By analyzing your shop’s accountability,
you can earn thousands more per year. Here’s how.
Too many shop owners spend all their time working “in” their business and not “on” their business. There really is a difference. One method is known as working hard, and the other method is known as working smart.
Each month, a good shop operator will analyze their business’s numbers. The time spent on this analysis will make the business money – if the information is prepared in such a way that the owner/manager can compare the operation with targets set to maximize the shop’s net profits.
The question many people ask these days is, “What should be measured to ensure that I’m maximizing productivity and profits of my shop?”
In this Part One of two articles, I will lay out seven important areas of the business to examine. In Part Two, I’ll give you more of what to measure properly every month so that you can see the trend line develop.
The following, then, is a checklist of items to consider measuring. Keep in mind that, as the old saying goes, “If you can’t measure it, you can’t manage it.” So get focused and properly measure your business to help you make the correct management decisions to move forward and achieve what you want to achieve.
Labor Rates: fluid service rate, tire install rate, maintenance rate, diagnostic/analyst rate and re-flash rate. Are you up-to-date on the correct calculations used to set your labor rates based on the true cost, per-billed-hour, to operate the shop, which is affected by the efficiencies of the operation? Or are you still using the old multiples based on the amount paid hourly to the technicians?
Effective Labor Rate: What are you really achieving in your labor rate after it’s measured against the shop’s potential? It’s critical to understand how to calculate the shop’s potential number.
Number of Invoices/Repair Orders (ROs) Written Each Month: Are you controlling your volume, or are you missing potential revenue because the shop is too busy?
Average Labor Hours Billed Per RO: Are you measuring productivity accurately or just sales?
Average Sales and Gross Profit Per Invoice: What are you really netting on that average sale in your shop? Is it growing or shrinking? Measure the total gross-profit dollars from the RO and subtract your total cost per-billed-hour. times the number of hours billed on the RO.
Average Labor Produced Per Technician: Are your people above or below average, and are they improving as their knowledge increases? It’s acknowledged that a competent technician can beat the flat rate of basic maintenance work by at least 20 percent, so are you achieving eight hours billed for eight hours worked? If not, why not?
Daily Operating Expense of the Shop: What does it cost to turn that key in the door every morning? Are you giving more thought to the common-sense expenses of the shop?
These are some starters. In Part Two, I’ll conclude with how to work on your weaknesses so that each month you can have a good idea of where your shop is headed this year.