Finding a Competitive Edge
I was at an airport bookstore several years ago, about to head out on vacation, and trying to find an enjoyable book that would help take my mind off my business for the week. I bought Moneyball by Michael Lewis. It was one of the best mistakes I’ve made. Don’t get me wrong: I thoroughly enjoyed the book, and I’ve watched the movie adaptation several times. But it didn’t take my mind off the business. Instead, it change my thinking of how I look at it.
If you don’t know the Moneyball story, I’ll try to summarize it quickly (spoiler alert!): It’s about how a small market Major League Baseball team (the Oakland A’s) with a tiny payroll ($39 million in 2001) was able to compete against the high-spending giants of the sport (the New York Yankees in particular, who had a payroll over $114 million that season). The book details how a mathematician named Bill James started writing an annual report on the relationship between certain baseball measurements and wins and losses. I used the term “measurements” because some of them weren’t even being recorded as normal baseball statistics at the time, so they had to manually track these new numbers. Some of James’ measurements are now the norm for all MLB teams.
So, the general manager of Oakland A’s, Billy Beane, realized he could find players that were affordable within his budget that other teams weren’t seeing any value in because they weren’t tracking these numbers in the early 2000s. The results: The A’s won 102 games in 2001 and 103 games in 2002. To put that in perspective, typically only one team each year reaches 100 wins in a baseball season. The A’s found statistics that most other teams weren’t concerned with and tipped the scales in their favor.
When I returned to work after that vacation, I became obsessed with finding out what statistics in our business have the largest impact on our success. If you’ve ever been to a 20 Group meeting or read through a DRP scorecard, then you know there are certain KPIs in this industry that most people focus on—cycle time, gross profit percentage, closing ratio, CSI, etc. These are stats we talk and read about all the time. It’s not difficult to find benchmarks on these stats either.
Since reading that book, I have continued to sharpen my focus on two specific numbers. The first one is labor hours written per repair order, and that’s what I want to focus on in this column. (We can talk about the second in a later piece.)
The first statistic should be an easy one for any shop to get. You can find it in most electronic management system reports, through your DRP partners (if you have them), or through Enterprise, if that’s your provider for rentals. Enterprise pegs the industry average at 23.1 hours, but keep in mind that Enterprise only tracks data for customers who get into a rental AND have an insurance claim. Throw in the typically smaller, customer-pay jobs, and that number would go down.
My team has worked very hard to get its average labor hours written per repair order up to 30. Achieving this number has been a true team effort. Each member of the team relies on information from someone else in our shop to help document the repair, so we charge for all the items we perform throughout the process. While we are not a shop driven by DRP relationships, I feel everyone in the process benefits from our billing methods. The vehicle owner benefits by us taking the time to research OEM repair procedures, which typically results in additional steps (hours) to make certain we repair the vehicle safely. The technicians benefit because they are not asked to perform work that is not billed. A proper work order can do wonders for shop morale.
By improving this number, you’ll improve efficiency, as well as cycle time and touch time. Using Enterprise’s industry average of 23.1 hours: If that vehicle was done in five days, the shop would see on a report that they produced 4.6 hours per day. However, if they averaged 30 hours per RO, and did that same job in five days, we would have produced six hours per day. Having seven more hours on our average repair likely buys us two extra days of approved rental payments from the insurance company. If your shop uses a flat-rate pay system for technicians I don’t think you will get any complaints about more hours written. In the flat-rate environment, you won’t see an increase in your gross profit percentage on labor, but you will definitely see an increase in gross profit dollars. At an hourly shop, you will see an increase in gross profit percentage and gross profit dollars.
I know some of you feel pressure from insurance partners to get the cost of repair down. In my experience, I have rarely met resistance from an insurance company for something we charged if we have it properly documented. If the vehicle owner, insurance partner, rental company, technicians, and the shop P&L all benefit from increasing the labor hours per RO, I think it is a KPI we would all benefit from working to increase it.
At the very least, I hope this encourages you to reexamine the numbers you focus on the most. Are you gaining a competitive edge? Are you taking the Moneyball outlook? As Mickey Mantle once said, “It’s unbelievable how much you don’t know about the game you’ve been playing all your life.”