Tuesday, 26 May 2015 00:00

Turbo Charge Your Dealer Body Shop ROI – Dashboard the KPIs

Why are key performance indicators vital signs that clearly display whether your business is performing or failing?  Key performance indicators (KPIs) are the gauges on the dashboard of your business.  They provide the information necessary to identify changes or problems that can impact the business’s performance.

Key performance indicators are quantifiable measurements which should reflect the critical success factors of your business.  Many facets of your business are measurable; however, because an area can be measured does not define that specific area as a KPI. 

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Areas can be delineated as KPIs if, and only if, they qualify as having the single most important attribute of a KPI—they can be directly linked to the success of the organization.  It may be necessary to limit the number of KPIs in order to ensure that everyone within the organization remains focused on achieving the same goals and objectives.  There are established industry-specific KPIs which are designed to provide leading information pertaining to operational performance and capacity utilization.

Review of the data from our most recent “Body Shop Analysis” reports reveals that many collision repair facilities demonstrate near best-in-class operational performance, but they fail miserably in capacity and equipment utilization.  When we analyze the most profitable collision repair shops individually, we find that they hit KPI targets in both operational performance and capacity utilization.  This fact clearly indicates that KPIs are included in the determining factors of your business’s profitability.  The winners in the future of the collision repair industry will be those shop managers and owners who optimize their organization’s operational performance and facility and equipment utilization.  Through targeting KPIs in these critical areas of the business, collision repair centers can maximize profit and minimize costs and expenses simultaneously. 

Time is diminishing for those collision repair centers that are surviving on a daily basis by manipulating the business’s profit and loss statement.  When the business is under increasing pressure to make concessions with insurance companies, to control rising operating costs, and to perform more vehicle collision repairs at lower overall profit margins, management must become focused on driving down the business’s costs and expenses.  But few collision repair businesses are managing the whole financial picture, which includes resolving issues with customers and insurance companies, managing receivables properly in order to limit exposure to a cash flow crisis, and securing daily working capital needs.

Effective and efficient operation of any business demands keen decision-making skills, which stem directly from a properly informed management team.  It requires more than just monitoring cash flow and management accounts to increase profitability and cash flow; it takes intense evaluation of the key “drivers” of your business.  These “drivers” are the areas which have major influence on your business’s success; we refer to them as key performance indicators.

Unfortunately, most of the businesses that we surveyed either are not tracking the right information or do not have accurate information necessary to make crucial business and financial decisions.  Therefore, very costly mistakes are being made industry-wide during an uncertain economic time for our industry.  Body shop and fixed operations managers are making significant business investments without accurate data to support their investment initiatives.  Many expansion and consolidation plans are being built on a false sense of business security, when in fact the business is vulnerable to financial collapse with the current business model.  Hence, in the future, the strongest organizations in terms of financial fitness and operational optimization will have the opportunity to thrive while their competitors suffer from shrinking profits and lack of sales.

The collision repair industry still falls short of defining and measuring progress toward the most significant goals.  Businesses tend to become overwhelmed with reaching the topmost speed and therefore neglect quality and accurate processes, which ultimately produce greater output performance.  After you have established the right KPIs for your collision repair business, it will be easy to immediately determine what is not performing well and what needs acted upon. 

Some of the KPIs that we recommend for collision repair centers to monitor are as follows:

  • Average Repair Order (Dollar Amount)
  • Customer Closing Ratio
  • Sales per Estimator
  • Sales per Production Technician
  • Sales per Employee
  • Sales per Production Square Foot
  • Paint and Material Cost per Refinish Hour Sold
  • Gross Profit on Paint and Material Sold
  • Total Paint and Material Cost as a Percentage of Total Sales
  • Spray Booth Throughput
  • Metal Department Proficiency
  • Paint Department Proficiency
  • Gross Profit as a Percentage of Sales
  • Net Profit as a Percent of Labor Sold

KPIs are not the silver bullets that will give you instant success, but they are the crucial components that are often overlooked in business management. 

You can also use the KPIs as a carrot to inspire your staff. 

People can be motivated to reach those KPI targets that you have implemented within your business structure. 

Post the KPIs so that your staff can see their progress in the critical areas of the business; discuss the KPIs with your staff; set up incentives that drive the organization toward achieving the business’s goals. From our research, many collision repair shops cannot recognize the real performance of their organization; they are driving the business at a high speed without any gauges on the dashboard to determine if they are capable of finishing the race. 

Extreme attention to the business’s financial performance, operational activities, and facility utilization will be necessary for those who plan to stay in the race. 

KPIs are just one necessary component of the equation; you must still have a clear and realistic strategy and the right management team and process in order to have the winning combination for sustaining business success.

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