After three years of ownership, Mike Davidson sat in an uncomfortable chair in a stuffy, local bank, trying to open a line of credit for his Little Rock, Ark., shop.

Overall, Davidson was pleased with how his business, Parkway Automotive, was shaping up. His bays were full, his bills were paid and he was looking to expand. Acquiring a small business loan, he thought, would be pretty simple.

Before he and the banker got into logistics, though, Davidson was asked a simple question: How does your balance sheet look?

“I remember saying something like, ‘I don’t know; what does a balance sheet look like?’” Davidson says. “I had no idea what it was.”

Needless to say, he didn’t get the loan.

“That was really the defining moment when I realized I needed to have a full understanding of my finances: what the numbers mean, how to track them, how to use them,” he says.

Dan Gilley, president of RLO Training, says this isn’t an uncommon issue with shop owners. For the most part, people simply look at their profit and loss statements and check if they need money or not, Gilley says, or “they simply trust what their accountant tells them.”

“The thing they’re missing is that if you don’t know how to read your statements, if you don’t know how to get these numbers and what they mean, then you can’t make educated decisions in your business,” Gilley says. “The better grasp you have on your numbers, the better decisions you’ll make.”

There are literally hundreds of numbers a shop owner can track, some more important than others. Ratchet+Wrench spoke with two shop owners about the most critical number they analyze in their respective businesses, and how that number shapes the decisions they make every day.

Percent of Sales as a Starting Point

To his own surprise, Mike Davidson has become a numbers guy. And it has nothing to do with an obsession with revenue and profit and stuffing a bank account.

As one industry consultant puts it: He operates his business with the goal of “highly ethical practices.” He wants his shop to serve customers better than anyone in the area.

The numbers are his way of making sure he’s doing that.

“You need to track things, you need to be able to keep score,” he says. “I want to know if everyone in our shop is doing their job serving our customers in the best possible way. And you have to find a tangible way to measure that.”

It may come as a surprise to some, but Davidson does it through one financial measure: percent of sales.

When Davidson uses this term, he refers to a shop’s actual sales compared to its “potential revenue,” or the amount of work it offered to customers.

“It’ll tell you how good of a job we’re doing in presenting work that fits customers’ needs,” he says.

The ultimate goal, Davidson says, is to sell 70 percent of all the work offered to customers every month. His shop “gets very close” to that mark in some months, he says, but the key is never having it dip below 50 percent.

How He Uses Sales Percentage

It’s all about staff efficiency and productivity, Davidson says. He needs his technicians and his service advisors working at an “A” level every day.

While he can measure productivity (hours spent working in comparison to hours available) and efficiency (billed hours compared to hours available) on their own for each employee, it’s difficult to take into account how each employee affects one another.

That’s where sales percentage comes in.

“If our percentage is down for a month,” Davidson explains, “that can mean a few things. Either our advisors aren’t doing a good job of selling the work brought to them by the techs, or the techs aren’t bringing the right kind of work (jobs actually required for the vehicle)—or enough work—up front to the service advisors.

“The sales percentage number is the overall indicator of how that relationship is working. If you’re hitting in that range (50–70 percent), then you’re efficiency and productivity is solid.”

When Davidson does have a down month, he uses that information to make adjustments.

In October of 2012, his shop sold  $138,917 worth of its total potential revenue of $272,500. It was a “red flag,” Davidson says. While the revenue numbers were in line with monthly goals (his shop did just under $1.7 million in 2012 sales), the sales percentage of just 51 percent showed something was amiss.

After examining the situation further, he saw some of his service advisors were losing customers on phone sales. So, he did phone training with his whole staff.

Sales percentage results also sparked Davidson to institute a thorough inspection process with his technicians a few years back.

“Knowing how that number (sales percentage) is formed and what goes into it helps you pinpoint these problems,” he says. “Then you can make the proper adjustments.

“It’s about really understanding what you’re looking at. You can have all the numbers on a screen in front of you, but if you don’t know what goes into them, they do you no good.”

Profit Margin as Proof

One of the first things Andy Lundsted learned as a 24-year-old owner was to never be afraid of admitting what he didn’t know.

He had worked at Certified Transmission for less than a year when the owner presented him with a chance to buy the shop. This was September of 2002, and Lundsted jumped at the chance.