Auto Repair Shop Owners Monitor These Key MetricsApr 19, 2021
Key Metrics by Rick White, President 180BIZ
In a previous blog, I talked about not having a destination and how important it is to have the clarity that a destination brings. That clarity creates focus. That clarity creates blinders. That clarity is kindness. And then once we have that and we start digging our trench. Now, something you might not know about me. I've had many careers in my life, but one of them literally was digging ditches. I learned that you must stick your head up every once in a while to see if you’re still on track. Well, to make it easy, we used to string a line from where we were started to where we want to go. That line helped us stay on track and focused.
It helped us to stay in line. And what I want to do is give you the gift of that line today. Let’s look at our trench in three different ways. The first way we're going to look at it is D for distance. So that's for me daily, we're going to look at your numbers three different ways over the next couple of blog posts. The first way is daily. I want you to stick your head up out of the trench every single day to look at your sales. But not just your sales number, believe it or not. You can have a record sales month and absolutely not be hitting what you could and should be in your business. It is so true. A shop in North Carolina that I'm coaching had one of the best months they ever had.
The owner was really excited about the number. When we started digging into the metrics, he realized that they hit a number, but they did it the hard way. There are so many different things that you can do that make it so much easier on yourself. I'm going to give you the key metrics that you should look at every day so that you can see how you're doing from a sales perspective. You look at sales daily. Now don't freak out if you're not hitting that number every day. I know from my experience personally, and from coaching shops for over the past 17 years that it's common to have a Monday or a Tuesday where your numbers aren't that great. Those are kind of your setup days. But then Wednesday, Thursday, and Friday are when the work gets completed.
You knock it out of the park and the average is at, or above your goals. The most important metric in your business is Billed Hours. Nothing happens in your shop until you sell an hour of labor. So think of your shop, like a factory. You've got raw materials coming in. That's broken cars, parts, labor coming in on one side. And then we've got the cartoon with the brick building with glass windows, and then the smoke coming out the top of the stacks c and you see them kind of going up and down. And then on the other side, we have fixed vehicles and happy clients. That's our finished product. So first, measure Total Billed Hours per Day.
You should know what your potential is, and then you should be making sure you're hitting that potential. Why would you run your factory at less than a hundred percent capacity? You wouldn't. But you don't stop and think about that. So, the first number to look at is Total Billed Hours per Day. The second number to look at is Invoice Count. It kind of makes sense. Right? Are you dealing with enough invoices now? Understand invoice count and car count are two different things. Invoice count is what got finished that day. Car count is what you have in the shop and the parking lot in varying degrees of repair. We're going to go back to that in a second. Watch the invoice count. You should have a goal number for invoice count. The third number to look at is Hours per Repair Order (RO).
What are the Labor Hours per Repair Order? Look at that number every single day. By looking at that number, it allows you to measure whether you're activity-based or opportunity-based. That’s a really big deal. It is so easy when things get busy to fall into an activity mindset where you're just fixing broken cars instead of making the most out of every vehicle.
Vehicle visits are dropping per year. Years ago, they were four or five times a year, sometimes six with breakdowns. Then it went to three. Now I'm seeing about two visits per year on average. I'm telling you, it's going to drop. You are basically dealing with half the invoice count now because people aren't coming in as often.
Watch your Hours per RO to make sure you're maximizing the opportunity. And it's important because those two numbers make up your Total Billed Hours. Invoice Count x Hours per RO = Total Billed Hours. The fourth number to look at is Parts and Tire Gross Profit (GP). You must look at your GP on parts every single day. You might have an engine that you sell one day and your parts GP for that day is down. But what you do is to make sure that that's not the excuse, but an explanation. What you do is you pull the engine sale out, pull the cost out, and then run your numbers again to make sure you are where you could and should be.
The fifth number is Effective Labor Rate (ELR) per Billed or Sold Hour. I highly recommend that you have multiple labor rates. But you should have a base rate and you want to make sure that what you're posting, and collecting are pretty close to each other. They're not going to be exact, but you want it to be pretty close within 90 to 92% of your posted rate. I'm going to tell you that it's not unusual to see shops at 60 to 70% of their posted rate. Then they can't figure out why they can't pay their bills.
So those are the five numbers to monitor on a daily basis.
- Total Billed Hours
- Invoice Count
- Hours per Repair Order
- Parts & Tire Gross Profit
- Effective Labor Rate.
Now, there is a 5.5 number. We need to know the work-in-process number. In other words, how many vehicles are leftover every day that either hasn't been looked at yet, have been looked at and are waiting for authorization, and estimated the waiting for parts. You must step back and know what is there. Why? Because when you look at your invoice count and see that it's low, it's really easy to think I need more marketing. But if you have 15 vehicles sitting in the parking lot for some reason that isn’t completed, you don't need more marketing. You have bottlenecks that need to be addressed. So, the 5.5 number is Work in Process. Track that daily. Then you'll be able if you need more cars or look at why we're not getting them all through?
So that is my just one thing for this week. I want you all to have a great week. I want you to stay safe. I want you to have fun. And I want you to go make some money.