Measuring Success Part 1: Start with the Numbers.
The best way to monitor the performance of your dealership is to run the numbers. You should look at the numbers for each department at least weekly, but I would encourage this on a daily basis.
Most of you have software that you are probably underutilizing and that can easily give you the numbers you need simply by running daily reports. So, the best way is to set up and utilize your current reporting systems.
Then, determine what numbers you want to measure. In the service department, recovery rate is one of the most important measurements to monitor. As a manager, you must understand that we buy time. If you have one technician in your shop, you have bought 8 hours of time and your job is to sell those 8 hours of time. That measurement is called the recovery rate. The recovery rate of a service department looks at how well the manager is selling the time the owner is buying every day.
There are two ways to calculate the recovery rate. The first is the time you am buying versus how much time you am billing. This is used if you are using flat rate pricing. Or, you can calculate the time that you are buying versus how much time a technician is turning a wrench.
Let’s look at an example of an individual technician. Take their billed hours and divide that number by the paid hours. So, let’s say our technician had 5 billable hours for the day and was paid for 8. That would give us a recovery rate of 63%.
As a baseline (if you determine your recovery rate using billable time as a guide), the minimum average for a service department should never be below 85%. A technician should be producing a minimum of 6.8 hours of billable time for every 8 hours they are paid to be at the dealership.
You should also do this calculation for your total service department. You simply take your total billed hours divided by the total paid hours. For example, if we have 510 billable hours divided by 480 paid hours that gives us a recovery rate of 106%.
Some of the other service department measurements you should be doing on a regular basis include:
- Tech efficiency: The measurement of how effective your techs are on individual work orders that are assigned to them.
- Average completion time: The amount of actual time it takes to complete a repair from the time it is brought to your shop to the time it is ready for pickup.
- Labor to parts percentages: How many dollars of shop parts sales you are selling relative to the labor you are selling in your shop.
Measuring Parts Department Efficiencies
In the parts department, one of the most important things you can monitor is your transactions. Transactions are affected by three things:
- The size of transactions
- The volume of the transaction
- The amount of time that is required for the transaction
Let’s look at how to monitor your average transaction value. Our goal in the parts department is to constantly work toward increasing the value of each transaction. You do this by dividing your total parts dollars sold by the number transactions. For example: $32,000/800 = $40.00 average transaction value.
Other performance measurements you should be monitoring include:
- Fill rate out of stocking inventory: The amount of parts you sell on-demand because you have those parts stocked and ready when your customer needs them. To do an accurate measurement, you must also know your number of lost sales, number of special orders and emergency orders and your total parts sold.
- Average number of transactions per parts counter employee: The measurement of how many transactions per day an employee is handling and how much time those transactions are actually taking within an 8-hour timeframe.
- Average transaction time: The amount of time it takes from the moment a person walks up to the parts counter to the moment they leave.
- Gross profit margin: How much money is left after everything is done and you’ve taken the costs of the goods you have sold out.
It is also just as important for you to know the numbers of your sales department. One of the most important numbers for you and your sales team to monitor is your closing ratio. This measures the number of people who are coming in to the dealership versus the number of people you are closing.
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We have two type of people who come into our dealership on the wholegoods side: suspects and prospects. Suspects are people that have a pulse and can fog a mirror. They are not really customers. They don’t really have a need for the product and are just in “kicking the tires” and burning your time. Prospects are people that can buy from you if they choose to do so. They are interested and have a need or desire to buy. To decipher the difference, you simply ask some basic qualifying questions.
Once you determine the number of actual prospects coming into your showroom, you can determine what your current closing ratios are. About 75% of the people who come into your dealership will be considered true prospects. To determine the current closing ratio of your sales team, divide your total number of sales by the number of customer contacts (with prospects). Let’s assume you made 20 sales. You divide that by the number of contacts, 70, and you would have a closing ratio of 29%. Now, 25-35% is probably the average closing ratio for sales people. It can be and should be much higher, but this is the average.
I would expect the closing ratio in a good dealership to be closer to 40-45%. Based upon the current closing ratio at your dealership, you will be able to evaluate what is needed, make some projections and then the necessary adjustments in order to increase the closing ratio.
Some other numbers you will want to track for sales include your average wholegoods sales transaction. Just as you are working to improve your average sales per transaction in the parts department, you should also be evaluating and working to improve your average wholegoods sale per transaction. You do this by taking your total sales divided by your total transactions to give you the price of your average wholegoods sale.
Benefiting from Measurements
If you are going to be successful in business, you really have to understand your numbers. If you focus on the right numbers and what constitutes “good numbers,” your business will be profitable. In addition to increasing profits, there are many other benefits to knowing and monitoring your numbers.
In the service department, your numbers will let you know:
- What your staffing needs are for the department
- How effective your manager is at using flat rating
- How well you are placing work according to the qualifications of each technician
- What your marketing needs are for your service department
In the parts department, the time you invest in tracking your numbers will help you:
- Evaluate your growth
- Know your margins and profitability
- Understand the effectiveness of your staff
- Know the level of customer satisfaction at your dealership
And, finally, in the sales department, your numbers will help you with:
- Sales projections
- Inventory management
- Budgeting and planning
- Knowing how to and how much to market in order to increase overall wholegoods sales
Your numbers will let you know where you are currently at and where you are going in the future. Take time today to begin to monitor the vital numbers of your business and see your business grow and improve.