Metric sales

Average Repair Orders: A Really Abused Metric Explained | 2021-03-10

Anyone who has worked in the tire and auto repair industry for even a week will be familiar with metrics – important financial and operational milestones or ratios used to gauge a store’s efficiency and profitability.

Some individual metrics can be stand-alone. For example, on average, for four tires sold at retail, there should be one alignment sold or for four oil changes sold, there should be one air filter sold.

These measurements are based on simple product wear trends or maintenance intervals. They have been around for ages. It’s not about selling skills. It is to show and to say.

Some metrics require support and only make sense in combination with other metrics. Take, for example, a percentage of net profit (or return on sales) of 10%. As a reminder, a store with a 10% return on sales can be explained using the maxim that every dollar of sales produced by the store should generate 10 cents in net profit.

This is a gold standard in our industry because the average store only makes two or three cents per dollar sold. But this number has no meaning without support.

In order to have even a chance of achieving a 10% net profit, the store must operate at 60% gross profit and, in addition to that, must also represent at least 50% of tire sales and 50% of sales of services. Expenses must also be managed properly. You can’t just “hit” 10% net. You manage the other metrics and they produce the percentage of net profit.

In addition, there is the sheer volume of metrics that you can meaningfully track each month. At some point, you risk analysis paralysis. It can get complicated very quickly if you let it happen.

This month, I’d like to tackle some myths about a much-maligned metric, the Average Repair Order (ARO.)

ARO, mathematically, is the total number of sales divided by the total number of vehicles or tickets.

You can separate companies by type; if you like: retail, national account, commercial, etc. It depends on your core business.

Conventional wisdom says that if you increase ARO, sales will increase. Logic. But then you start to hear things like, “If we just sell one more bulb on each car, that’s $ 10 more per car, that’s $ 5,000 more per month and $ 60,000 more per year!” Or “If we only sell three more puffs a day …”

You understand the basics. You probably hear it every week.

While it’s mathematically true that it will increase sales, it doesn’t help to think of it this way in practice. For starters, it forces business advisors to focus on selling specific services for their benefit – which can sometimes be the benefit of not getting into trouble.

This is a dangerous path because recommendations must always be made in the best interests of the client. Sales must meet the needs of customers for a profit that benefits the business.

Metrics like ARO and return on sales are supposed to offer a question: why isn’t the business doing what’s natural?

It is not intended to lead any particular action, such as selling more bulbs. The answer to poor performance is also not, “Let’s increase sales and see what happens.”

It is meant to alert management that something is wrong and the business is not profiting properly from its sales.

It also calls for an answer to the question, “What functionality within our operation is interrupted and is preventing optimal profit from occurring?” ”

ARO is the result of other things going right. It is not a thing that stands alone. If your ARO isn’t good, you need to explore why.

The national average ticket for auto and tire repair stores is in the range of $ 260. If you’re at $ 250 or $ 270, you’re doing it right, and there’s no need to over-analyze. If you’re not around $ 260 per ticket, on average, then explore why. It might be:

  • Your people don’t mention courtesy counter inspections. (The results of surprise inspections are rarely converted into sales);

  • Lack of inspections or poor inspections performed by your technicians and lubrication / tire technicians;

  • Trade advisers do not provide information on inspections;

  • Lack of financing options available to clients;

  • Your advertising;

  • Your hours of operation and other factors.

A well-run dealership will have a healthy mix of low-cost tickets, which focus on quick services, like flat repairs and oil changes – in other words, things on demand. It will also have a fair amount of heavy repairs and expensive four-tire and alignment tickets.

Both types of tickets are good for your business.

When it comes to measuring the success of your dealership, there are some really simple, “plug-and-play” metrics that are usually part of the process. Others need to dig in and figure it out. These are usually end result metrics that are in addition to process metrics.

Dennis McCarron is a partner at Cardinal Brokers, one of the leading brokers in the tire and automotive industry (www.cardinalbrokers.com). To contact McCarron, email him at dennis@cardinalbrokers.com.