Benchmarking Against Your Peers
If a collision repair shop is at full capacity each day and the work continues to come in, that must mean the business is successful, right? Not necessarily, says Tim Ronak, senior service consultant, AkzoNobel, Vehicle Refinishes—North America. Many shop owners are not measuring what they need to in order to determine the health of their business. In Ronak’s experience, most shop owners know their overall gross profit percentage, and that’s as in depth as they get. Overall gross profit percentage is good to know, but it doesn’t take into account overhead expenses and doesn’t identify areas where there may have been potential to improve. That’s where benchmarking comes in.
The problem is, many shop owners have no idea where to start when it comes to the benchmarking process. They’re clueless as to what information they should be gathering or what to do once everything has been collected. And, to make matters even more complicated, benchmarking your shop is just the start. Those numbers don’t mean anything if there’s no understanding whether or not they’re good. The key is to get all of the necessary information and compare it to similar collision repair shops to get an idea of where you actually stand, Ronak says.
“Benchmarking against your peers is the only way to measure the business empirically,” Ronak says. “You need an apples-to-apples comparison of what others have achieved in the market.”
AkzoNobel within the Acoat Selected program has helped its shops benchmark since the ‘80s and offers benchmarking services to its Sikkens customers. Ronak encourages all Sikkens users to take advantage of this valuable resource that will help identify weak areas within their businesses and allow them to find opportunities to improve.
Ronak compares the benchmarking process to going into the hospital for a physical; the person usually goes in feeling somewhat fine and has no idea there’s an issue until the doctor orders tests and finds something where there may have been an opportunity to be proactive. AkzoNobel is the doctor in this scenario and works with shop owners to figure out weak areas (opportunities) in their businesses.
“When I go into a shop, the first thing I do is look at a business’ chart of accounts,” Ronak says. “I look at it to see if it’s detailed enough and whether or not it can give me a clear enough picture of how the business is performing and how reliably the information is being recorded.”
After that’s been analyzed and Ronak has an idea of what’s going on in the business, he looks at the numbers to see whether or not what the shop is making will cover fixed expenses. If it is, that’s great and it’s sustainable while we search for additional performance improvements. If it’s not covering fixed expenses, it is below breakeven and the shop has immediate work to do to SURVIVE! Ronak says there are five key profit centers that shops should look at: body labor, refinish labor, parts, materials, and sublet/other. AkzoNobel then works with owners to look at how they’re performing in these profit centers and compare that performance to similar sized shops.
Making Sense of the Data
Gathering all of the information on your business is just a starting point, Ronak says; being able to compare that data against others is the key to finding opportunity. Looking at the numbers of others who have gathered information in the same way allows shop owners to assess their businesses and pinpoint areas where they could be performing better.
“When we work with a shop, we measure how they are performing in those five profit centers and then look to see how profitable other businesses are in those categories,” Ronak says. “If other [similar] businesses are doing better, there’s an opportunity there for improvement.”
Ronak says that by being able to look at other tabulated and compiled shop data, shop owners can see whether or not their work mix makes sense in comparison to other shops.
Putting the Pieces Together
Once all of the data has been collected and a shop owner has identified areas that can be improved, all that’s left is to find ways to improve. AkzoNobel business consultants will work with shops to suggest approaches and offer advice based on their experience in the industry. In addition, Ronak suggests another approach for shop owners—join a peer group, like a 20 Group.
“These groups create a forum for shop owners to be able to look at their performance and the areas that need to be addressed and develop the full potential of their business,” Ronak says.
Joining a peer group gives shop owners the opportunity to speak to shops that may have had a similar issue in their business and brainstorm solutions.