NOLN’s KPI Handbook
Each year, NOLN asks in its Operator Survey whether owners are answering questions based on memory or by going through their records for reference.
More often, operators are working from memory—55 percent said this, according to the 2019 survey. That’s not necessarily a bad thing. It reflects the level of attention and recordkeeping that’s increasing in the industry.
What shop numbers can you recall right now? If you ask Jimmy Grant, a 32-year industry veteran who runs East Ridge Fast Lube in Chattanooga, Tenn., there’s one performance metric that all operators need to know like the back of their hands.
“My big thing is my cost of goods,” Grant says. “This is something every owner should know.”
There are lots of different numbers to track in the quick lube business. But the bottom line is that operators who track their key performance indicators closely tend to have more success than those who don’t. This was the theme in Steve Good’s case study last month in the magazine (“No Number Too Small”), when a renewed focus on KPIs turned a struggling shop into a profitable one.
When you know where the numbers are going, at different levels of the operation, you know better which levers to pull when a change is needed. Just ask Chris Cotton, an automotive business consultant and former shop owner with more than 25 years of experience.
“Every KPI will have a cause and effect for why it’s great and why it’s bad,” Cotton says. “It’s one thing to track them but it’s another thing to actually go to each one and look and say, ‘This is what’s causing that.’”
NOLN is proud to launch this KPI handbook, which should highlight the basic areas of attention and show you how to keep the books on top performance numbers for quick lubes.
KPI: Car Count
The car count is the foremost metric by which quick lubes measure volume. It can articulate, with some degree of accuracy, an operation’s size and output with one number. For the operator, it’s also an easy target to set for staff to hit—a nice, round number that summarizes the business done in a certain timeframe.
Of course, the figure can vary greatly, due to a shop’s market location, number of bays, size of staff and other factors. A review of NOLN Operator Survey data from the last 13 years, as well as information from featured shops in the magazine, found that most participating operations have two or three bays. The average car count among those shops is 36.
The car count also indicates a business strategy. To Grant, profits are found by seeing many vehicles.
“I like the car count. I like the volume,” he says. “What happens is if people feel pressured to buy on the ticket average, they’re not going to want to go back there.”
HOW IT’S CALCULATED: Add the number of vehicles serviced per day
KPI: Ticket Average
The ticket average is the average amount of money that a customer pays in a visit. Individually, it’s where the customer’s eyes land when they receive the invoice.
The pursuit of a higher ticket doesn’t need to be a pushy sales endeavor. With growing drain intervals, many shops are experimenting with added services to boost tickets and offer more to customers. The lube-plus operations already do this. In that sense, a careful eye can look at a ticket average and surmise what sorts of things a shop might offer. A pure quick lube will have lower tickets and higher car counts; shops that have a bigger service menu might take longer on cars and see fewer of them. But they might offer more intensive and expensive services to boost tickets.
The ticket average represented in the 2019 NOLN Operator Survey was just over $81, with submissions ranging from well over $100 from lube-plus operations to less than $50 for smaller quick lube shops.
How is ticket average calculated? Just add up all the service tickets for the day and divide by the number of paying customers.
HOW IT’S CALCULATED: Add up all the service tickets for the day and divide by the number of paying customers.
($2,918.16 daily sales / 36 cars = $81.06 ticket average)
Good and Labor
KPI: Parts and Labor Percentages
This is what Grant keeps at the top of his mind. The cost of goods in particular is what he pays attention to in order to maintain strong sales.
“They just need to know that,” Grant says. “Anytime you can keep your cost of goods 25 percent or less, then you’re good.”
That means that the operator’s cost for a single service should be 25 percent or less than the retail price.
Don’t forget that it’s all about averages. Some higher-priced services should help balance the services at lower price points, and add-ons and retail items like wipers should help lower the cost percentage.
“Usually you’ll have an air filter or a cabin air filter or wiper blades or something like that that will help,” Grant says.
Grant likes the same target percentage for labor. But when estimating the cost of labor for a single service, like an oil change, take care to calculate the true cost of labor.
Cotton advises operators to take the hourly wage and add in the tax, insurance and benefit loads for that employee.
“That is going to be at minimum at 19 to 20 percent, depending on the state and everything else,” he says.
That means that for an hourly wage of $12.50, the actual cost per hour for that employee might be $15.62 when considering an additional 25 percent for taxes, insurance and benefits.
In a highly competitive market, the actual cost might come at a higher percentage of the hourly wage.
“What I'm finding in the good repair shops, the good quick lubes, is in order to keep their employees happy and giving them benefits like a 401(k), insurance, gym memberships, whatever you’re doing, those shops are spending almost 40 percent above to almost 50 percent above what the person’s pay is in order to keep those people,” Cotton says.
TARGET: <25% each
HOW IT’S CALCULATED:
GOODS: Take the example cost of $6.50 for five quarts of oil and $1.50 for a filter. That’s $8 in goods for an oil change. Multiply by the average car count of 36 to get $288 per day. For this example, the average retail price for a five-quart oil change is $55.65.
