Knowing Where—and Why—to Look

Operating a shop without properly tracking KPIs can lead to more work being done in all the wrong places. There may be revenue, but no net profit—and without a grasp on your KPIs, you won’t be able to figure out why.

“We’re doing a lot of different things, wearing a lot of different hats—answering the phone, working on cars, doing our marketing—we find ourselves very busy with the business. But then months go by, and we realize we’re not making any kind of money. We have revenue, but we don’t have any net profit, or there’s just no cash in the bank,” Singh relays. “So, when you find yourself in a situation where it becomes hard to figure out why you don’t have the money to pay your parts bills and your vendors at the end of the month, you have to look and say, ‘Okay, what’s the issue?’ And that’s where looking at your KPIs and looking at your numbers is going to give you that answer.”

For shop owners new to tracking KPIs, gross profit percentage tops the list as one of the most crucial to focus on. Singh aims for 60% gross profit, which is a fairly standard number, though some shops may be satisfied with 50% or 55%, depending on their cost of goods and overhead.

Following that, average repair order is another essential KPI for shop owners to track. This is something that can be heavily dependent on car count, which Singh considers the other crucial KPI to track. It’s important to keep in mind that the type of shop also impacts ARO. While the car count at Singh’s general repair shop is higher, the more expensive, time-consuming jobs at his BMW shop mean the latter has a higher ARO.

Revenue is not something Singh places in his the KPIs he tracks. It’s just a piece of what the bigger picture is for your shop’s finances, he notes. Without tracking the KPIs outlined previously, you can’t do much just going off your revenue.

“I’m not saying it’s the least important KPI, but I know it’s not in the top three for me,” he says. “We have a saying in this industry: ‘Revenue is for vanity and net is for sanity.’ And the reason is that you can be grossing all this money and be going out of business, and that’s what happens if you don’t look at your KPIs. You don’t understand your numbers, and you don’t know how to price things properly, or how to run that business in a way where it’s going to be sustainable.”

Having the Tools to Track

Once you know which KPIs to track, you need all the tools in place to accurately track those numbers. Singh uses Shopmonkey, which provides an end of day report with several different KPIs that the team can review.

But Singh has taken it a step beyond that. Being technically savvy himself, he created a tool for his shop which processes their Shopmonkey reports and generates a visual aid representing the data, as well as additional insights. He’s also able to tailor it to his needs, with preset goals for profit per hour, close rate, car count, total GP, cycle time, and more.

Additionally, Singh has integrated an overhead tracker into the tool he created, which shows him daily their GP dollars compared to overhead. This is another important data point shops should be careful not to neglect as well, he cautions.

“I say this because I’ve been through it, and I work with other shop owners, too; we know we tend to look at our checking account as a way to gauge the health of our business. And that’s very, very dangerous,” Singh warns. “The better way to look at it is tracking your GP (gross profit) dollars every day against your overhead for the month—your fixed overhead cost.”
 
With the overhead tracker, Singh and his team are able to better predict when they may cross overhead at the current momentum or rate at which they’re moving. While the tool helps, tracking overhead doesn’t require a specialized tool. You only need to figure out what your overhead fixed costs are per month, divide that by your working days, and from there, you can determine what amount of gross profit dollars you need to make on average daily if you expect to outrun your overhead.

Tracking overhead and knowing if you’re close to outrunning overhead is crucial for shops to stay on top of. Otherwise, you render yourself ignorant to whether the month is financially safe or not, and may make mistakes like taking low margin work when you can’t afford to.

KPIs Are Complicated

Neglecting your monthly overhead is just one of several mistakes that shop owners can make when tracking KPIs. Another blunder is looking at your job gross profit without including tech cost. This can artificially inflate your gross profit, and without accounting for tech cost, it will cause confusion when there’s no real profit or cash.

“Say we have a four-hour job where we’re charging the customer four labor hours, and whatever the part is. When we look at the gross profit on that job, I see in a lot of shops that the gross profit is artificially high because they don’t have a cost in for the technician,” Singh explains. “If we pay $40 to $65 an hour, if we don’t record four hours at $65 as a cost, we are now lying to ourselves about how much gross profit there is. And when you stack it up over many orders over a month, you are grossly mistaken on what your gross profit is, and you will have a hard time figuring out why you’re not making any money.” 

It all demonstrates that KPIs are an intricate, complex topic. While Singh has provided a great foundation to get started tracking your finances, it’s only the beginning of a continuing journey. Any shop owner or manager who’s serious about upping their finance skills should seek out coaching on the topic, as well as try to collaborate and connect with local auto shops to hear their experiences, too. If nothing else, having an effective shop management system in place will go a long way in providing you with much of the data you need as well.

“If you want to do better, you will do better seeking out coaching and using a good shop management software. Those are things that you don’t want to skimp on,” Singh says.