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What Key Performance Indicators are key?


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I'm a former shop owner (only 4 years) and now I am a service writer. There is an internal discussion within our shop what we should be gunning for precisely.

 

From my own perspective, I think the endgame is always Gross Profit. All I cared about was whether I was making money, not how I was making it, as long as the car is fixed right.

 

In my mind, tracking ARO, labor:parts, profit percentage, and other indicators are all means to meet that end.

 

However, there is disagreement about this in the shop. What do you guys think?

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The above example is good for us to know what we need to do to beat our costs, but it does not take into account that we don't want to merely bill enough to hit an imaginary number. For example, we never want to be consistently cheaper than competition. In fact, when possible, we want to sell the value of a repair. There should always be a maximum of return on a repair, regardless of whether we already hit the numbers we deem necessary to pay the bills.

 

Another random thought: How do most shops realistically track technician efficiency? We use Mitchell , so we use a time clock and my own head, and I input these numbers into the computer. It is an imperfect system, as in the real world time is lost to unbilled time all the time (putting air in tires, helping a lost parts guy, digging snow when its the season, etc.) It would seem to me a more logical financial metric would be total labor sold divided by labor cost per technician. I have heard the number for B techs of them producing at least three times their own cost. Because, in the end, we don't necessarily care how slow or fast a technician gets the work done. We care how much work we can sell out of that bay and how much selling that work costs us.

 

Last random thought: I have found that for certain jobs, you don't want to bill the labor out so high, so you compensate on the part when possible. Good examples are tires and brakes. Customers actually get offended if they see a high mount and balance charge, or 2.5 hours to do a brake job. While some customers will spend time shopping around parts prices, most understand everyone makes some money on them and they are less likely to fight about that. It is in these situations where I find the labor:parts ratio to be counter-productive, because you actually penalize yourself when you bump up the parts side.

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Pattersonautobody, regarding your first random thought:

The whole point of KPIs are that they are industry standards that have been forged by people who have done many hours of math to break down the numbers in auto repair.

They aren't just imaginary numbers that someone pulled out of mid air, there are actually quite complicated calculations used as proofs that these numbers are required for a shop to make a good profit margin at the end of the year (20+% should be your target, most shops make 3-5% or less).

As a side note to this, I agree that selling on value is very important, and you should get your maximum return on each repair, but most shops problem isn't return on repair, it's low productivity, efficiency and hours/RO. Productivity is profit, plain and simple.

 

On the second point,

http://www.motor.com/article.asp?article_ID=369

This article explains the industry standard of how to track time and calculate efficiency, productivity, parts:labour ratio, and explains how to correctly bill diagnostic time, which is a major profit weakness in most shops.

You need to be calculating your lost time, because once it is lost, it can never be gotten back. And time is the most important item you're selling, not labour or parts.

As for your statement, "we don't care how slow or fast a tech gets the work done", you SHOULD care! This is directly related to your tech's efficiency, and it is arguably one of the most important KPIs for a shop to track correctly.

 

Regarding your last topic,

Does your shop quote out parts & labour (or even worse, parts & hours) on your estimates, or do you quote how much a JOB is worth?

It shouldn't matter whether a brake job is $125 parts and $75 labour, or $150 labour and $50 parts. In the end, the job costs $200, and this is the number that customers mainly use to price shop (except when calling local part stores).

No other professional industry uses the "parts and labour" mentality, and neither should the auto repair industry.

I understand that some customers will fight about these issues anyways, but in many cases you can try to explain the value of the job to these customers. If it gets bad, let them go give grief to a shop owner who likes dealing with problem customers.

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Good comments. By NY state law, as far as I know, we have to show our labor rate and show what we charge for labor on an invoice. Further, we have to show each part, its number, and the price we are selling the part at. So, a picky customer can look at the labor line and complain that back in the 70s when he was a tire chucker, he could have got the whole job done in half an hour, etc. etc. So, oftentimes I find it easier to put profit onto the parts side when putting it on the labor side can be tricky. But again, I already named which situations. FUrther, maybe this is only relevant in NY because we have to show these items.

 

I will read the Motor article.

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That does make sense that you would change things on the invoice a little, to make the values to be a bit more easy to swallow for the customer.

 

I'm certainly not advocating hiding your parts and labour on your invoices, even if the law doesn't say that you have to. Transparency and openness is always better for customer relations.

I was just saying that when doing estimates, they should be quoted by the total job price, not parts & labour, and definitely not parts & hours.

It's true that some people will always complain, but for most people, if they approved a job that is X amount of dollars, it won't matter what portion of X is labour and what portion is parts.

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  • Have you checked out Joe's Latest Blog?

         3 comments
      Got your attention? Good. The truth is, there is no such thing as the perfect technician pay plan. There are countless ways to create any pay plan. I’ve heard all the claims and opinions, and to be honest, it’s getting a little frustrating. Claims that an hourly paid pay plan cannot motivate. That flat rate is the only way to truly get the most production from your technicians. And then there’s the hybrid performance-based pay plan that many claim is the best.
      At a recent industry event, a shop owner from the Midwest boasted about his flat-rate techs and insisted that this pay plan should be adopted by all shops across the country. When I informed him that in states like New York, you cannot pay flat-rate, he was shocked. “Then how do you motivate your techs” he asked me.
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      With all this said, I do believe that an incentive-based pay plan can work. However, I also believe that a technician must be paid a very good base wage that is commensurate with their ability, experience, and certifications. I also believe that in addition to money, there needs to be a great benefits package. But the icing on the cake in any pay plan is the culture, mission, and vision of the company, which takes strong leadership. And let’s not forget that motivation also comes from praise, recognition, respect, and when technicians know that their work matters.
      Rather than looking for that elusive perfect pay plan, sit down with your technician. Find out what motivates them. What their goals are. Why do they get out of bed in the morning? When you tie their goals with your goals, you will have one powerful pay plan.
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