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Oil & Lubricants Profitability (Parts Department)

Oil & Lubricants Profitability (Parts Department)

Oil Gross Profit ÷ Oil Sales (x100)

Baseline: >50% of Oil Sales

Description:

As an industry, we take a high profit margin from the sale of oil and lubricants. There is always a debate to be had as to whether the sale of oil and lubricants should be shown within the Service Department or the Parts Department. Some manufacturers financial reports show this statistic within the Parts Department, which provides the reason for it being shown in this section of the book, however your financial reports may show it in the Service Department.

Example:

A) Oil Sales = R10,357
B) Oil Cost of Sales = R3,936
C) Oil Gross Profit = R6,421 (A - B)
D) Gross Profit on Oil Sales = 62% (C ÷ A X 100)

Discussion:

Most financial reports include the value of oil sales together with the value of oil gross profit; a good report will also show you the percentage of gross profit that has been retained.

Special note:

In order to measure this information accurately, you need to capture the opening oil stock and the closing oil stock at the end of each period, taking into account any oil purchases and from this you can determine how much oil has been used. This of course is your true cost of sale. If you do not currently use this method, and your oil is not metered, how do you account for your oil?

Related Terminology:


Oil & Lubricants Profitability (Service Department)

Oil & Lubricants Profitability (Service Department)

Oil Gross Profit ÷ Oil Sales (x100)

Baseline: >50%

Description:

As an industry, we take a high profit margin from the sale of oil and lubricants. There is always a debate to be had as to whether the sale of oil and lubricants should be shown within the Service Department or the Parts Department. Most manufacturers financial reports show this statistic within the Service Department, which provides the reason for it being shown in this section of the book, however your financial reports may show it in the Parts Department.

Example:

A) Oil Sales = R10,357
B) Oil Cost of Sales = R3,936
C) Oil Gross Profit = R6,421 (A - B)
D) Gross Profit on Oil Sales = 62% (C ÷ A X 100)

Discussion:

Most financial reports include the value of oil sales together with the value of oil gross profit; however, it is more meaningful to show the percentage of gross profit that has been retained for trend analysis.

Special note:

In order to measure this information accurately, you need to capture the opening oil stock and the closing oil stock at the end of each period, taking into account any oil purchases and from this you can determine how much oil has been used. This of course is your true cost of sale. If you do not currently use this method, and your oil is not metered, how do you account for your oil?

Related Terminology:

Operating Profit

Operating Profit

Gross Profit x All Departmental Expenses

Baseline: > 12% of Department Turnover

Description:

The mathematical formula for Operating Profit is simply Gross Profit minus Departmental Expenses.

Example:

A) Departmental Gross Profit = R107,539
B) All Departmental Expenses = R82,722
C) Operating Profit = R24,817 (A - B)

Discussion:

Operating profit is usually seen as the last line or the bottom line of your financial reports for the Parts Department, hence its colloquial name, "the bottom line".

However, having this figure reported as a monetary value is very nice to see, but in terms of plotting its trend, it is more useful to measure this as a percentage of Turnover.

Example:

A) Operating Profit = R24,817
B) Turnover = R165,446
C) Operating Profit % = 15% (A ÷ B X 100)

Related Terminology:

This line is sometimes called Direct Profit, Operating Profit and of course the bottom line.


Operating Profit % (Bodyshop)

Operating Profit % (Bodyshop)

Operating Profit ÷ Turnover (x100)

Baseline: > 30%

Description:

Operating Profit is exactly the same as Departmental Profit and is calculated by taking Gross Profit minus Departmental Expenses. To make sense of this figure it is always expressed as a percentage of Turnover when used for trending as it is the direction of travel that is of most interest to you.

Example:

A) Operating Profit = R183,389
B) Departmental Turnover = R573,088
C) Operating Profit % = 32% (A ÷ B X 100)

Discussion:

Related Terminology:

The Operating profit of the Bodyshop is also called many other things such as, Direct Profit, and of course the bottom line.


Operating Profit % (Sales Department)

Operating Profit % (Sales Department)

Operating Profit ÷ Department Turnover (x100)

Guideline: Franchise Specific

Description:

Operating Profit is calculated by taking Gross Profit minus Departmental Expenses. To make sense of this figure it is always expressed as a percentage of Turnover when used for trending as it is the direction of travel that is of most interest to you.

