In my last column, I talked about the importance of shop owners tracking not just the key performance indicators (KPIs) that others – such as insurance companies or automaker certification programs – are watching but also the ones that are most important to your business and bottom line.
Now I want to share how some actual collision repairers improved their business performance by using KPIs. Let’s start out in Idaho, where Cory Donenfeld and his brother own and operate Northwest Auto Body. It’s a second-generation business, founded by their father more than 40 years ago, now with two locations.
Cory took a class I taught on KPIs last year. At the time, he said, he felt he was tracking the company’s performance “by the numbers,” but acknowledges that largely meant just the profit and loss statement. By the time he’d notice a number didn’t look right, he said, it was often from a problem caused three or even six months earlier.
Using the KPI tracking tool from the class, however, he now spends about half an hour each month plugging in some key numbers. That produces a multi-page report with numbers, charts and graphs that allow him to really drill down to understand what’s happening in his business – and make changes to improve it.
“It also tells me what the industry standards are for each of these KPIs so we can compare where we are,” Cory said. “And the greatest part is I’m able to identify any problem within a month, as opposed to six months from now, when it’s been a big issue for a while and we’ve been bleeding money. Now I can correct the issue pretty fast.”
In one of the early KPI reports the shop ran, for example, Cory found the shop appeared to lose money on paint supplies for the month. So he was able to look into that. Part of the issue was his paint supplier hadn’t yet reimbursed the shop for materials used on an internal job. But he also found that some paint supplies being entered under a certain category in the shop’s estimating system would, when the data was transferred into the shop’s accounting system, show as a cost rather than revenue.
“That had been an issue for years, and this finally shed light on it,” Cory said.
The process also helped him discover that some other items, when transferred into the accounting system, showed as something that should have been taxed.
“So we were paying out those taxes, but not collecting the tax,” Cory said. “That didn’t include a ton of things, but we were literally losing that money for no reason.”
KPI tracking also helped Cory see how little profit the company is making on sublet work.
“Knowing that, we’re looking for ways to sublet out less,” he said. “We are bringing things in-house, if possible.”
That is what’s powerful about tracking KPIs: It makes you aware of things you might never consider until you have the data in front of you. Knowing you’re not making much money on sublet work can lead you to pencil out whether it makes sense to buy an alignment machine or get training to do more glass work in-house.
The KPI tracking system is helping Cory’s business improve beyond just P&L line items as well. He now is watching, for example, each location’s “capture rate” (or “closing ratio”), the percentage of estimates written that get converted into repair orders.
Another item he’s working on is the shop’s effective labor rate. Like most shops, Northwest Auto Body has different labor rates for body, mechanical, frame and aluminum work. The effective labor rate is the total revenue from all the types of labor divided by the total number of labor hours.
“In our case, that number was pretty close to the lowest of our labor rates even though we have higher rates for some of that other type of work,” Cory said. “So KPIs have helped me see that’s something I need to work on.”
In upcoming columns, I’ll share how Cory is using KPIs as an effective management tool, and how the owner of an even bigger collision repair business used KPIs to keep an eye on his shop locations without a need to set foot into each of them.