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Retail : Insurance Ratio

Retail Hours Sold ÷ Insurance Hours Sold

Guideline: Own Policy

Description:

This KPI provides you with the rate and direction of growth of the Bodyshop by understanding the relationship between the sale of retail hours and insurance hours.

Recovery Rates from Insurance Companies are often much lower than can be achieved within the retail sector, but once relationships are well established, taking additional insurance work may be the line of least resistance.

Example:

A) Retail Hours Sold = 870
B) Intsurance Hours Sold = 1031
C) Retail : Internal Ratio = 0.84:1 (A ÷ B)

Discussion:

If the underlying trend of this KPI is demonstrating a higher dependence upon Insurance work, it could mean that your Bodyshop is losing its retail customers, or there are no effective marketing efforts in place to attract retail customers to you business.

Business growth is all well and good, but if most of the growth is from insurance companies you may wish to give some thought to your business's Gross Profitability and exposure. What would happen if an insurance company suddenly decided to place their work elsewhere?

Related Terminology:

Retail : Internal Ratio

Retail Hours sold ÷ Internal Hours Sold

Baseline: 2:1

Description:

This KPI provides you with the rate and direction of growth of the Service Department by understanding the relationship between the sale of retail hours and internal hours.

One of the factors that will affect this statistic is as a rapid growth rate in vehicle sales, which in the short-term will shift the bias to internal work. However in the following months the balance should be redressed as these vehicles return for scheduled servicing.

Example:

A) Retail Hours Sold = 870
B) Internal Hours Sold = 378
C) Retail : Internal Ratio = 2.3:1 (A ÷ B)

Discussion:

If the underlying trend of this KPI is demonstrating a high dependence upon internal work, it could mean that your dealership is losing its retail customers, there are no efforts in place to grow the retail sector of your business, or there is little or no control for invoicing procedures between the Sales and service department.

When you wish to measure the true growth rate and direction of your Service Department then this is the KPI to put in place.

Related Terminology:

Retail: Trade Used Ratio

Used Retail units Sold ÷ Used Trade Units Sold

Guideline: Franchise Specific

Description:

This KPI is specifically for used vehicles and it establishes the relationship between the number of used vehicles that you retail and the number of used vehicles that you sell to the trade.

This example below shows that for every used vehicle that you trade, you sell 1.5 retail vehicles. Take the time to understand what you are reading on your reports as some manufacturers show this ratio in reverse. (Trade: Retail)

Example:

A) Used Retail Sales = 960
B) Used Trade Sales = 640
C) Retail: Trade Ratio - 1.5:1 (A ÷ B)

Discussion:

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

Related Terminology:

Return on Funds Employed % (R.O.F.E.)

Value of N.P.B.I ÷ Funds Employed (x100)

Baseline: > 21%

Description:

This KPI measures the ability of your business to grow from the profits that it generates.

The best time for a business to expand is when this KPI is showing an increasing trend in line with the suggested baseline because this means that any growth can be funded by the company's profits as opposed to borrowed funds.

Example:

A) Net Profit Before Interest = R508,327
B) Funds Employed = R2,420,610
C) Return On Funds Employed = 21% (A ÷ B X 100)

Discussion:

When anyone sets up a business, the main aim is to generate a profit. Obviously, you need sufficient profit to pay all the bills and salaries with some left over to enable the business to grow in the forthcoming year.

The reason that interest is not shown within this equation is because it measures the amount of profit being generated without any interference of borrowed funds.

If the trend of this KPI is diminishing, then you might choose to reconsider your overall business viability, as you will have a greater dependence upon borrowed funds, therefore increasing interest charges and reducing profitability.

Related Terminology:

Return on Investment (Used Vehicles)

Used Vehicle Profit ÷ Stock Value (x100)

Baseline: >60%

Description:

This KPI measures the amount of profit that you generate from used vehicles as a percentage of the investment you have in used vehicle stock.

The logic behind this KPI is straightforward in that it measures whether you are really making any profit from your used vehicle activity. Expenses that are deducted generally include Reconditioning Costs and Sales Commissions; however, some reports measure Gross Profit and do not deduct expenses, whilst others deduct further expenses such as basic salaries.

There are many different variations on this calculation, the example shown here is probably the most popular.