Divide parts cost by daily oil change sales: $288 / $2,003.40 = 14.3%
LABOR: With $15.62 actual cost per hour for labor at 10 hours, the daily labor cost per day is $156.20 for one employee per day. With four employees on the job, that’s $624.80.
Divide labor cost by daily sales: $624.80 / $2,918.16 = 21.4%
KPI: Profit Margins
The margin determines where you set your service price and how much profit your shop makes.
“When we’re looking at just dollar amounts and how we pay the bills and everything, our labor profit or the labor gross profit,” Cotton says. “Once you add the tax and benefit load in, I always like to keep that at 75-to-80-percent profit.”
He says that quick lubes, with hourly labor and a higher volume of car counts than mechanical repair, are better suited to reach those labor margins.
Using the actual hourly cost, an operator would take into account the number of employees working on a single car and estimate the number of services per hour to get the labor cost per vehicle.
With a target of at least 50 percent margin on parts, a shop should be in a good place to reach its overall profit goals.
“On the parts, I try to be at 50 percent minimum,” Cotton says. “And the more, the better. If I can get an 80 percent gross profit on labor and I can get to 60 percent profit on the parts, then that leads me total shop-wise at about a 70 percent gross profit.”
80%: The target for a labor gross profit margin
50%: The target for parts gross profit margin
HOW IT’S CALCULATED: For this KPI, you want to figure out a labor cost per service. If the actual cost of an employee is $15.62 an hour and you estimate four oil changes per hour, that makes $3.90 per oil change. With two employees on a car, that means it costs $7.80 in labor for an oil change.
Using $7.80 in labor for an oil change with two techs and $8 in goods, use the margin multiplier to reach a base price to achieve the desired margin. The table helps to make sure you’re adjusting for margin, rather than a markup.
Goods at $8 x 2 = $16 base price
Labor at $7.80 x 5 = $39 base price
An operator should sell at least $55 to achieve the desired margins for parts and labor.
There are multiple ways to gauge productivity. In a mechanical repair shop, where service is done in longer intervals, productivity is measured by the hours worked divided by the hours a tech is available.
That can be more difficult to calculate in a quick lube, where service is measured in minutes and techs can go from active to standby in the same amount of time.
For the April issue, NOLN spoke with Michael Meuret, co-owner of Einstein’s Oilery in Boise, Idaho. He uses a person-hours productivity metric to determine how much of a car is being serviced per person, per hour.
A higher number means more cars are coming through, but he notes that services that take longer, like fluid exchanges, may bring the productivity number down. This is expected as long as the ticket rises.
“Our goal is 0.95 cars per man hour,” Meuret says. “But as our ticket averages have increased, for every dollar over $75, we’d like to see our ratio come down proportionally. So we focus on our ratio more than our labor percent, which is naturally going to decrease with an increased ticket.”
HOW IT’S CALCULATED: Divide the car count by the number of labor hours that day: Vehicles / Workers x Hours.
So for a 10-hour day with four workers and 36 as the car count, the equation is:
36 / 40 = 0.9
KPI: Pop ‘n’ Pours
Cotton says it’s important to watch how each service is selling, because an operator can focus on one or more of those areas to help bring down a cost percentage or boost tickets.
“If you're just doing a quick lube, you only have a couple opportunities,” Cotton says. “You can do the oil, you can do the filters—air and cabin—and also you can do added services if you have time for it for fluid exchanges.”
He uses the term “pop ‘n’ pour” to describe additive treatments, which has its own target alongside other services.
TARGET: 33 percent of services
HOW IT’S CALCULATED: A third of services should include an additive sale.
“My goal was a pop-and-pour on 33 percent of that cars that come through,” Cotton says.
KPI: Filters and Fluid Exchanges
For fluid exchanges and sales of engine and cabin filters, his target is to sell one to half the vehicles that come in.
TARGET: 50 percent of services
HOW IT’S CALCULATED: One of every two tickets should include one of these items.
KPI: Different Oil Types
In the real world, different types of oil will influence your path to a desired margin. Most shops have at least three tiers: conventional, blend and full synthetic.
“I like to track the good, better, best oil changes that we were doing,” Cotton says. “And for a KPI, I always wanted 50 percent of our oil changes to come from the better and 20 percent to come from the good and 30 percent to come from the best.”
That allows the operator to retain some attractive pricing options at the bottom tier while trying to make up margin ground in the upper tier.
HOW IT’S CALCULATED: Manually, this is done by separating out car counts by each tier of oil sold in the service. For the example of 36 oil changes, seven should be in the lowest tier, 18 should be from the middle tier and 11 should be that sweet full synthetic.
Read More to Boost Your Numbers
You can shop around for supply deals, but the most control is exerted at the shop level. Running a quick lube is a holistic enterprise. It takes success in a lot of areas to maintain that desired margin.
Check out these NOLN articles to guide you through areas like marketing, renovation, efficiency and more.