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Know Your Numbers
Know Your Numbers
By Bob CooperOver the last 25 years I’ve been amazed to discover just how many shop owners are lost when it comes to knowing and understanding “the numbers”. In order to build a successful auto repair shop, you are going to need to know two sets of numbers: your “financial” benchmarks, and your “operational” benchmarks. Without a clear understanding of these benchmarks, it becomes quite challenging for shop owners to pinpoint where they are falling short of their goals, and where improvements need to be made. Far too many times I’ve seen shop owners finally start monitoring these numbers closely, and quickly realize that for years they haven’t been charging enough for parts, have been overpaying their employees, have been operating inefficiently, etc. There’s no doubt about it: A clear understanding of your shop’s financial and operational benchmarks is critical to effective auto repair shop management.
Since your part cost is one of your largest expenses, it’s something you need to monitor continuously. At Elite, our top clients spend no more than 52% of the dollars they bring in through their part sales, on part cost. This means that if they bring in $40,000 in part sales by the end of the month, the cost of those parts should not exceed $20,800 ($40,000 in part sales X 52% = $20,800 part cost.) If you find you are spending more than 52% of your part sales on part cost, then you need to take a good hard look at how you price your parts, any parts that are being replaced at no charge, your warranty failures, purchasing habits, and the possibility of theft.
When it comes to your direct labor (the cost of your techs), the top shops we work with spend no more than 40% of the dollars they bring in through labor sales, on technician pay. This means that if they bring in $40,000 in labor sales by the end of the month, their technician payroll does not exceed $16,000 ($40,000 in labor sales X 40% = $16,000 labor cost).
You also need to pay close attention to the cost of your service advisors, and here at Elite, we like to see that number at no more than 8% of your total part and labor sales. For example, if your shop generates $80,000 in monthly auto repair sales, your advisors should not be costing you more than $6,400.00 ($80,000 total sales X 8% target = $6,400 advisor cost).
You’ll need to watch your “operational” benchmarks very closely as well. One key indicator is your labor hours per repair order, and our top clients consistently generate at least 2 – 2.5 hours of labor sales with their average repair order. If you are not seeing 2 – 2.5 hours per repair order at your shop, you need to review your vehicle inspection process, what’s being recommended to your customers, and the declined services.
And then lastly, after you pay all your expenses, there’s the money that is left over for you. In business we call that profit, and the top shops will typically earn a profit of 15 – 20% of sales. So if your shop is generating $80,000 in monthly sales, in most cases, you should be able to earn $12,000 – $16,000 per month in taxable income. The good news is, if you know your numbers, and if you never put money ahead of people, you should be able to generate these profits in a professional and ethical way.
This article was written by Elite president Bob Cooper. For more information about Elite, visit their website at http://www.EliteWorldwide.com
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1 Reply
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Bob,
This is great advice! I once worked with a contractor that was complaining about cash flow problems. So I asked him what his bi-weekly payroll was, how much cash he had in the bank, and what his receivables were. He didn’t know the answer to any of these questions! Furthermore, his books were a mess, and during a short visit to his business, we found $60k in un-deposited checks just lying in a drawer in the office, going unnoticed!So I would add to this by saying that getting accurate numbers is the first step to knowing your numbers. My first suggestion to this contractor was to hire a professional Controller to straighten his books out & put processes in place – so he would never have this issue again. So it’s important to first implement good tracking systems so your numbers will be accurate.On another note, I have a follow-up question:What are some good productivity & efficiency benchmarks for service shops?What % of revenue should a shop be spending on advertising & marketing, given a growth state?
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