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.