Example:

A) Operating Profit = R97,208
B) Departmental Turnover = R3,240,233
C) Operating Profit % = 3% (A ÷ B X 100)

Discussion:

Related Terminology:

The Operating profit of the Sales department is also called many other things such as, Departmental Profit, Direct Profit and of course the bottom line.


Operating Profit % (Service Department)

Operating Profit % (Service Department)

Operating Profit ÷ Turnover (x100)

Baseline: > 35%

Description:

Operating Profit is exactly the same as Departmental Profit and is calculated by taking Gross Profit minus Departmental Expenses. To make sense of this figure it is always expressed as a percentage of Turnover when used for trending as it is the direction of travel that is of most interest to you.

Example:

A) Operating Profit = R57,907
B) Departmental Turnover = R165,446
C) Operating Profit % = 35% (A ÷ B X 100)

Discussion:

Related Terminology:

The Operating profit of the Service Department is also called many other things such as, Direct Profit, and of course the bottom line.


Other Income

Other Income

Income From Miscellaneous Items

Guideline: Dealer Specific

Description:

This KPI identifies the profit or loss that you have generated from items that are not listed separately on your financial reports.

Typically, this could be Warranty Sales, Tax Disc refunds or 3rd party accessories such as Scotchguard etc.

The total of this revenue is put into a single accounting line shown as Other or Miscellaneous.

Discussion:

Be careful with this one. It is a statistic that requires your investigation because it can often be used as a dumping ground for all sorts of profits or costs that have not been properly identified.

Unless you know exactly what is contained here, you could be charged for something without your knowlegde or consent.

Related Terminology:

Overall Efficiency % (Bodyshop)

Overall Efficiency % (Bodyshop)

Hours Sold ÷ Hours Attended (x100)

Baseline: 105%

Description:

This KPI measures the relationship between the number of hours that have been sold and the number of hours that the Productives have been available to work.

This example shows that the Bodyshop has successfully sold more hours than the Productives have Attended, therefore the Overall Efficiency of the department is in excess of 100%.

Example:

A) Hours Sold = 1,130
B) Hours Attended = 1,040
C) Overall Efficiency = 108% (A ÷ B X 100)

Discussion:

The direction and travel of this key performance indicator keeps you informed of the balance and harmony that must exist between your Utilisation and Productivity.

Overall Efficiency clearly demonstrates that there is little point in increasing one and ignoring the other.

Example:

A) Utilisation = 92%
B) Productivity = 114%
C) Overall Efficiency = 104.88% (A X B ÷ 100)

Related Terminology:


Overall Efficiency % (Service Department)

Overall Efficiency % (Service Department)

Hours Sold ÷ Hours Attended (x100)

Benchmark: 95% to 115%

Description:

This KPI measures the relationship between the number of hours that have been sold and the number of hours that the Technicians have been available to work.

This example shows that the Service Department has successfully sold more hours than the Technicians have Attended, therefore the Overall Efficiency of the department is in excess of 100%.

Example:

A) Hours Sold = 1,130
B) Hours Attended = 1,040
C) Overall Efficiency = 108% (A ÷ B X 100)

Discussion:

The direction and travel of this key performance indicator keeps you informed of the balance and harmony that must exist between your Utilisation and Productivity.

Overall Efficiency clearly demonstrates that there is little point in increasing one and ignoring the other.

Example:

A) Utilisation = 92%
B) Productivity = 118%
C) Overall Efficiency = 108.56% (A X B ÷ 100)

Related Terminology:

P

Paint & Materials per Labour Hour

Paint & Materials per Labour Hour

Value of Paint & Materials ÷ Hours Sold (x100)

Guideline: Franchise Specific

Description:

This KPI takes the invoice value of the Paint & Material that you have sold and divides it by the total number of Hours Sold to provide you with an average value of paint & materials per hour.

This example below simply shows that for every hour that you have invoiced, you have sold Paint & Materials to the average value of R7.20

If your reported KPI is reported lower than the national average it could be that you may have a problem with your invoicing procedures and some paint and materials are escaping the invoice.

Example:

A) Value of Paint & Materials = R8,136
B) Hours Sold = 1,130
C) Paint & Materials / Hour = R7.20 (A ÷ B)

Discussion:

Some reports separate this KPI to show paint and materials as a different value, it's all a matter of what you want to measure.

