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Financial keys to success

Build your own multi-million dollar shop
Tuesday, May 3, 2016 - 06:00
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You’ve been working diligently to achieve that ever-so-elusive balance between gross sales and profits, and have managed to control your operating expenses to yield a nice net operating profit. You’ve worked for many years to develop and maintain a good customer base. You have a staff of highly trained and competent people. And yet, you’re confused as to why the numbers don’t always add up. Here, you will learn how to achieve your automotive service repair goals by consistently managing these specific financial tools. It must be stated right now that at Automotive Consultants Group, Inc. (ACGI), we’ve developed, refined, and are continually updating these tools, and have been for the last 16-years. Nonetheless, they are fairly basic in their design, such that once you understand their importance and what they tell you, you can them simply gather your needed numbers, develop your own format, and you’re off and running. It should also be understood that any report should yield only one primary purpose: to tell you something that will aide you in managing your business.

Please note that this is an extremely complex subject here, and so our hope is to provide you a basic understanding.

A basic understanding of where these numbers come from and what activities they are derived from, and most importantly – how to manipulate these numbers, i.e. make them go either up or down closer (or on target) with the industry wide benchmarks, will be imperative. This last point, manipulating the numbers, is where we find most people have a challenge. Look at it this way. If you have a Service Consultant who carries a very poor close ratio (less than 50%), why on earth would you put in all the effort to increase car count? That’s not where the real problem lies!

You should begin by knowing what numbers you’ll need, and where to find them. You’ve probably already heard the acronym KPI.

What are KPIs?

As its name would imply, KPIs, or Key Performance Indicators, are specific and critical numbers used in your automotive repair business and across our industry. They tell the business owner how healthy their business is or is not performing. Many of these KPIs are actually generated during the sales process with your customer. The most important KPIs are generated during the estimating process. Other KPIs are managed differently, such as operating expenses and their control, having the correct compensation plans in place for all production personnel (technicians), and having the costs of your service writers (herein after referred to as Service Consultants) expressed differently. Those numbers are more often expressed as a percentage against sales.

Learn where to pull the KPIs from

When you begin to pull all your numbers together, it’s imperative that you utilize the exact same date range for all data pulled – for a defined period of time: day, week, month, quarter, or year. In other words, if you use your Profit & Loss Statement for the period of 2015, then your business summary report should also be for 2015.

(Editor’s note: the Charts provided are simply examples, and don’t adhere to this rule).

Data to pull from your shop management system (SMS)

Business Summary Report

Look to your SMS to provide a Business Summary Report that includes:

·             Gross sales in the following: Labor, Parts, Sublet, Shop Supplies (all measured in dollars)

·             Labor GPM%

·             Parts GPM%

·             Sublet GPM%

·             Sales taxes are not calculated; they are simply a wash (in and out)

·             Car Count/RO count

·             Average Repair Order (ARO, dollars)

·             Billable Hours per RO

Revenues by source

Your SMS should be able to tell you where your customers are coming from. If you do any advertising at all, you have a cost associated with it. Your Service Consultants must ask every customer “how did you hear about us today?” Even if they are a loyal customer to you, they may be responding on this visit to an ad you’re currently running. This must be tracked to yield the effectiveness of your various advertising campaigns. A customer sign-in sheet would easily capture this information. This will give you the data you will need to tell you your customer acquisition cost. The saying “cheaper to keep her” holds true here. It is easily much more expensive to find a new customer than to keep an existing one. (But that doesn’t mean that some of your customers shouldn’t be fired!)

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