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Labour Gross Profit (Bodyshop)

Labour Sales x Labour Cost of Sales

Guideline: See Labour Gross Profit %

Description:

This is probably one of the most misunderstood calculations of all and is therefore worthy of your full consideration.

Most people are of the assumption that the Labour Gross Profit is Labour Sales minus Hours Attended. If this were to be the case then Idle Time would be reported at zero.

The true calculation is the monetary value of the Hours Sold minus the monetary value of the Hours Worked productively.

Example:

A) Labour Sales (hours sold) = R42,240
B) Hours Worked Productively = R7,803
C) Labour Gross Profit = R34,437 (A - B)

Discussion:

It is important to note here that the Labour Cost of Sales is only the value of the hours spent working productively on the hours that have been sold. You can deduce from this calculation that the Productives time is split between hours worked productively and Idle Time.

Related Terminology:

Labour Gross Profit (Service Department)

Labour Sales x Labour Cost of Sales

Guideline: See Labour Gross Profit %

Description:

This is probably one of the most misunderstood calculations of all and is therefore worthy of your full consideration.

Most people are of the assumption that the Labour Gross Profit is Labour Sales minus Hours Attended. If this were to be the case then Idle Time would be reported at zero.

The true calculation is the monetary value of the Hours Sold minus the monetary value of the Hours Worked productively.

Example:

A) Labour Sales (hours sold) = R42,240
B) Hours Worked Productively = R7,803
C) Labour Gross Profit   = R34,437 (A - B)

Discussion:

It is important to note here that the Labour Cost of Sales is only the value of the hours spent working productively on the hours that have been sold. You can deduce from this calculation that the Technicians time is split between hours worked productively and Idle Time.

Related Terminology:

Labour Gross Profit % (Bodyshop)

Labour Gross Profit ÷ Labour Sales (x100)

Baseline: > 65%

Description:

Before you read this page, please read Labour Gross Profit to ensure that you have the true understanding of the performance area that your are measuring.

All profit-related KPI are usually measured against turnover, and in this instance the starting figure for your profit retention in the Service Department is 65%.

Example:

A) Labour Gross Profit = R182,241
B) Labour Sales = R253,112
C) Labour Gross Profit = 72% (A ÷ B X 100)

Discussion:

It is important to maintain a high profit margin in this KPI because the Departmental Expenses erode much of it away. Therefore if your performance in this area is below 65%, you will struggle to achieve a reasonable level of profitability when you reach the Direct Profit of your department.

This statistic has a tendency to be lower than that of the Service Department due to lower Recovery Rates and higher Productive costs.

Related Terminology:

Labour Gross Profit % (Service Department)

Labour Gross Profit X Labour Sales (x100)

Baseline: >75%

Description:

Before you read this page, please read Labour Gross Profit to ensure that you have the true understanding of the performance area that your are measuring.

this KPI tells you the percentage of money you have retained from the Hours Sold after you have paid your Technicians.

All profit-related KPI are usually measured against turnover, and in this instance the starting figure for your profit retention in the Service Department is 75%.

You could also view this to mean that you pay your Technicians less than 25% of the value of the Hours Sold for the hours that they have worked productively.

Example:

A) Labour Gross Profit = R34,437
B) Labour Sales = R42,240
C) Labour Gross Profit = 81.53% (A ÷ B X 100)

Discussion:

It is important to maintain a high profit margin in this KPI because the Departmental Expenses erode much of it away. Therefore if your performance in this area is below 75%, you will struggle to achieve a reasonable level of profitability when you reach the Direct Profit of your department.

Related Terminology:

Labour Sales Mix (Bodyshop)

(Sector) Hours Sold ÷ Total Hours Sold (x100)

Guideline: See Hours Sold

Description:

This information simply informs you of the sectors into which you are selling hours.

In the case of the franchised dealer, the Labour Sales Mix for the Bodyshop splits into three distinct categories of income sectors, which are Retail, Internal, and Warranty.

In the case of a stand-alone independent Bodyshop, the Labour Sales Mix may be split between, Retail, Insurance, Franchised Dealers and Fleet.

Whatever your circumstances, you may see your Labour Sales Mix being displayed as a Pie Chart to give an instant picture of your status.

However, It is always wise to measure your Labour Sales Mix in terms Hours Sold as opposed to the monetary value of Labour Sales because Recovery Rates vary across each income sector as do the charge out rates.

Example:

Discussion:

Price differences lead to inconsistency when measuring the trend and direction of your Bodyshop and it is therefore more meaningful to measure the Hours Sold into each income sector.

