By Stacy Bartnik, Contributing Editor | illustration by Digital Vision
As all collision repair facility operators know, their primary mission is repairing vehicles to pre-loss condition. But there is more to managing a collision repair shop than just knowing how to properly repair today’s vehicles. You must know your numbers—what they are, how to achieve them and how they impact your business. This is the difference between managing a collision repair shop and managing it successfully, productively and profitably.
Key Performance Indicators (KPIs) are measurable indicators that are based on recorded performance, not the manager or owner’s personal view. Once you start measuring the shop’s current performance, you will have a baseline to help set goals for improvement. Always set realistic goals as a starting point and plan the methods to reach those goals to ensure growth.
Keep in mind that there are other important indicators in the collision repair business, but these are suggested KPIs as a starting point for any collision repair business looking to monitor and boost performance. Just what do these KPIs mean, what are the benefits of measuring, and how do they impact your business? Let’s look at each one and review exactly what is being measured.
What they tell you
The 10 KPIs most frequently measured include the following:Labor gross profit
Parts gross profit
Paint and material gross profit
Overall gross profit
Operating profit
Productivity
Utilization
Overall efficiency
Recovery rate
Estimate conversion ratio
Gross profits are a standard measurement in all businesses, but let’s look at just how they relate to the collision repair industry. Labor gross profit is the relationship between the revenue received for the sale of labor and all the cost related to performing that labor. There are several things that will affect the labor gross profit—high technician pay, technician pay structure, low labor rates or P-page item reimbursement, not accounting for all hours of repair, skill level of the technician, job assignment and re-work of poor repairs.
Parts gross profit is the relationship between the buying and selling price of parts used in a repair. Your parts gross profit may be affected by discounts, not charging for all parts used, loss/theft, returns and how parts are ordered.
Paint and materials gross profit is directly related to the buying and selling price of the paint and materials used in the repair. There are many contributing factors to your paint and materials gross profit, and this is an area that needs to be monitored closely. Paint and materials gross profits are affected by buying habits and strategies, waste, theft, re-work, inventory control, mixing too much, poor matches, skill, equipment, estimate quality, paint caps, and the list goes on. With proper control and educating the paint technicians and estimators, this is one of the quickest areas in which a shop can see an improvement.
The three gross profits reviewed above—labor, parts and paint and materials—all have a direct impact on the total collision repair shop’s gross profit. Total gross profit is the relationship between all goods sold (labor, parts, paint and materials) and the cost of the sale; this does not include sublet items. Now that you have an understanding of what gives us our gross profit (see Table 1 for calculations) it is time to look at the operating profit. This is the relationship between gross profit from sales and direct expenses.
Operating profit measures the profit retained from the sale, after paying for the operating expenses that are directly related to the repairs. Operating expenses are controllable expenses. By closely monitoring and understanding your controllable expenses, you can improve your operating profits.
Hours Sold-Attended-Worked
The collision repair business is one based on hours: We sell hours and our technicians produce hours. The next KPI we will review is based on hours sold, attended and worked productively. Using the acronym SAW (see Table 2) will help you with the relationship of these hours. Sold hours are the hours flagged by a technician for a given repair. Attended are the hours a technician is at the workplace. They can easily be tracked as clocked hours from the time the technician arrives for work until he or she leaves at the end of the day, less any breaks or lunch. Worked hours is somewhat more difficult to measure, and currently, I do not see many shops using this measurement, though it is a beneficial tool. These are the hours a technician is working productively during his or her attended hours, meaning the actual hours worked on a job during the day. Worked hours are measured by having the technician clock on and off individual jobs during the day.
Productivity and Efficiency
Let’s look at what we are measuring when we look at hours. Productivity is reflected in the hours sold (flagged) and the hours worked productively to produce the sale. Productivity is affected by the technician’s ability and skill level, training, knowledge, estimator skill, quality of estimate and motivation.
The relationship between the hours worked productively and the hours the technician attends work is the measurement of utilization. Utilization measures the management’s ability to effectively cut down on the number of idle hours in a technician’s day. Many factors will affect a technician’s utilization including shop layout, availability of equipment, available work, mix of work, parts availability, vehicle movement, sales, repair scheduling, and management control. The measurement of productivity and utilization will give us our overall efficiency.
Overall Efficiency is the relationship between the hours sold (flagged) and the hours attended. This measures the general performance of the shop’s efficiency and can only be regarded as a broad overview. These however are often the only measurement data available.
Recovery Rate and Estimate Conversion
The last two KPI’s mentioned above are Recovery Rate and Estimate Conversion Rate. Recovery Rate is the relationship between the sold hours in dollars and the number of hours worked productively.
It is the technician’s ability to produce sales for the business. Recovery Rate measures the shop’s ability to convert a technician’s time to dollars. This KPI tracks how much sales are generated when the technicians are working productively. The ability of the management staff will have a direct impact on the Recovery Rate. If the work is not available for the technician, if the parts are not available, then the technician cannot work productively. The quality of the estimates will also play a part in the Recovery Rate.
The Estimate Conversion Rate, or closing ratio, measures the number of estimates written and the number of estimates converted to sold jobs. This is a KPI that many shops do not measure. When I ask most shops what they think their Estimate Conversion Rate is, they usually state that it is approximately 90 percent. Once they start tracking this KPI, they find a percentage that is much lower. Many facilities just assume that if they have a direct repair relationship with an insurer, their closing ratio will be high. But are you guaranteed that you will get every customer at your facility just because of the insurance relationship? That is just one more reason that Estimate Conversion Rate is beneficial to track. When tracking, make sure you also record the insurance company for each estimate written.
I am often asked if those insurance-written estimates should be tracked when a customer comes in with one. My answer is that you should always write your own estimate if you are to perform the repairs. Of course you may not get the job, and that also needs to be recorded.
Keep in mind that the Estimate Conversion Rate is a measurement of the sales skills of your estimators. Every time you work with a customer, you have the ability to sell a job. Often, when seeking to grow their businesses, shop operators will want to start a marketing program. Before you plan to go out and market your facility, make sure you are selling those jobs that come in your door.
Know your numbers As any business professional knows, you must always know your numbers in order to create a plan for growth. These 10 KPI’s will help you understand your business and give you guidance as to the areas that need attention. One thing to always keep in mind: The numbers are important; they are what drive your business. But you will not get the numbers you need to be successful without your employees. The real key to the success of your collision repair facility is your employees. They must know where the business is and how you want it to grow. They are part of the equation that adds up to reaching your goals.