Example:

A) Used Vehicle Gross Profit = R480,000
B) All Used Vehicle Expenses = R160,000
C) Used Vehicle Profit = R320,000 (A - B)
D) Used Vehicle Stock value = R460,000
E) Return on Investment = 69.56% (C ÷ D X 100)

Discussion:

Neither method is right nor wrong; it is simply a matter of what you want to measure. However, you should invest some time in understanding what is in your own statistics because the deduction of expenses makes a sizable distortion to the final result.

Related Terminology:

Return on Investment % (R.O.I.)

Value of N.P.B.I ÷ Investment (x100)

Baseline: > 21%

Description:

This KPI measures the ability of your business to grow from the profits that it generates.

The best time for a business to expand is when this KPI is showing an increasing trend in line with the suggested baseline because this means that any growth can be funded by the company's profits as opposed to borrowed funds.

Example:

A) Net Profit Before Interest = R508,327
B) Funds Employed = R2,420,610
C) Return On Investment = 21% (A ÷ B X 100)

Discussion:

When anyone sets up a business, the main aim is to generate a profit. Obviously, you need sufficient profit to pay all the bills and salaries with some left over to enable the business to grow in the forthcoming year.

The reason that interest is not shown within this equation is because it measures the amount of profit being generated without any interference of borrowed funds.

If the trend of this KPI is diminishing, then you might choose to reconsider your overall business viability, as you will have a greater dependence upon borrowed funds, therefore increasing interest charges and reducing profitability.

Related Terminology:

Return on Net Worth

NPBI ÷ Net Worth (x100)

Guideline: Own Policy

Description:

The calculation for this KPI is very similar to Return on Funds Employed excepting that it uses the value of Net Worth as opposed to the total value of Funds Employed.

Example:

A) Net Profit Before Interest = R508,327
B) Net Worth = R847,213
C) Return On Net worth = 59.8% (A ÷ B X 100)

Discussion:

This figure can in some cases be very misleading as it is based on the value of Net Worth, therefore it is the trend of this KPI that is of most value to you.

The danger of too much reliance upon this KPI is that if your value of Net Worth decreases, this percentage figure could be showing an increasing trend.

You should use this information in accordance with your Equity percentage together with your Return on Funds Employed percentage to arrive at a meaningful conclusion.

Related Terminology:

This KPI is also known as Return on Own Funds.

Return on Own Funds

NPBI ÷ Own Funds (x100)

Guideline: Own Policy

Description:

The calculation for this KPI is very similar to Return on Funds Employed excepting that it uses the value of Net Worth as opposed to the total value of Funds Employed.

Example:

A) Net Profit Before Interest = R508,327
B) Net Worth = R847,213
C) Return On Own Funds = 59.8% (A ÷ B X 100)

Discussion:

This figure can in some cases be very misleading as it is based on the value of the owner's funds, therefore it is the trend of this KPI that is of most value to you.

The danger of too much reliance upon this KPI is that if your value of owner's funds decreases, this percentage figure could be showing an increasing trend.

You should use this information in accordance with your Equity percentage together with your Return on Funds Employed percentage to arrive at a meaningful conclusion.

Related Terminology:

This KPI is also known as Return on Net Worth.

Return on Sales % (R.O.S)

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.

It is also referred to as Net Profit After Interest or Net Profit Before Tax on some financial reports and the only other item to be deducted from this figure is taxation.

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) Net Profit After Interest = R363,091
B) Company Turnover = R14,523,661
C) Return on Sales % = 2.5% (A ÷ B X 100)

Discussion:

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

Related Terminology:

(See also Net Profit Before Interest % and Interest % )

Revenue per Productive

Department Turnover ÷ Number of Productives

Guideline: Own Policy

Description:

This is another of those key performance indicators that is used to level the playing field when comparing one business with another.

It removes the emotion of the big numbers that may be involved and produces an average monetary value of Turnover per Productives in any given period.

This KPI is probably more useful in the preparation of budgets and business plans as opposed to measuring the effectiveness of your Productives.

Example:

A) Bodyshop Turnover = R573,088
B) Number of Technicians = 6
C) Revenue per Technician = R95,515 (A ÷ B)

Discussion:

Special Note:

There is a variation across reports with this calculation so be sure that you are measuring the correct statistics.