All of the price differences and distortions are eradicated when the number of Hours Sold are analysed as opposed to their monetary values.

Related Terminology:

Labour Sales Mix (Service Department)

(Sector) Hours Sold ÷ Total Hours Sold (x100)

Guideline: See Hours Sold

Description:

This information simply informs you of the balance between your Service Department's sales of hours.

In most cases the Service Department is split into three distinct categories of income, which are Retail, Internal, and Warranty. For many franchises it is generally accepted that the Labour Sales Mix is:

Retail hours sold 70%
Warranty hours sold 10%
Internal hours sold 20%
Total Hours sold 100%

It is always wise to measure your Labour Sales Mix in terms Hours Sold as opposed to the monetary value of Labour Sales because Recovery Rates vary across each income sector as do the charge out rates.

Example:

Discussion:

All of these price differences lead to inconsistency when measuring the trend and direction of your Service Department and it is therefore more meaningful to measure the Hours Sold into each income sector.

All of the price differences and distortions are eradicated when only the Hours Sold are analysed.

Related Terminology:

Labour Sales per Parc Unit

Annualised Labour Sales x Vehicles in Parc

Guideline: Own Policy

Description:

This is a key performance indicator that you need to thoroughly examine and fully understand before you make any judgements whatsoever as it makes some far- reaching assumptions. Its purpose is to ascertain the value of labour sales that you are achieving as an average across your vehicle parc.

This example below shows that for every vehicle in the parc you are currently achieving an average Labour Sales value of R426.

Different manufacturers account for vehicle parc over different spans of time. For instance, some manufacturers use a five-year parc, some use a seven-year parc and others use a ten-year parc.

Also note that the age span of vehicle parc for the Bodyshop is often different to that of the Service and Parts Departments. Be sure to obtain the correct interpretation from your respective manufacturer.

Example:

A) Annualised Labour Sales = R664,848
B) Vehicle Parc = 1,560
C) Labour Sales Per Parc Unit = R426 (A ÷ B)

Discussion:

This statistic is not to be used to assess territory potential because it is taking your current labour sales as opposed to what could be achieved.

Related Terminology:

Labour Utilisation % (Bodyshop)

Hours Worked ÷ Hours Attended (x100)

Benchmark: 85% to 95%

Description:

This statistic tells you how much of the Productives attended time is actually spent working productively.

In more simplistic terms, each Productive usually clocks in and is available for eight hours each day, but how much of that time is spent spray-gun-in-hand or panel beating, working on hours that can be charged out to the customer? Labour Utilisation gives you the answer to this question.

Example:

A) Hours Worked = 957
B) Hours Attended = 1,040
C) Labour Utilisation = 92% (A ÷ B X 100)

Discussion:

Related Terminology:

Labour Utilisation % (Service Department)

Hours Worked ÷ Hours Attended (x100)

Benchmark: 85% to 95%

Description:

This statistic tells you how much of the Technicians attended time is actually spent working productively.

In more simplistic terms, each Technician usually clocks in and is available for eight hours each day, but how much of that time is spent spanner-in-hand, head-under-bonnet, working on hours that can be charged out to the customer? Labour Utilisation gives you the answer to this question.

Example:

A) Hours Worked = 957
B) Hours Attended = 1,040
C) Labour Utilisation = 92% (A ÷ B X 100)

Discussion:

Related Terminology:

This KPI is also known as Utilisation, Labour Efficiency and Selling Effiency.

Lead Time (Bodyshop)

"I want my vehicle repaired, when can you do it?"

Benchmark: 7 days or less

Description:

The Lead Time is the length of time a customer must wait before your Bodyshop can repair their vehicle.

A short Lead Time is usually expected and generally accepted by a customer unless they have a serious problem that needs immediate attention.

A long Lead Time of ten days or more is not generally understood or accepted by a customer and usually results in them taking their vehicles elsewhere.

If your Lead Time is ten days or more on a consistent basis, then you should certainly examine your Utilisation or even yoy policy regarding courtesy cars.

If your Lead Time is nonexistent on a continual basis, then your marketing campaigns may need an extra boost to gain additional work.

Example:

Discussion:

Factors that affect the lenght of Lead Time are Utilisation, cutomer retention, and marketing activity.

Related Terminology:

Lead Time (Service Department)

"I want my vehicle serviced, when can you fit it in?"

Benchmark: 3 days or less

Description:

The Lead Time is the length of time a customer must wait before their vehicle can be seen by your Service Department.

A short Lead Time of two to three days is usually expected and generally accepted by a customer unless they have a serious problem  that needs immediate attention.

A long Lead Time of seven to ten days is not generally understood or accepted by a customer and usually results in them taking their vehicles elsewhere.

If your Lead Time is seven days or more on a consistent basis, then you should certainly examine your Utilisation, and you may consider taking on an additional technician if you have the facilities available.

If your Lead Time is nonexistent on a continual basis, then your Aftersales marketing campaigns may need an extra boost to gain additional work.

Example:

Discussion:

Factors that affect the lenght of Lead Time are Utilisation, cutomer retention, and Aftersales marketing. The lenght of Lead Time that your dealership has is really a reflection of the work that is available to you and your ability to cope with its demand.

Related Terminology:

Loan Repayment %

Annual Loan Repayment ÷ Cash Profit (x100)

Benchmark: < 33%

Description:

This KPI informs you of how much money your business can afford to repay in annual loan repayments.

Example:

A) Annual Loan Repayments = R142,879
B) Net Profit After Interest = R508,327
C) Depreciation = R87,000
D) Cash Profits = R595,327 (B + C)
E) Loan Repayment = 24% (A ÷ D X 100)

Discussion:

The logic behind this information is rather similar to your mortgage payments. In simplistic terms, a bank manager will allow you to borrow somewhere in the region of 3 times your salary for a mortgage.

The company's equivalent to your salary is its Cash Profit and the Loan Repayment % states that the amount that you are paying in loan repayments should be less than one third of your Cash Profits.

To ensure that your business can afford to repay its loans, you may need to restructure them over a longer period of time.

Our usual logic tells that we should pay off our loans in the fastest possible time however, it is better to pay a little more in interest payments than it is to go bust through a lack of cash.

Related Terminology:

Lost Opportunity Costs (Used Vehicles)

Days in Stock ÷ Days Stock Turn x GP per Unit

Benchmark: <Gross Profit per Unit x 2

Description:

This statistic measures the profitability of the space that a used vehicle occupies rather than any measurement of the used vehicle itself. Understanding of this difference is critical to this concept.

Let's assume that your used vehicle Stock Turn is 35 days and your Gross Profit is R1,500 per used vehicle.

If you have a used vehicle that remains in stock for a period of longer than 35 days, then the space it occupies is no longer productive at the average rate and is missing profit opportunities.

In order to establish the value of this lost opportunity you must divide the actual number of days a vehicle has been in stock by your Stock Turn and then multiply this by your average Gross Profit.

Example:

A) Actual Days in Stock = 87
B) Current Stock Turn = 35 Days
C) Failed to sell = 2.49 times (A ÷ B)
D) Average Gross Profit = R1,500
E) Lost Opportunity Cost = R3,735 (C X D)

Discussion:

This concept accepts the principle that your used vehicles generate R1,500 every 35 days, whereas this vehicle has failed to do so 2.49 times therefore the profit opportunity of R3,735 has been lost.

Related Terminology:

Lost Time (Bodyshop)

Hours Attended x Hours Worked

Guideline: See Utilisation

Description:

Lost Time means that the Productives have been diverted onto tasks that cannot be charged out to the customer and as such the chargeable time is therefore lost. Typically this could be time spent locating a vehicle, waiting for parts and other such issues.

The mathematical formula is simply Hours Attended minus Hours Worked and this is always shown as a monetary value, which can usually be found within the Variable Expenses of the Bodyshop.

Example:

A) Hours Attended = 320
B) Hours Worked = 304
C) Hours Lost = 16 (A - B)
D) Prime labour Cost = R10
E) Lost Time = R160 (C X D)

Discussion:

Related Terminology:

This term is also known as Unrecovered Time, Idle Time and Diverted Time.

Lost Time (Service Department)

Hours Attended x Hours Worked

Guideline: See Utilisation

Description:

Lost Time means that the Technicians have been diverted onto tasks that cannot be charged out to the customer and as such the chargeable time is therefore lost. Typically this could be time spent locating a vehicle, waiting for parts and other such issues.

The mathematical formula is simply Hours Attended minus Hours Worked and this is always shown as a monetary value, which can usually be found within the Variable Expenses of the Service Department.

Example:

A) Hours Attended = 320
B) Hours Worked = 304
C) Hours Lost = 16 (A - B)
D) Prime labour Cost = R8,40
E) Lost Time = R136 (C X D)

Discussion:

Related Terminology:

This term is also known as Unrecovered Time, Idle Time and Diverted Time.

(Also see Hours Attended and Hours Worked)

Net Profit After Interest % (N.P.A.I.)

