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Originally Posted On: https://www.actionlifemedia.com/business/5-key-performance-indicators-of-the-automotive-service-industry/

 

A survey shows that 98% of owners think that their businesses have a chance of growth. However, only 20% of these business owners have a concrete plan on how to do it.

Just one in three of these business owners set aside time to polish their business growth plans. As a visionary business owner, you must be part of those who work on their growth plans. But, once you have a plan, what performance indicators do you use?

Key performance indicators (KPIs) are vital in understanding your business. They inform you of your business’s health. Read on to discover significant performance indicators of the automotive service industry.

1. REVENUE PER BILLABLE HOUR

A good chunk of a business’ costs is labor. Therefore, the most important performance indicators for a business in the service industry are labor KPIs. They indicate the period it takes for an employee to reach peak productivity.

They also show the best time to get new hires. Revenue per billable hour is a simple to use metric. It divides the total revenue from labor sales by total billed hours by labor.

This performance indicator tells you the amount of revenue generated per billable hour. Service managers in the automotive service industry must calculate this rate often. It will help them determine if any modifications are required.

The calculated rate tells service managers if the prices are appropriate. For example, if revenues are lower than billable hours, it would be good to check on prices.

With this KPI, they can also tell how well services and the hiring procedure are managed.

2. CUSTOMER RETENTION

Keeping customers satisfied and happy is the best strategy in a service provider’s tool belt. A 5% rise in the rate of a company’s customer retention rate can result in a 75% rise in its profitability.

The customer retention rate tells you the proportion of existing clients who enlist your services over a particular period. This metric lets you know if your loyalty marketing tactics are effective or not. Companies in the automotive service industry measure the retention rate differently but the end goal is similar.

For a service manager, customer retention can pose the greatest challenge. Because it involves people, managing their loyalty to your service requires tact. To retain customers, service managers can establish systems that ensure consistency in the service provided by employees.

Providing great, uniform service encourages customers to come back over and over.

Focusing on customer retention is also an effective marketing tactic. There is a high chance that loyal clients will refer others to your business. This lowers the amount you spend on new customer acquisition efforts.

3. GROSS PROFIT PERCENT

The gross profit percent informs you what amount of profit you made as a share of total revenue. Normally, profit is calculated by deducting all service-related costs from the revenue. For a business in the service industry, it follows the same principle.

Here, gross profit is determined by subtracting the amount paid to a technician from the revenue they generate by completing an order. Consider a case where a service generates $300 in revenue generated by the labor. The technician is paid $70.

The gross profit is $230. The gross profit percentage is obtained by dividing $230 by $300. In this example, it is 76.7%.

Gross profit percent tells you how successful your business is. It also brings to light your shop’s growth year on year. To measure your business’s long-term success, you need to use gross profit percent as a performance metric.

This performance indicator also reveals how appropriately you priced services, managed expenses, and oversaw operations.

4. TIME PER REPAIR ORDER

Are you aware of the number of repair orders your shop carries out daily? It is vital to understand the number of repair orders completed over a particular period. Doing so gives you a basis for assessing trends.

This performance indicator allows you to gauge if a job was completed in the allocated time. If it wasn’t, it calls for a review. If the job took longer than anticipated, you may need to charge more for the service.

Measuring the time spent per repair order is a good determinant of the shop’s profitability. Also, making the most of each repair order ensures there is sufficient work for each technician. A profitable service business focuses on employee satisfaction.

This ensures every technician’s earning capacity increases their work satisfaction. This enhances their productivity and the business’s profitability.

If not correctly priced, a higher number of repair orders don’t always equate to greater profitability. However, the performance indicator is still significant in comprehending your business’ growth.

5. LEAD TIME

Lead time refers to the period a client has to wait before their car can be attended to. A relatively short time is normally expected by customers. A major exception is when the car has critical issues that need immediate attention.

Getting a shop management system like Tekmetric can help you monitor lead time. Longer lead times are not easily accepted or understood by clients. It usually results in customers seeking the service elsewhere permanently.

Some aspects impact the length of the lead time. They include the availability of courtesy vehicles, collection, and delivery of serviced cars. If the length of the lead time is consistently long, you need to assess the issue.

You can check on the shop’s capacity. You could also hire more technicians. It may also mean that you need to review the courtesy car process.

However, if the lead time is nearly non-existent, you need to ramp up customer retention efforts.

CHOOSE RELEVANT PERFORMANCE INDICATORS

Tracking performance indicators help you compare current trends to past trends. This aids in determining the progress of a business towards achieving its goals. KPIs are especially important in the automotive service industry.

Through them, you can adjust your operations accordingly to make sure you achieve business goals. Some important KPIs in the industry include revenue per billable hour and customer retention. They also include gross profit percent, time per repair order, and lead time.

Key performance indicators help businesses attain operational efficiency. Interested in learning more about business and the automotive industry? Browse this page today for more insights into the topics.