Some reports class the revenue as Total Department Turnover, whilst others class revenue as the total value of the Hours Sold.

Neither of these statistics is either right or wrong, but do take the time to find out what is included or excluded from your own information.

Related Terminology:

Revenue per Technician

Department Turnover ÷ Number of Technicians

Guideline: Own Policy

Description:

This is another of those key performance indicators that is used to level the playing field when comparing one dealer with another dealer.

It removes the emotion of the big numbers that may be involved and produces an average monetary value of Turnover per technician in any given period.

This KPI is probably more useful in the preparation of budgets and business plans as opposed to measuring the effectiveness of your Technicians.

Example:

A) Service Department Turnover = R55,404
B) Number of Technicians = 6
C) Revenue per Technician = R9,234 (A ÷ B)

Discussion:

Special Note:

There is a variation across reports with this calculation so be sure that you are measuring the correct statistics. Some reports class the revenue as Total Department Turnover, whilst others class revenue as the total value of the Hours Sold.

Neither of these statistics is either right or wrong, but do take the time to find out what is included or excluded from your own information.

Related Terminology:

Sales Commissions

Sales Commission ÷ Gross Profit (x100)

Guideline: Own Policy

Description:

This KPI establishes the average amount of Sales Commission that is paid to you sales team.

When the Sales Commissions are expressed as an average per unit or a percentage of Turnover, they are more useful to handle when comparing your performance with someone else and they can be found within the Variable Expenses of your management accounts.

The values of Sales Commission vary considerably across the country because they are dependent upon salary structures and incentive schemes. However, you will find it useful to measure the trend within your own business in order to keep them under control.

Example:

A) Sales Commissions = R68,208
B) Department Turnover = R7,432,165
C) Vehicles Sold = 784
D) Sales Commission p/unit = R87 (A ÷ C)
E) Sales Commission % = 0.9% (A ÷ B X 100)

Discussion:

As an alternative measurement, some reports illustrate Sales Commissions as a percentage of Gross Profit as opposed to Turnover and some reports separate the amounts paid for new and used vehicles.

Related Terminology:

Selling Efficiency % (Bodyshop)

Hours Worked ÷ Hours Attended (x100)

Benchmark: 85% x 95%

Description:

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? Selling Efficiency gives you the answer to this question.

Example:

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

Discussion:

This example shows that the Productives have attended 1,040 hours at the dealership of which 92% of that time has been spent working productively. The remaining 8% will be shown in your expenses as Idle Time.

Related Terminology:

Selling Efficiency % (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? Selling Efficiency gives you the answer to this question.

Example:

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

Discussion:

This example shows that the Technicians have attended 1,040 hours at the dealership of which 92% of that time has been spent working productively. The remaining 8% will be shown in your expenses as Idle Time.

Related Terminology:

Semi-Fixed Expenses (Bodyshop)

Semi-Fixed Expenses ÷ Total Turnover (x100)

Guideline: Own Policy

Description:

Semi-Fixed Expenses are those expenses that are not directly linked to the number of vehicles that you conduct.

They represent those expenses that you have to pay to keep the Bodyshop running whether you sell anything or not.

A good example here is non-productive salaries. If you do not sell anything, you still have to pay the Receptionist, Administrator and Bodyshop Manager.

Typically, Semi-Fixed expenses are shown as a monetary value and in order for you to capture meaningful trend analysis you will need to express them as a percentage of Departmental Turnover.

Example:

A) Semi-Fixed Expenses = R143,272
B) Total Turnover = R573,088
C) Semi-Fixed Expense % = 25% (A ÷ B X 100)

Discussion:

The reason that they are called Semi-Fixed is that they are fixed each month irrespective of sales volume, but the Directors of the business decide at what value those expenses are fixed.

The important thing to note here is that these expenses are not linked to sales volume.

Related Terminology:

Semi-Fixed Expenses (Parts Department)

Semi-Fixed Expenses ÷ Turnover (x100)

Benchmark: < 8%

Description:

the Semi-Fixed Expenses of the Parts Department refer to the total expenses incurred. As there are no expenses that are directly linked to the Parts Sales volume within the Parts Department, Variable Expenses) then all expenses are classified as semi-Fixed.

