The 3 key performance indicators that tell you how healthy is your automotive business

When I ask a Workshop manager if his business is profitable I received a broad range of answers, from rising the shoulders and spinning globular eyes in a try of saying why do you ”torture” me with this kind of questions to a minimum 20 PowerPoint slides presentation in a try of saying I am in full control of the business.

If I would ask you the same question, what is your answer? Is it easy for you to offer a simple and accurate answer? What if I add another question: How sustainable is your profit?

In this post I’ll introduce the 3 key performance indicators – KPI’s – I follow every time I want to measure Workshop profitability and its sustainability.

It will be a mini series of five posts, this one designed to get you into the topic, by introducing the main KPI and by answering to two questions: why I follow it and how it is calculated. The second post will explain in details how measuring the main KPI help you to keep the full control of the business. The next two posts will show you how you can strengthen a pro-active and continuously improved business by measuring the other two KPI’s in real time. And the last posts will give you the big picture: how do you relate these 3 KPI’s and understand how the business is working.

The main KPI, Absorption rate is a comprehensive one and it can be followed on a monthly basis on two levels: Dealer and Workshop. Even though we are talking only about After sales, I prefer to measure the Absorption rate on both levels.

Why do I follow it?

There are three reasons:

1. The benchmark is easy to read: 100%. If the value is under the benchmark the Dealer and/or the Workshop either are running on loss, either the profit is not sustainable in the long run;
2. It shows if the Dealer can survive a major crisis and for how long;
3. It gives a good image about the business focus: getting more revenue or lowering costs.

How do I calculate it?

 

Where:

-          Gross profit on After sales means the gross profit made on labour, oils, small consumables and spare parts sold on a monthly basis

-          Dealer cost means monthly operating expenses for the whole Dealer: Workshop, Warehouse, Sales, Administration & Support

-          After sales cost means monthly operating expenses for Workshop, Warehouse and its Administration & Support

 All the needed data come from the P&L account and it is very easy to read.

  There is one way to go: make profit in a sustainable way!

 

Next in the series: Absorption rate, the most powerful tool to take control of your business