Related Terminology:

Parts Gross Profit

Parts Gross Profit

Invoice Value of Parts Sales x Parts Cost of Sales

Guideline: See Parts Gross Profit %

Description:

This is the invoice value of the parts sold less the cost of those parts. Generally, this is expressed as a monetary value and also as a percentage of the total sales value.

The general accounting definition for any type of Gross Profit is simply sale less cost of sale and this statistic is no exception to the rule.

Example:

A) Parts Sales = R695,688
B) Cost of Sales = R507,852
C) Parts Gross Profit = R187,836 (A - B)

Discussion:

The trading strategy of your Parts Department will have an impact upon the value of profit that you make and will vary according to the amount of Trade Sales and the value of internal discount (if any) that your business conducts.

Before you get carried away with the value of Gross Profit that you are generating, use this statistic in conjunction with your Gross Profit % to ensure that your business is travelling in the direction that you want it to travel.

It is possible for the value of your Gross profit to show an increase whilst the Gross Profit % is declining. Make sure that you avoid the busy fool syndrome.

Related Terminology:

Parts Gross Profit %

Parts Gross Profit %

Gross Profit ÷ Departmental Turnover (x100)

Baseline: > 22% of departmental Turnover

Description:

Financial reports for the Parts Department show Gross Profit on each individual category of Parts sales as well as the overall total Parts Sales.

This page is explaining the total Departmental Gross Profit within all of the individual categories are included. (Please also see Parts Sales Mix.)

Example:

A) Total Gross Profit = R187,836
B) Parts Sales = R695,688
C) Gross Profit % = 27% (A ÷ B X 100)

Discussion:

When you express your Gross Profit as a percentage it is much easier to identify and control the direction of your department. An easy way of identifying your trading strategy is to plot a simple graph that can be updated on a monthly basis. The question that you must have the answer to is where are Rebates and Bonus accounted for?

Related Terminology:

Parts Net Profit per New Unit sold

Parts Net Profit per New Unit sold

Departmental Profit ÷ New Units Sold

Guideline: Own Policy

Description:

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Example:

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Discussion:

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Related Terminology:

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Parts Sales

Parts Sales

Invoice Value of Parts Sold

Guideline: See Parts Sales per Parc Unit

Description:

This is simply the invoice value of the parts sold. Generally, management accounts separate the different streams of income so that you can see the growth in all areas of the department.

Typically, these different categories are Retail sales, Trade sales with sales to the Service Department and Bodyshop being split between Retail, Internal and Warranty.

Many financial reports show the plit of these different streams of income in the from of a simple pie chart (See Parts Sales Mix)

Example:

Discussion:

In order to calculate many Key Performance Indicators, Parts Sales may need to be annualised (See Annualised Parts Sales). This is simply a projection of your annual sales based on your current performance.

Related Terminology:

Parts Sales Mix

Parts Sales Mix

Category Parts Sales ÷ Total Parts Sold (x100)

Guideline: Own Policy

Description:

This information simply informs you of the balance between the different categories into which you sell parts. In most cases the Parts Department is split into seven distinct categories of income, which are:

Retail Counter
Trade Counter
Service

  • Retail
  • Internal
  • Warranty
Bodyshop
Van Sales

Example:

Discussion:

On most financial reports your Parts Sales Turnover is segregated into these different categories together with a percentage share of the total sales volume, sometimes in the form of a simple pie chart.

The total Parts Sales volume is usually shown after the full breakdown of these statistics.

Related Terminology:

Parts Sales Per Employee

Parts Sales Per Employee

Annualised Parts Sales ÷ All Parts Personnel

Baseline: > R250.000

Description:

This KPI is generally used for budgeting purposes. The calculation simply takes the Annualised Parts Turnover and divides it by the total number of people employed within the Parts department to provide an Average Parts sales Value Per person.

It is important to note that the number of employees in the calculation includes everyone within the Parts Department including the Parts Manager, and not just the people who sell parts.

Example:

A) Annualised Parts Sales = R695,688
B) Number Parts Employees = 3
C) Annual Sales per Employee = R231,896 (A ÷ B)

Discussion:

It is a useful statistic for ascertaining the overall utilisation of your parts personnel compared with the national average of your franchise.

You may also use it to place a sanity check on your budget. For instance, if your budget requires this KPI to be something in the order of R579,740 per person, then you may question whether you have sufficient people to deliver this result, or you may even question the viability of your budget.

Related Terminology:

Parts Sales per Labour Hour (Bodyshop)


Parts Sales per Labour Hour (Bodyshop)

Parts Sales to the Bodyshop ÷ Hours Sold

Guideline: Own Policy

Description:

This KPI produces a monetary figure that is the average value of parts sold for every labour hour that is sold.

It provides you with an indication of whether you Bodyshop is working with minor accident repairs with few parts being issued or the more lucrative larger jobs such as major accident repairs where more expensive parts are being used.

Hypothetically, let's say that your KPI in this area is less than the national average. This might suggest that your Bodyshop is working with smaller jobs that require fewer parts.

On the other hand if your reported KPI is higher than the national average this might suggest that your Bodyshop is conducting more major bodywork jobs and thereby fitting more parts for each hour sold.

Example:

A) Parts Sales to the Workshop = R42,240
B) Hours Sold = 870
C) Parts Sales per Labour Hour = R48.55 (A ÷ B)

Discussion:

This is a useful KPI for getting to grips with the type of work that you are doing and it is also very useful in the preparation of your budgets and business plans.

Related Terminology:


Parts Sales per Labour Hour (Service Department)


Parts Sales per Labour Hour (Service Department)

Parts Sales to the Workshop ÷ Hours Sold

Guideline: Too ambiguous to benchmark.

Description:

This KPI produces a monetary figure that is the average value of parts sold to the workshop for every labour hour that is sold during the same period. This statistic is influenced by many different areas in the department and it is therefore far too ambiguous to be conclusive. You must study your own trends very carefully for it to have any real meaning and comparison with other dealerships can be misleading and dangerous; take care!

Hypothetically, let's say that the national average for this KPI is R30. The example below might suggest that your Technicians are finding additional work when vehicles come into the workshop and parts are being replaced as opposed to being repaired.

On the other hand if the national average is reported at R65 the example below might suggest that your Technicians are failing to find additional work and parts are being repaired as opposed to being replaced.

Example:

A) Parts Sales to the Workshop = R42,240
B) Hours Sold = 870
C) Parts Sales per Labour Hour = R48.55 (A ÷ B)

Discussion:

Factors that influence this statistic are the type and mix of work that you are undertaking and in order to gain any meaning, this KPI must be calculated separately for Retail, Internal and Warranty.

Related Terminology:

Parts Sales per Parc Unit

Parts Sales per Parc Unit

Annual Parts Sales ÷ Number of Vehicles in Parc

Guideline: Own Strategy

Description:

this KPI is very useful for assessing your current performance in parts sales volume against your fellow dealers or your total market potential.

Example:

A) Annualised Parts Sales = R695,688
B) Number of vehicles in parc = 2,114
C) Parts sold per parc unit = R329 (A ÷ B)

Discussion:

Keep in mind that this statistic is utilising every vehicle in the parc and if you are assessing a 10-year parc some of those vehicles may no longer be in your area or even in existence.

You may also wish to consider who else is registering vehicles within your territory it could be that you have a sizable fleet that is distorting your vehicle parc. You also have to ask yourself the question about the age profile of the vehicles that your dealership attracts.

To access the real power of this KPI you will need to assess the vehicle parc for each individual year as opposed to the 10-year average . This is because the value of parts sold on a 1-year old vehicle in a 12-month period may be very different to the value of parts sold on a 4-year-old vehicle. As you can imagine, if you average this theory over a 10-year period you could end up with a sizeable distortion.

Related Terminology:

Parts Stock Value

Parts Stock Value

Value of Parts Stock at Purchase Price

Guideline: See True Parts Stock Turn

Description:

This statistic simply provides you with the value of your Parts Stock at any one moment in time.

This figure is usually taken directly from your Balance Sheet from which your Parts Stock can be found within the section labelled Current assets.

The Parts Stock Value takes into account all Obsolete Stock and any parts stock write-down that has taken place within the current year and it is this figure that is used for the calculation of KPI's such as Parts Stock Turn.

It is important to note that this figure is reported as a monetary value and reflects the parts purchases price as opposed to the retail selling price.

Example:

Discussion:

The information that you really want to know here is how much stock should you be holding at any one mo0ment in time? The answer to this question lies in the KPI True Parts Stock Turn.

Related Terminology:


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