Typically, Semi-Fixed expenses are shown as a monetary value and in order for you to capture meaningful trend analysis you will need to express them as a percentage of Departmental Gross Profit.

Example:

A) Departmental Expenses = R13,524
B) Total Turnover = R187,836
C) Semi-Fixed Expense % = 7.2% (A ÷ B X 100)

Discussion:

Related Terminology:

Semi-Fixed Expenses (Sales Department)

Semi-Fixed Expenses ÷ Department Turnover (x100)

Guideline: Franchise Specific

Description:

Semi-Fixed Expenses are those expenses that are not directly linked to the number of vehicles that you sell. They represent those expenses that you have to pay to keep the department running whether you sell anything or not.

A good example here is basic salaries or advertising. If you do not sell any vehicles, you still have to pay for advertising and the basic salary for each Salesperson and the Sales Manager.

Typically, Semi-Fixed expenses are shown as a monetary value per unit sold and also as a percentage of Sales Department Turnover.

Example:

A) Semi-Fixed Expenses = R280,326
B) Department Turnover = R7,432,165
C) Vehicles Sold = 784
D) Semi-Fixed Expenses p/unit = R358 (A ÷ C)
E) Semi-Fixed Expense % = 3.7% (A ÷ B X 100)

Discussion:

The reason that they are called Semi-Fixed is that they are fixed each month irrespective of sales volume, but the Directors of the business decide at what value those expenses are fixed.

The important thing to note here is that these expenses are not linked to sales volume.

Related Terminology:

Semi-Fixed Expenses (Service Department)

Semi-Fixed Expenses ÷ Total Turnover (x100)

Guideline: Own policy

Description:

Semi-Fixed Expenses are those expenses that are not directly linked to the number of vehicles that you conduct.

They represent those expenses that you have to pay to keep the department running whether you sell anything or not.

A good example here is non-productive salaries. If you do not sell anything, you still have to pay the Service Receptionist and Service Manager.

Typically, Semi-Fixed expenses are shown as a monetary value and in order for you to capture meaningful trend analysis you will need to express them as a percentage of Departmental Turnover.

Example:

A) Semi-Fixed Expenses = R92,850
B) Total Turnover = R371,388
C) Semi-Fixed Expense % = 25% (A ÷ B X 100)

Discussion:

The reason that they are called Semi-Fixed is that they are fixed each month irrespective of sales volume, but the Directors of the business decide at what value those expenses are fixed.

The important thing to note here is that these expenses are not linked to sales volume.

Related Terminology:

Service Sales per Parc Unit

Annualised Labour Sales ÷ Vehicles in Parc

Guideline: Own policy

Description:

This is a key performance indicator to ascertain the value of Service Sales that you are achieving across your vehicle parc.

Example:

A) Annualised Labour Sales = R664,848
B) Vehicle Parc = R1,560
C) Service Sales Per Parc Unit = R426 (A ÷ B)

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 an others use ten years.

Discussion:

Also note that the age span of vehicle parc for the service Department is often different to that of the Parts Department. Be sure to obtain the correct interpretation from your respective manufacturers.

The example above shows that for every vehicle in the parc there is an average spend of R426. However, a far more useful and accurate method of calculating territory penetration is to measure Vehicle Parc on a year-by-year basis.

Related Terminology:

Stock Adjustments

Guideline: Own policy

Description:

If there is ne thing in the Motor Industry that is an absolute certainty, it is that your stock suffers the effects of depreciation on a continuous basis.

When you buy parts and sell them within a short period of time, this is when your business makes the most profit.

Obviously, the longer the parts sit in the shelf, the more depreciation, they attract and the chances of selling them become fewer. If they sit there for too long, they fall into the category called Obsolete Stock.

Generally speaking, the Parts Stock holding is reviewed on an annual basis and the parts that have been in stock for some time will have a portion of their cost written off to reduce their price.

This financial write off is deducted from the profits of the Parts department and is shown within the management accounts as an expense called Stock Adjustments.

Example:

Discussion:

aaaSome businesses choose to conduct Stock Adjustments on a monthly basis, some quarterly and some annually.

There are no strict guidelines for this practise, but the more frequently you conduct the exercise, the more your attention will be focussed upon the disposal of slow moving items and of course the trend of True Parts Stock Turn.

Related Terminology: