Evaluating and Utilizing Key Data
Phil O’Connor has experienced an interesting dichotomy in the collision repair business. While he managed a dealership shop for seven years, he credits his time spent as a consultant for his success as the owner of POC Collision Inc., a four-shop operation in Maine.
The difference between managing and consulting?
“When you're consulting, you don't have that emotion in it,” O’Connor says. “You're looking more at the numbers and how to resolve something rather than emotionally reacting to problems.”
For O’Connor, the ability to disconnect himself from the politics and culture of the shops allows him to concentrate on what’s most important: The numbers. The stats. The key bits of KPI that allow him to understand how his business is functioning, where it’s biggest flaws lie, and how key decisions can affect those numbers and help the business grow.
“I love numbers. They tell a story,” O’Connor says. “When you're running your numbers properly, your business’ story is told from your financial statements, based on the KPI reports. If you have an accurate data, then it's more of a true story and a true picture of how to manage and where to manage.”
With 12 years under his belt in Maine, O’Connor has not only identified the most important KPI stats to track, but also what to do with that data and how to effectively distribute managerial duties across all four locations.
Cycle Time, ARO and Closing Ratios
Of the several reports O’Connor receives weekly from his management system (Axalta’s ProfitNet), the weekly cycle time, average repair order (ARO) and closing ratio updates are his most important.
“Everybody's KPI is going to be different based on their own situation,” O’Connor says. “I think it’s crucial to look at cycle time because it really tells a tale of how well we're processing things. If we have a high cycle time, then we're not processing things properly. We're not as lean as what we should be.”
Reducing cycle time over a period of time is important to O’Connor, and tracking ARO and closing ratios contributes to achieving that reduction. His shops, which combine for a monthly car count of 312 and $8 million in annual revenue, average a cycle time of seven to eight hours, but he’d like to knock it down to six hours.
“If you look at a cycle time report and you compare it with the industry, your goal is to make it less,” O’Connor says. “If you're at 15 days today, make it 14 days tomorrow. Then 13 days, 10 days, and then all of a sudden you have more sales and you're forcing yourself to become more efficient.”
O’Connor likes his shops’ ARO to hover around $2,300. If it starts to dip too far below that average, he reaches out to managers at the shop level to look into how estimates are being written.
“[ARO] tells me if my technicians are efficient and if my writers are writing properly, if they're writing enough time for labor and things like that,” O’Connor says.
He also knows that if a shop’s closing ratio drops too far, it’s time to contact the marketing department and determine what approach is best for that particular geographical location.
“When looking at closing ratios, that just tells me how well my people are selling,” O’Connor says. “The sales ratio should be around 70 to 75 percent. If it gets down to 50s or 60s, I call on my marketing person and they spend some time with the shop to get a process in place to increase their closing ratio.
“When you're looking at KPI, you need a standard of what is right, what's a good number so you can judge that and measure that from. If you don't measure it, you can't manage it.”
Increasing Gross Profits
Of all the key indicators that change needs to be made at the shop level, O’Connor says that fluctuations in monthly financial statements are almost always a red herring.
“When I'm looking at gross profits or expenses and things like that, we want to have a good consistent number all the way across the board,” O’Connor says. “It's easier when you see fluctuations. When I see fluctuations, they become my priority. If there's a fluctuation that's high, then I'm looking into it.”
Evaluating those variations allows him to pinpoint what decisions are the most cost-effective month-to-month, year-to-year.
“We always evaluate our expenses and search for the best price we can get,” O’Connor says. “We work with one particular expense and go quote it out and see if we can get a better price. Then, the next year, I'll measure it to the previous year and see if it's up or down. If it looks like something is crawling up, then let's take a look at this one expense and see what we can do to change that. Can we use a different vendor? All kinds of questions and solutions arise.”
How those numbers evolve and improve year-to-year is what consistently increases his shops’ collective annual gross profit.
Because over 40 percent of what his shops write is labor, it ends up constituting the biggest portion of O’Connor’s gross profit—which makes tracking body, frame, mechanical and paint labor all the more crucial.
“[Labor is] the quickest, fastest, easiest thing to look at and understand. It makes a huge difference to your bottom line,” O’Connor says. “A simple way of doing that is taking your punch time and seeing what they produced. If you don’t want to do it individually, just look at the end of the month and take all the time cards, add them all up, look at what you sold for labor, divide them into each other and it will tell you what their efficiency is so you'll have a good number.”
Managing Tasks and Delegating
When it comes to actively making decisions on the shop levels, O’Connor says balancing statistical analysis with communication between individual shops is key.
“People say I delegate pretty well,” O’Connor says. “I've always said it's kind of like juggling. If the ball is way up, I'm not paying attention to it. I'm only paying attention to the one that's about to hit my hand. The goal is to keep them all up in the air as best as you can. That's prioritizing. It changes and you have to allow yourself to have that change and be aware of that and be OK with it.”
To prioritize all of his tasks, O’Connor organizes his duties into four categories: A, B, C and D. The “A” items are very important and need to be addressed immediately. However, crossing off the “D” items on his Excel spreadsheets are every bit as important to his daily duties.
“It gets hard when you're working on all labor intensive stuff all day,” O’Connor says. “You need to get some satisfaction during the day. My task list is well over a hundred items, and I don’t get wound up about it. I can only do what I can do. I can't let them hit me emotionally.
“If I'm going to my task list everyday and I’m accomplishing something, then I'm moving forward. If I don't do anything and I feel like I'm overwhelmed, then nothing gets done. You break it into smaller bites.”
O’Connor also likes to handle his heavy, statistical duties in the morning, freeing up goal-setting and brainstorming for the afternoon.
“I know my personality,” O’Connor says. “I'm much better with that detail stuff in the morning rather than the afternoon. Getting to know who you are and how you work is key.”