360Growth! Learning

Rebates and Bonuses

Guideline: Franchise Specific

Description:

Rebates and Bonuses are two different ways for a franchise manufacturer to reward a dealer for good performance.

Rebates.

These are forms of discount that are claimed back when you hit an agreed purchase target on a specific product line or product group.

Example:

You could have a target to purchase 100 widgets at R10 each with a Rebate of R2. When you hit that target you will be able to claim the agreed Rebate of R2 on all 100 widgets that you have purchased resulting in a Rebate of R200 (qoo widgets with a R2 Rebate on each). Rebates are usually retrospective upon target attainment.

Bonuses.

These are bonus payments in the true sense of the word. Your franchise manufacturer usually provides you with an annual parts purchase target, which is broken down into quarterly segments. When you reach these targets the franschise manufacturers pays you a bonus for hitting this target.

Discussion:

Related Terminology:

Reconditioning Costs

Reconditioning Costs ÷ Used Units Sold

Guideline: Franchise Specific

Description:

This KPI establishes the average amount of money that you spend on reconditioning each of your used vehicles.

It is very difficult to provide a benchmark for this statistic as dealer standards, specification and price of the vehicles varies considerably.

As with all KPI you need to capture the trend of this statistic if you are to gain control of its direction. Keep in mind that it is only an average of your Reconditioning Costs and something such as an engine or gearbox replacement will have a significant impact on your results.

Example:

A) Reconditioning Costs = R211,200
B) Used Vehicles Sold = 960
C) Reconditioning Costs per Unit = R220 (A ÷ B)

Discussion:

The important thing is to be aware of its trend and the reasons why it is travelling in a given direction as it is influenced by many different factors.

You can keep track of your performance by means of a simple graph that you update monthly, or at the very least, have it included within your Daily Operating Controls.

Related Terminology:

Recovery Rate (Bodyshop)

Labour Sales ÷ Hours Sold

Guideline: Dependent upon Insurance Content

Description:

Your Bodyshop will have a published labour rate per hour, but how often are you able to charge this amount to every customer on every job?

Recovery Rate tells you how much revenue you have actually recovered per Hour Sold as opposed to how much you would have generated should you have applied your full charge out rate.

Example:

A) Labour Sales = R33,731
B) Hours Sold = 875
C) Recovery Rate = R38.55 (A ÷ B)

Discussion:

The reality of the situation confirms that you are often forced to provide a discount in some instances, especially to Insurance Companies, which of course reduces the amount of revenue that you are able to collect. The question is how much money have you managed to recover?

The key to success with this KPI is to capture individual Recovery Rates for each income sector (See Labour Sales Mix) so that you can accurately pinpoint the areas in which discount is being given.

Related Terminology:

Recovery Rate (Service Department)

Labour Sales ÷ Hours Sold

Baseline: 95% of Charge out Rate

Description:

Your Service Department will have a published labour rate per hour, but how often are you able to charge this amount to every customer on every job?

Recovery Rate tells you how much revenue you have actually recovered per Hour Sold as opposed to how much you would have generated should you have applied your full charge out rate.

Example:

A) Labour Sales = R42,240
B) Hours Sold = 870
C) Recovery Rate = R48.55 (A ÷ B)

Discussion:

If we say that the published labour rate for the above example is R50 per hour, then if no discount were to be given the Labour Sales would have been R43,500.

The reality of the situation confirms that you are often forced to provide a discount in some instances, which of course reduces the amount of revenue that you are able to collect. The question is how much money have you managed to recover?

The key to success with this KPI is to capture individual Recovery Rates for each income sector (See Labour Sales Mix) so that you can accurately pinpoint the areas in which discount is being given.

Related Terminology:

Rectification (Bodyshop)

"Certainly, we'll rectify that for you right now."

Guideline: Own Policy

Description:

This term refers to those costs that must be borne by the Bodyshop that cannot be reclaimed or charged on to warranty or any other Department.

Example:

Let's say that three days ago you repaired a vehicle and now the customer has returned to you because one of the doors is not fitting properly.

Naturally, you cannot expect the customer to pay any more money, as they have already paid for the job. Therefore you agree to rectify the problem for the customer, and the question is who pays the bill?

Discussion:

Since this job is the direct responsibility of the Bodyshop, it cannot be charged onto warranty or any other department and therefore the hours spent on the rectification is accounted for within Rectification or Goodwill within your management accounts.

Whilst this is a simplistic explanation, the same holds true for any other work that you conduct that cannot be charged elsewhere.

Related Terminology:

Rectification (Sales Department)

"Certainly, we'll rectify that for you right now."

Guideline: Own Policy

Description:

This term refers to those costs that must be borne by the Sales Department that cannot be reclaimed or charged on to warranty or any other Department.

This KPI is usually shown separately for new and used vehicles as they both deliver very different results. As you can well imagine, Rectification for used vehicles is generally much higher. (Not to be confused with Reconditioning Costs)

Example:

A) Rectification = R53,760
B) Vehicles Sold = 960
C) Rectification per Unit = R56 (A ÷ B)

Discussion:

Just imagine that you sold a vehicle a couple of weeks ago and the customer has returned to you because there is a problem. You agree to rectify the problem for the customer, and the question is who pays the bill? If the answer is the Sales Department, then this is known as Rectification and is usually shown as a cost per unit sold.

You can usually find your Rectification within the Semi-Fixed Expenses of your management accounts.

Related Terminology:

This term is also known as Policy Adjustments, Goodwill or Policy Costs.

Rectification (Service Department)

"Certainly, we'll rectify that as a gesture of goodwill."

Guideline: Own Policy

Description:

This term refers to those costs that must be borne by the Service Department that cannot be reclaimed or charged on to warranty or any other Department.

Example:

Let's say that three days ago you fitted a new exhaust system for one of your customers, and now they are back in front of you with a problem. They are saying that the exhaust system is rattling and of course they are not happy.

Naturally, you cannot expect the customer to pay any more money, as they have only just paid you to have the exhaust system fitted. Therefore you agree to rectify the problem for the customer, and the question is who pays the bill?

Discussion:

Since this job is the direct responsibility of the Service Department, it cannot be charged onto warranty or any other department and therefore the hours spent putting the right accounted for within Rectification in your management accounts.

Related Terminology:

This term is also known as Policy Adjustments or Goodwill.

Repair Orders per Productive

Number of Repair Orders ÷ 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 business with another.

It removes the emotion of the big numbers that may be involved and produces an average number of jobs that an individual Productive undertakes in a given period.

Example:

A) Total Repair Orders = 1,458
B) Number of Productives = 6
C) Repair Orders per Productive = 243 (A ÷ B)

Discussion:

There are a multitude of factors that will affect this statistic including Productivity, Utilisation, and the type of work being undertaken and of course the skill of the Productives and the Estimator.

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

Related Terminology:

Repair Orders per Technician

Number of Repair Orders ÷ 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 number of jobs that an individual Technician undertakes in a given period.

Example:

A) Total Repair Orders = 1,458
B) Number of Technicians = 6
C) Repair Orders per Technicians = 243 (A ÷ B)

Discussion:

There are a multitude of factors that will affect this statistic including Productivity, Utilisation, and the type of work being undertaken and of course the Technicians skill.

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

Related Terminology:

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: