What makes a successful repair shop?
Hint: It’s not just good repairs.
Sure, skilled technicians and the work they do are absolutely critical to any operation. But the actual work is just half of the picture. The other half is actually running the business—all the back end stuff we’ve talked about in previous posts, such as marketing, finances, and so on.
Which brings us to the topic of KPIs, or Key Performance Indicators. You’ve probably heard this term batted around in our webinars and perhaps out in the larger world, but today we’re going to take a deep dive and dispel some of the mystery surrounding them. What are KPIs? How can tracking them help your shop?
Let’s find out.
WHAT ARE KPIs?
One of our philosophies here at Fullbay is that when you measure something, performance improves.
KPIs are a way to measure performance. When you set goals for your shop, you need a way to see if you are meeting those goals, right? That’s where your KPIs come in. By showing you how your shop is performing in certain areas, you know what you’re doing well and where you can improve.
We talk a lot about shop visibility on our blog. You want visibility into everything that’s going on. Tracking KPIs lets you do that. If you’re not clear on what’s going on, you are potentially leaving a lot on the table.
Okay, Fullbay, you’re saying, I get it. I should track KPIs. But what KPIs should I look at?
We’re so glad you asked!
WHAT KPIs SHOULD A HEAVY-DUTY REPAIR SHOP TRACK?
The good news is that you can determine which KPIs are important to you. The bad news is…well, you have to determine them.
We can give you a hand with that.
Generally speaking, before you do anything else, you’ll select a goal you want to work toward. Let’s say you want to make a certain amount of money per quarter. Great! The KPIs you create will put you in a better position to reach that goal.
But before we go further, let’s dig a little deeper into what makes up a typical KPI.
Our Co-Founder and CEO, Jacob Findlay, talks about lag metrics and lead metrics.
A lag metric is something you want, but can’t directly influence. You want your shop to earn $1 million per quarter, but you can’t make it happen just by wishing for it.
A lead metric is something you can directly influence that also predicts the lag metric. Lead metrics might include hiring more technicians or raising your labor rate so you get closer to $1 million per quarter.
If your ultimate goal is to boost your shop’s revenue, then track the following KPIs (your lag metrics):
Revenue: The total amount of money your shop brings in based on repairs made and parts sold.
Cost of Revenue: You have to spend money to make money, right? You don’t just pocket all your revenue. You are paying technician salaries and buying the parts they use in their maintenance and repairs.
Gross Profit: This is the money you have left over after subtracting the costs of goods sold (COGS) from your actual revenue. How much do you need to make, per week or per month, to reach your quarterly financial goals?
Overhead: Your overhead includes any ongoing expenses that aren’t part of the repair work you do. Things like rent, utilities, insurance, and so on fall under overhead.
Net Profit: This is your income after subtracting COGS, overhead (and other burden costs), and all other expenses from revenue. This is the money you have actually made after everything else is paid off.
If you want to make $1 million per quarter, for example, then your job is to affix certain monetary values to each of the five KPIs listed above. They provide you with the goals—or overall numbers—you need to hit to meet that overall number.
How can you ensure you reach those numbers and your desired goal?
You pull certain levers.
BUILDING YOUR KPIs
OK. If you stop there, your KPIs are basically lag metrics. They are wishful thinking: things you would like but cannot simply will into existence.
To reach them, improve them, or surpass them, you need to work on your lead metrics, which are the levers you can pull to shift your shop into a higher gear. In other words, they’re the aspects of your business that you can directly control and change to make a difference in your revenue.
Here are just a few lead metrics:
Parts markup rate. How much are you charging for the parts you sell or include in your repairs? Can you boost your markup by even a percentage or two?
Labor rate. How much are you charging for your techs’ time? Are you breaking even, or losing money on repairs? Raising your labor rate by even a few dollars can make a difference in revenue.
Tech efficiency. How efficient are your techs? An easy way to find out is to divide hours invoiced by hours clocked. You don’t want to find yourself in a situation where you’re paying your techs for 40 hours a week, but they’re only doing 30 hours of work. Can you help them be even more efficient? Once you assess tech efficiency, you can see where their strengths are and what might be getting in their way. (Bonus idea: Adding friendly competition and efficiency bonuses to the mix can boost efficiency even more.)
Number of techs. We don’t always recommend throwing bodies at a problem, but there are times when the only way to invoice more hours is to hire more techs.
Customer quality. Sometimes it really does come down to your customer. For example, you handle PM work for a customer at a really low rate…sure, you always have work, but that work is barely keeping the lights on—and you have no extra bays or time for other, better-paying work. In other words, your customers are one of your levers.
If you’d like to experiment with these levers before doing anything drastic, we’ve got an awesome (and free!) shop financial model template that you can download. Play around with it and see just how much impact your lead metrics have on your lag metrics!
THIS SEEMS LIKE A LOT OF WORK…
Ready to hear a secret?
The vast majority of what you just read are just good business practices.
You should be tracking your lag and lead metrics, even if you aren’t calling them that. These are the elements that help you increase revenue and the overall value of your shop. Sure, they take time to set up and track, but they’re a critical investment into your own success.
Here’s another secret: Fullbay is here to help.
Our software is designed to help you pull the right levers to meet your KPIs. It doesn’t just help you track labor rates and parts pricing; you can also use it to look at overall pricing, hours worked and invoiced, and all kinds of other reports. At any given time, you can pull up information on tech efficiency, revenue, and so much more. Get in touch with us for a free demo—we’d love to help you track your KPIs!