It’s that time of year to go through last year’s numbers and measuring yourself against the goals you set. Did you reach your goals? Did you set goals? If you didn’t reach your goal or if you didn’t set a goal, then I must ask why? Did you have a plan to reach your goal?
People have told me their goal was to increase sales by 10 percent, following that with a statement to increase the number of repairs. My response is that 10 percent growth is great but it’s a broad statement. Using round numbers and some average shop figures indicates 10 percent growth is $240,000 annual growth or about $20,000 a month. To achieve that growth you will need about 7.7 new repairs monthly. Probably achievable, but what if you could get the same growth without trying to push eight new repairs a month through your shop? That is where the sensibility comes in.
Going back to my racing days and trying to pare weight off my Triumph Spitfire, I relied on an old adage of looking for 16 places to remove an ounce rather than looking for one place to remove a pound. Using that same example but in relation to key performance indicators (KPIs), it just so happens there are 16 growth-focused KPIs you can improve, incrementally, to achieve your growth goal.
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First looking at average Sales Per RO of $2,600. If you increase this KPI by 1 percent you will gain $27,040 a year with an average of 20 repairs a week. In some markets it is difficult to improve your actual labor rate. But you can improve your Effective Labor Rate (ELR) by reviewing your mix of body, frame and mechanical labor. Raising your ELR by $1 could improve your revenue $31,200. Looking at Paint Hours Per RO, if you improved benchmark of 7.8 by one hour you could gain $72,800 in sales. P&M Sales per Paint Hour is another place $1 could make a difference, which would give you a $7.80 per RO increase resulting in an additional $8,112 in annual sales. This is a quick look at sales improvements within those 16 KPIs. There also may be cost reduction opportunities as well.
Reducing your Effective Labor Cost by $1 would net you about $31,200 in savings annually based on an average of 30 hours per RO. Using the 7.8 paint hour average you could save $7.80 per RO by reducing your P&M Cost Per Paint Hour by $1. This reduction will achieve $8,112 in savings over the year. You can use the numbers from your P&L to see what a 1 percent increase in Total Gross, Labor Gross, Parts Gross, Paint/Material Gross and Sublet Gross Profit would make to your bottom line. My guess is it would be a significant number.
Some KPIs that aren’t so tangible in dollars but make sense when trying to reach goals are Booth Cycle Time, Sales Per Stall, Booth Productivity, Sales Per Square Foot and Cycle Time. Booth Cycle Time and Booth Productivity run hand-in-hand. If you improve one, you will improve the other.
Booth Cycle Time is a measurement of how long it takes a repair to move through the booth. Booth Productivity is the number of vehicles completed each day. Moving one more vehicle through the booth each day by reducing your Booth Cycle Time will help you achieve your sales growth. Sales Per Stall and Sales Per Square Foot are cousins. The reason I mention both is to illustrate the value of your production space. One is based on technician performance and the other is based on space utilization. Increasing either by 1 percent will have an immediate impact on your total sales. I threw in Cycle Time, not because of its monetary value but because everything circulates around Cycle Time. It is the insurance company’s main focus and it is a measureable account of all that happens in a collision center.
Everything I mentioned above will help cycle time. As we know cycle time is all driven by labor hours, if you increase the number of hours per RO rather than the number of ROs you will effectively improve your cycle time. Look at a couple of your ROs and see what your cycle time would have been if you increased the hours by 1 percent.
There is a common theme throughout this article. I’m sure many of you caught it. I didn’t promote huge growth in any area, just used the power of one. It shows how you can grow your business without having an elaborate plan but by just looking at the ounces instead of the pounds.
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