Net Profit After Interest ÷ Company Turnover (x100)

Baseline: > 2%

Description:

This is the KPI that many franchise manufacturers refer to when discussing levels of profitability within their dealer networks and it is often referred to as the company's bottom line.

Many business owners consider this to be one of the figures that holds the most importance, as it provides you with the profit you have retained as a percentage of the products and services that you have sold.

It is important to keep an eye on the trend of this KPI because a diminishing trend could indicate that you are working harder for a lower return, a condition otherwise known as busy fool syndrome.

Example:

A) N.P.A.I = R363,091
B) Company Turnover = R14,523,661
C) N.P.A.I % = 2.5% (A ÷ B X 100)

Discussion:

This KPI is also referred to as Net Profit Before Tax on some financial reports as the only other item to be deducted from this figure is taxation.

This statistic is obviously influenced by Net Profit Before Interest and of course the level of interest that you are paying.

Related Terminology:

Net Profit Before Interest % (N.P.B.I.)

N.P.B.I. ÷ Turnover (x100)

Baseline: > 3%

Description:

This is probably one of the most important profit indicators for a business to measure. It provides you with the dealership result as opposed to an individual departmental result.

This N.P.B.I % statistic gives you the capability to measure the ability of the company to retain profit from the products and services that it is selling, without taking the cost of capital into account.

This means that you can accurately compare two companies, on a like-for-like basis, without the interference of their financial stability or borrowings. This is critical when you are using Composite comparison.

Example:

A) N.P.B.I. = R508,327
B) Company Turnover = R14,523,661
C) N.P.B.I. % = 3.5% (A ÷ B X 100)

Discussion:

Without doubt, this KPI is the best measurement when comparing the profitability between companies. It simply states how much of your turnover has been retained as profit. (Before Interest)

Related Terminology:

Net Profit Before Tax % (N.P.B.T.)

Net Profit Before Tax ÷ Company Turnover (x100)

Baseline: > 2%

Description:

This is the KPI that many franchise manufacturers refer to when discussing levels of profitability within their dealer networks and it is often referred to as the company's bottom line. It is also known as Net Profit After Interest or Return on Sales.

Many business owners consider this to be one of the figures that holds the most importance, as it provides you with the profit you have retained as a percentage of the products and services that you have sold.

It is important to keep an eye on the trend of this KPI because a diminishing trend could indicate that you are working harder for a lower return, a condition otherwise known as busy fool syndrome.

Example:

A) N.P.B.T = R363,091
B) Company Turnover = R14,523,661
C) N.P.B.T. %  = 2.5% (A ÷ B X 100)

Discussion:

There are no KPI measurements for profitability after taxation has been deducted, as the parameters and individual situations for taxation are different for every business.

Related Terminology:

(See also Net Profit Before Interest %)

New: Used Retail Ratio

New Retail Units Sold ÷ Used Retail Units Sold

Benchmark: <1:1

Description:

This KPI Is specifically for retail vehicles and excludes all fleet sales. The statistic establishes the relationship between the number of new vehicles that you retail and the number of used vehicles that you retail.

The example below shows that for every used vehicle that you retail, you sell 0.57 new retail vehicles. take the time to understand what you are reading on your reports as some manufacturers calculate this ratio in reverse. (Used: New)

Example:

A) New Retail Sales = 548
B) Used Retail Sales = 960
C) New: Used Retail Ratio = 0.57:1 (A ÷ B)

Discussion:

It is not possible to provide an industry benchmark for this performance as it is influenced by the franchise that you operate, your overall trading strategy, the ability of the Sales Manager and the sales team.

Related Terminology:

Obsolete Stock

Benchmark: < 1% of Stock Value

Description:

Wouldn't it be a wonderful world if you were able to sell every single part that you purchased? The truth of the matter is that you are unable to achieve this utopia in the real world and therefore you have to make decisions about how long you keep hold of stock before you admit to yourself that it's just not going to sell.

Just think for a moment about the food that you buy. Accompanying the price of the produce there is usualluy a date that tells you when the food must be sold or it will be removed from the shelf and thrown away. This date is commonly known as the "Sell by date".

Example:

Although the parts that are occupying your shelves right now do not have a "sell by date" printed on them, you already know that there is a limited amount of time for them to sell because new vehicles are being launched and demand for older parts diminishes. Once this time has expired, those old parts are said to be past their sell by date, or in other words, they become obsolete stock.

Discussion:

There are no hard and fast rules for placing sell by dates on your parts stock, but the general rule seems to be around 2 years. After this amount of time, most parts have benefited from Stock Adjustments and are usually written off and thrown in the bin to make way for some fresh stock that will sell so that the profits can be recovered.

Related Terminology: