,'" Edwards says. "The real measure of what you 'could' do is what you get out of what you've got. The people who are really successful are the people who can take what they have and get the absolute most out of it. That's what benchmarking is all about."Shop Benchmarks1. Gross profit per technician clock hour = Total profit $ divided by total clock hours (actual time) worked by technicians.2. Gross profit margin (GPM) on labor = Labor sales $ minus direct labor costs*.* Labor direct costs include wages, payroll taxes and workers' compensation insurance for techs, plus health insurance, vacation or holiday pay and any other benefit costs.3. GPM (%) on labor = Gross profit on labor divided by labor sales.4. GPM on parts = Parts sales $ minus parts costs.5. GPM (%) on parts = Gross profit on parts divided by parts sales.6. GPM on materials = Materials sales $ minus materials costs.7. GPM (%) on materials = Gross profit on materials divided by materials sales.8. GPM on sublet = Sublet sales $ minus sublet costs.9. GPM (%) on sublet = Gross profit on sublet divided by sublet sales.10. Parts-to-labor ratio = Parts sales divided by labor sales (expressed as a %).11. Operating expense per technician clock hour = Overhead or operating expenses** divided by total clock hours worked by technicians.** Overhead or operating expenses include rent, owner/office staff wages, uniforms, utilities, business insurance, advertising, estimating manuals or systems, education and training, professional fees, payroll taxes and workers' compensation insurance for owner/office staff, benefit costs (health insurance, vacation or holiday pay, etc.) for owner/office staff and office supplies.12. Technician productivity (sometimes called "Efficiency") = Flagged or flat rate hours sold/completed by technician divided by total clock hours (actual time) worked by that technician. (You can substitute "department" or "shop" for "technician" in this formula to determine department or shop productivity.13. Customer service indexing = There are many different ways to calculate this. One way is just a percentage of customers who said they would recommend the shop to family or friends. Another is to have customers rate the shop (using some numerical rating scale) on any number of factors (service quality, repair quality, timliness) and combine these scores (possibly with one on how likely they are to refer others to the shop) into a weighted average.Example: 100 customers were surveyed and were asked to rate from 1 (low) to 10 (high) for each of four questions:Service QualityRepair QualityTimelinessWillingness to ReferA top combined score (10 on each answer) would be 40, so top possible score for all 100 customers combined is 4,000. If the combined score of all customers was 3,600, the shop's CSI would be 90% (3,600 divided by 4,000).For this example, the formula would be as follows:1. Add total score for each customer's four responses.2. Add all customers' scores.3. Divide that total by the total possible points (40 times number of customers surveyed) to get a CSI percentage.

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