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Start Small When It Comes to Tracking the Financials in Your Body Shop

I know this industry doesn’t attract many math or finance majors as shop owners. But I implore you to start tracking your financials because, if you can’t measure it, you can’t manage it.

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Mark R. Clark is owner of Professional PBE Systems in Waterloo, Iowa. He’s a popular industry speaker and consultant and is celebrating his 32nd year as a contributing editor to BodyShop Business.

I’ve said several times before in these pages that my long-ago college business degree could be summed up in nine words: “If you can’t measure it, you can’t manage it.” “Yeah, but I HATE math” say way too many folks in this business. They’ll just manage by “feel” or seat-of-the-pants guesswork. “Sales were more last month, and expenses were less, so what else do I need to know?” the typical shop owner/manager asks me. Well, how much more, more than what, less than what, and compared to what are a few of the things that would be helpful to know in running a profitable collision repair business.

My Fav Body Shop Numbers

Last month, I offered two of my favorite body shop numbers and what I think a good answer looks like: 

Close rate (how many estimates turned into ROs)

Formula = Number of repair orders ÷ number of estimates Examples: 41 ROs ÷ 60 estimates = 68% closed or 

154 ROs ÷ 198 estimates = 77% closed

Mark Clark’s benchmark = 65% closed

*A recent BodyShop Business survey suggested closer to 75% (smart readers!)

Production efficiency (billed labor hours ÷ total technician contact hours)

Formula = Labor hours sold ÷ labor hours available

Examples: 35 hours sold ÷ 40 hours available = 87.5% efficient or 903 hours sold ÷ 728 hours available = 124% 

Mark Clark’s benchmark = 140% efficient

(56 hours sold ÷ 40 hours available = 140%)

*Counting all who touch the vehicle during the repair

Start Small

I cautioned last month that it’s really easy – once you start collecting body shop numbers – to collect even more. After 50 years in collision repair, I strongly recommend you collect no more than two or three at one time. Once you’ve moved those numbers to where you want them, choose three more and fix those next. I’m fully on board that this industry doesn’t attract many math or finance majors as shop owners. Pick three numbers that matter to your shop’s net profits and track them over at least 90 days to get a reliable answer. We carry so much work through the end of every month that you need three months to get a dependable trend.

To have meaning, the numbers you collect must be compared to something to realize much value. Is that more or less than last month? Than last year? Than the industry “average”? I’ll offer my considered opinion about the benchmarks I use below. Comparing your own numbers next period to your own numbers last period has more value than comparing them to any benchmarks, mine included. But collect and compare them to something you must!

Sales Mix, Parts-to-Labor Ratio

Here are two more collision repair numbers that I encourage anyone who will listen to track and manage:

Sales mix. Measures what your shop is selling on each repair. Labor/parts/P&M/sublet are my four chosen buckets.

It is possible to break these down into many more segments than I prefer. For example, I generally track total labor dollars billed, but it’s possible to track labor in smaller and more exact buckets: metal time, frame time, refinish time, mechanical time, detail time, etc.  Don’t bother to calculate it if you don’t have some plan to use it.

In the same vein, I prefer to track “parts” as one single dollar total, but more detail could accrue if you broke that parts barrel into buckets like: new OEM parts, new A/M parts, LKQ used parts, remanufactured parts, etc. Same with paint & material (P&M). I’m a fan of a single total for everything billed under that general heading, but you could also track how much of that number was color, clear, undercoats, sundries, etc. Sublet measures those tasks performed on the repair by someone else. Again, I like one number, but you could discern how much sublet was glass work, towing, A/C recharge, sensor recalibration fees, etc. (And if it was enough money, bring that operation in house!).

Sales mix formula: Sale component ÷ total sale 

Mark Clark’s benchmark

Labor 44%

Parts 42%

P&M 10%

Sublet   4%

Total dollar sale  100%

Example: $125,000 total shop sales last month (before taxes)

55,000 labor sold = 44%

52,500 parts sold =   42%

12,500 P&M sold =   10%

5,000 sublet sold =      4%

Parts-to-labor ratio. Measures how much labor your shop sells compared to how many parts you sold. There are at least two adamant and entrenched philosophies about whether it’s better to sell more parts (typical 25% gross margin) or more labor time (typical 55% gross margin). Repair? Or replace? FYI, I’m on the sell-more-parts side as I contend the 25% parts gross margin quickly falls to the shop’s bottom line and doesn’t adversely affect the techs’ paychecks. 

But there are more shops on the other side of the parts-to-labor equation in my long experience that stridently contend that a 55% gross margin is more than twice as good as 25%. Hard to argue with that. Time is the ultimate issue. Can I complete the repair faster and empty the stall quicker by replacing parts? Can I replace parts with a lower quality technician than it takes to repair the damage with a higher skilled tech? Wherever your shop stands on repair/replace, knowing your parts-to-labor is helpful – if for no other reason than many insurance company score sheets rank this number and complain when it gets out of step with their historic database.

My five-mile-high view is that many insurance carriers still want to keep their DRP shops under one-to-one (1:1) on parts to labor. For example, if the DRP shop has sold more parts than labor to that one insurance company over the past 90 days, they’ll send someone by to talk about it. They’ll contend that shop is selling them more crash parts and less labor time than their other vendors.

Evermore expensive replacement crash parts, including sensors, cameras and computer ports, will drive the ratio well over 1:1 soon, I predict, and a future upper benchmark may look more like 110% than 100%.

This math is done already with my sales mix breakdown from tip no. 3: 44% labor sold and 42% parts sold equals a 95% ratio.

Parts-to-labor formula = Total parts sales ÷ total labor sales 

Mark Clark’s benchmark = 95% (or more!)

For example: $1,250 parts sold ÷ $1,300 labor sold = 96% or $51,000 parts sold ÷ $48,500 labor = 106%

Or:

39% parts ÷ 47% labor = 82% parts-to-labor or 43% parts ÷ 43% labor = 100% parts-to-labor

Next Month

Next month I’ll offer a couple more of my favorite “big picture” body shop measurements. Are my suggested benchmarks realistic in your local market? I don’t know. But if you measured your current shop’s results, you’d know. Couldn’t hurt.

Mark R. Clark is the owner of Professional PBE Systems in Waterloo, Iowa. He’s a popular industry speaker and consultant and is celebrating his 31st year as a contributing editor to BodyShop Business.

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