Posted By: Robert (Bob) Greenwood
The following is a checklist of items for consideration to be measured each and every month. Keep in mind that “if you can’t measure it, you can’t manage it”. Get focused, measure your HD service business properly so you can make the right management decisions to move forward and achieve what you want to achieve.
- Labor rates – fluid service rate, maintenance rate, diagnostic rate and re-flash rate. Are you up to date on the right multiples to achieve between the amount paid hourly to the technician and the rate charged to the HD client?
- Effective Labor Rate — what are you really achieving in your labor rate after it is measured against the shop’s potential? Knowing the shop’s potential number is a critical calculation to understand.
- Number of R/O’s written each month. Are you controlling your volume or are you missing potential revenue because the service shop is too busy?
- Average Labor Hours Billed per R/O. Are you measuring productivity accurately or just sales?
- Average Sales and Gross Profit per invoice. What are you really making on that average sale in your shop? Is it growing or shrinking? Measure the total Gross Profit dollars against your total cost per billed hour times the number of hours billed on that invoice.
- Average Labor produced per technician. Are your people above or below average, and are they improving as their knowledge increases? Minimum 8 hours billed for 8 hours worked? If not why not?
- Daily Operating Expense of the Shop. What does it cost to turn that key in the morning? Are you giving more thought to the “common sense” expenses of the shop?
- Current Ratio. Is the business getting more “liquid”? Can all the bills be paid when due?
- Age of the Receivables. How long is it taking to collect the average receivable from the HD client? Is progress being made to eliminate receivables? What is the true net profitability of each account factoring in the number of days to get paid?
- Age of Payables. Are we paying all bills when due and taking advantage of discounts offered for prompt payment?
- Labor to Total Wage Package Ratio. Helps measure the effectiveness of management’s ability to “make the shop productive”
- Gross profit by Revenue Category. What is the contribution to our business of each revenue category? Are we focusing on the important issues that drive “net profit”?
- The Shops Sales Mix. What is the breakdown which, when analyzed properly, can tell what type of client base is in the service shop, therefore competent management decisions on the type of staff, equipment and training can be made.
- Inventory Turn / Earn Index. Is the shop carrying the right level of inventory in each category or are we under or over stocked? Cash is king and we want to make sure it is working properly for the business.
- Shop Efficiency. This seems to be the most misunderstood term in the Heavy Duty industry and yet “inefficiency” is the biggest cost per hour in running a service shop. Is the shop meeting the right site efficiency percentage for the HD client it is serving?
By following the trend in your business (always analyze the year to date numbers), one can start to maximize profitability, enhance business relationships, and really move their HD service shop to the next level that is necessary today; the level that is required to ensure you do not buy yourself a job and therefore allowing you to enjoy a career.
Make the time to learn Heavy Duty Business Management techniques and get focused on your future. One of the biggest factors in success today of any Heavy Duty service shop is the courage to understand something. Enroll into a class and really start the process to understand your business. If you are interested in a personal business coach to help guide you to move your business forward let me know and we can discuss the depth of what is involved and how it works in your favor.
Robert (Bob) Greenwood, AMAM