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Letter to the Editor

Benchmarking: Making the Numbers Count

What are collision repair facilities measuring in 2002 - and why?

How does your shop's performance stack up?

That's one of the main questions every shop owner ponders. Are my technicians as productive as those working up the street? How do my profit percentages on labor, parts, materials and sublet compare? Is my office staff to production staff ratio in line with that of other shops - and are their sales batting averages what they should be?

The answers to these questions, of course, require two steps. First, establishing a way to track the key numbers in your own business. And second, determining the meaningful industry benchmarks against which to compare your numbers.

Choosing the key numbers

Shop management systems and the ever-growing computer power in most shops today have made it relatively easy for shop owners to get many of the numbers they're looking for about their business performance. In fact, it's easy to almost "drown" in the sea of reports and data now available.

The question becomes, then: What are the key numbers you should be monitoring? Of course, the answer varies widely based on the shop owner asked.

"Daily, I look at what we've closed for sales for the month as of that day," said Jim Keller of Motorcar Collision in Milwaukee, Wisconsin. "On a weekly basis, I try to look at gross profit margin and employee production. And of course monthly I review the financial statement, looking at revenue, gross margins and net margins. I'll drill deeper when I see something that seems out of line."

Dan Greenwald of Greenwald's Autobody & Frame in San Diego, California, said he doesn't consider any one number more important than others, but said the two he's watching most carefully these days are dollars-per-day and cycle time.

Similarly, Marco Grossi, of the seven-shop Collision Craftsman chain in the Detroit area, said he has no one favorite number or report but understands what keeps him motivated.

"The gross sales number is what drives me," he said. "I get a charge out of watching it grow every month."

Grossi said he also monitors "available hours" versus "hours turned."

Atlanta-area shop owner Gene Hamilton said he can tell a lot about his business and its employees by tracking the weekly payroll sheet that shows each technician's efficiency.

"If I know Ed has had a 163 percent efficiency for the past year, and he's never gone over 175 and never fallen below 150, if he breaks either of those barriers, I want to go out and talk to him and find out what's going on," Hamilton said. "I can get a good idea from that sheet if an employee has a drug problem, a family problem, a financial problem, or whether he's got the flu and just came in anyway."

It is interesting to note that Hamilton is as concerned about an overly high efficiency as one that has dropped.

"I'd rather have a guy at 140 [percent] than a guy at 225 because [the latter] isn't doing the kind of work that I want done on my cars," Hamilton said.

Benchmarking trends

So you've selected some key numbers to monitor in your business. Now how do you know how your numbers compare with that of other shops or of the industry as a whole? Ask the shop owners quoted above, for example, what percentage of their gross sales are for materials, for example, and you'll find they range from 3 percent all the way up to 13 percent (although 6-8 percent is most common).

One answer: All of the paint companies offer business development groups and other tools to enable you to compare your numbers using a standardized financial reporting system.

Randy Dewing of the Arizona-based Dewing Group is one of several facilitators in the industry of independent "20 groups" (those not associated with a particular paint brand). He's seen a lot of shifting in the types of numbers shops are focused on since the "ARMS days" when gross profit was seen as the key. The dependence and focus on labor profit shifted to more of an interest in parts profit as replacement began to outpace repair operations. Then controlling labor costs took center stage as shops turned to teams, apprentices and changes in pay plans to try to rein in one of their largest expenses.

More recently, one of Dewing's groups has zeroed in on overhead expenses, breaking them out into nine categories to enable the shops to get a handle on what they're spending on computers and software, for example, in comparison with other shops.

"One reason for that shift is that they've looked at the top end for a long time and decided, 'I can't manipulate these numbers any more. I'm getting the best discounts I can from my vendors, I'm making good gross profit on my materials, my sublet is okay and labor is what it is, I can't change that,'" Dewing said. "So now they want to look at some of their overhead costs because they still need to put more money to the bottom line."

Part of this "new look," he said, is a consideration of how many people are needed to do certain jobs, specifically in the front office.

"I go to one shop and I see there are 15 people in the front office of a shop doing $3 million a year, and I go to another shop and they've got eight people doing the same amount of sales," Dewing said. "How are they doing that? Then you go to others and they're doing $2 million and they have four people. How are they doing it?"

Dewing said this type of benchmarking analysis is more crucial as shops face increasing claims paperwork through direct repair programs.

"Once we figure out what those numbers are and what it's really costing us, we can start talking about what can we do about it," he said. "Do we need as many people as we do now, or can we address that need through technology. We all know the cost of turnover and hiring and training, and if we keep hiring more people to throw at the paperwork flow problem we have, but we're never solving our paperwork problem, it's still there. We're just throwing more people at it. So maybe there are ways to address that through technology."

That kind of solution searching is more apt to happen once you've had a chance to see how your business compares to others, Dewing said, a key to successful benchmarking.

"When you can look at it, shop to shop, you can do some comparisons, and you don't know until you do that whether you're high or low or doing okay," he said.

The Benchmarking Plan

There are, no doubt, some key numbers at which you look when considering how your shop is doing. But really putting your benchmarking to work for your shop requires a little more. Here are some steps to take:

Decide what to measure - and how to do it.

Focus on a weaker area of your business. If you need to increase sales, track jobs sold. If you need to improve productivity, track the number of flat rate or billable hours completed (daily, weekly or monthly) by the number of clock hours worked. If you want to increase repeat business, the services that provide customer satisfaction indexing (CSI) provide monthly reports that show how you stack up to other shops. If you use a computerized shop management system, check out the various reports it can produce for you based on information you're already entering into it. No matter what you measure, make sure it is relatively easy to track the numbers you need. Benchmarking should be a help in running your business, not a distraction from it.

Establish goals or benchmarks.

Finding out how other shops are doing can help you set realistic and achievable goals for your shop's performance. This may require joining an independent or paint company-sponsored "20 group" or "business development group." Set your goals high enough that you have to make an effort to achieve them, but not so high that you're bound to fail.

Create a scorecard.

You probably wouldn't enjoy a sporting event if you didn't know the score - how you or your team are doing - throughout the game. Set up a system that allows you to visually track what you are measuring and see where you are in relation to the goal you set. If you set a monthly sales goal, for example, record on a calendar the amount of sales you have closed for each week.

Keep at it.

The process sometimes can be frustrating and occasionally discouraging. But consistency is critical in order for the benchmarking system to help you improve your business. Finding a way to make it a game or competition - including rewards for your success - can help keep you motivated. Again, belonging to a development group can help push you because the rest of the group knows your goals and results.

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