34 GEARSJuly2008

Recently I posed a question to the participants of the What’s Working forum and asked them

what metrics they use to track how well their business is doing. Here are some of the responses I received:• Profit on each job • Average ticket amount • Customer counts • Profit as a percentage of sales • Gross sales (given period) • Net profit (given period) • Billable hours • PIF (ProfitBoost specific) • Mailing list totals (the number of

customers on their mailing list)

In their raw form, all of these would be presented as numbers in a report. Gross sales for the month of April 2008, for example, might simply be a line item in a larger report called Statement of Operations.

For greater detail, you’d want to have this data in a chart so you could view a range of data at once (fig-ure 1). Typically, you’d also view last year’s data with this year’s, to look for any trends or problems the data might reveal (figure 2). This type of reporting

is standard in every accounting pro-gram and it’s essential for tracking your business. The problem is, it often isn’t easy to spot trends unless you sit down and take a moment to analyze the data.

This is where graphs come in. Graphs aren’t as accurate as charts, but you can get a quick snapshot of your business without having to sit down and study the numbers. That is, you can take a quick look at a graph and see right away if there’s a problem.

If you find a problem, you can go to the reports and examine where the problem lies. Think of the graph as sort of an alert system for your business. Compare the same data from figure 2 in a graph (figure 3). These, too, are pretty standard graphs, available with any decent accounting pro-gram. As you get into things like Average Ticket Price or Billable Hours, you’ll need a program that specializes

in areas important to shop activities and has these report features.

Some of this, such as graphing your monthly or quarterly mailing list numbers, might only be possible by using a spreadsheet program like Excel. It has a wide range of chart types and you can be as creative as your ability and imagination allows.

But you’re not in the programming business, so before you dive into a proj-ect in Excel, contact your automotive shop software supplier and ask them about all the reporting features built into their program. Software programmers are always looking for ways to improve their software that’ll make it perform

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by Dennis Madden

Making it Work What’sWorking!

What’sWorking!

What’sWorking!

Metrics Matter: Introducing Variation

Month 2008

Jan $92,145Feb $76,895Mar $83,478Apr $84,758MayJunJulAugSepOctNov

Dec

Figure 1

Gross Sales

Month 2007 2008 Change

Jan $91,256 $92,145 $889

Feb $77,458 $76,895 ($563)Mar $81,548 $83,478 $1,930Apr $85,236 $84,758 ($478)May $88,125Jun $97,025Jul $94,256Aug $88,569Sep $79,523Oct $88,956Nov $85,623Dec $82,569

Figure 2

Gross Sales

Figure 3

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Figure 3

GEARS July 2008 35

tion? If you’re on the forefront of a downward trend, the variance chart will alert you long before you’d see it with the standard chart.

Now let’s modify the chart and see how the graphs perform. We’ll leave the first nine months alone but continue the downward trend for October through December. Only now does the gross sales chart alert us to a problem… a problem trend that the variance chart revealed months earlier.

It’ll also indicate when a downward trend is showing improvement where a standard graph may not. Go back to figure 6: Notice the variance graph shows an improvement from the previ-ous downward trend, while the gross profit graph in figure 5 still shows a slight downward trend from September to October. The variance chart contin-ues to show improvement throughout the rest of the year; the gross-profit graph just starts to show a meaningful improvement at the end of the year.

That’s because the variance chart shows that, if you’re losing money, losing $10 isn’t nearly as bad as losing

better for their clients… and give them something more to sell. Drop a few hints and they’ll likely add the graph you want to their next upgrade.

Now back to the graphs: The most com-mon graph types used in the metrics we’ve cov-ered are bar (figure 3) and line graphs (figure 4). Most reporting software takes actual data for a period and presents it in one of these two graphic formats.

One of the most valuable ways to examine your shop’s data is through variance. Variance is the difference between one period and another; gross sales of March compared to gross sales of April, or first quarter profits com-pared with the second quarter. The beauty of variance (or variation) is that it’ll reveal a negative trend faster than a standard graph of the data.

Here’s an example: Figure 5 shows the gross sales of a shop that earns about $1 million a year. Notice there’s a rising trend throughout the year, with the exception of a mild dip at the end of summer, but overall it looks pretty good.

Now look at what the variance chart reveals. Figure 6 shows the varia-tion of gross sales from one month to the next. Wait a minute: Why is this chart going down? That’s because, starting in May and going through September, each month was less profit-able than the month before.

Of course, you can’t expect your profit to increase every month, and you’ll certainly have slow periods, but are they regular cyclical events, or a downward trend that needs your atten-

Figure 8

Gross Sales Variation

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Month Gross Variation

Jan $85,000Feb $85,500 $500Mar $86,454 $954Apr $87,708 $1,254May $88,592 $884Jun $89,313 $721Jul $89,554 $241

Aug $89,429 ($125)Sep $88,882 ($547)Oct $88,635 ($247)Nov $88,785 $150Dec $89,135 $350

Total $1,056,987

Data for figures 5 and 6

Figure 5

Gross Sales

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Data for Figures 5 and 6Figure 6

Gross Sales Variation

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Figure 6

Gross Sales

Gross Sales Variation

Figure 7

Gross Sales

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Figure 7 Figure 8

Gross Sales Gross Sales Variation

Month Gross Variation

Jan $85,000Feb $85,500 $500Mar $86,454 $954Apr $87,708 $1,254May $88,592 $884Jun $89,313 $721Jul $89,554 $241

Aug $89,429 ($125)Sep $88,882 ($547)Oct $88,204 ($678)Nov $87,359 ($845)Dec $86,334 ($1,025)

Total $1,052,329

Data for figures 7 and 8Data for Figures 7 and 8

36 GEARSJuly2008

$50. On the other hand, if your profit is increasing from one month to the next, a $10 profit increase isn’t as good as a $50 profit increase.

The difference in the information that the variance chart reveals becomes even more dramatic as the period increases. Figure 9 is a chart of annual gross profits over an eight-year period; the graph showing a typical product lifecycle. Had you been viewing this data in 2005, you might not have been too concerned; business isn’t growing, but it’s steady.

But the variance chart (figure 10) reveals a downward trend that started three years earlier. If you were using only the standard chart, such as the one in figure 9, you probably wouldn’t have become too alarmed at the mature state between 2003 and 2006; it might not even have caught your attention. But had you examined the variance chart, you’d have been alerted years in advance of the decline that really took hold in 2007.

The variance graph isn’t a silver bullet for data tracking… it has its limitations. It doesn’t work very well with short intervals; it works better over a month, quarter or even a year. It also won’t account for cyclical events, such as a normal slowdown or the dip you might expect around tax time or Christmas. And it certainly isn’t intended to replace the standard graph used for most reporting.

The key to the variance graph is to use it in conjunction with your

standard graph, as an indicator of trends and an alert system. When used together, these graphs are a great way to help you recognize and analyze your shop trends… a key component for you to turn your shop around and make it work for you.

Figure 9

Annual Gross Sales

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Figure 9

Figure 10

Annual Gross Sales

Annual Gross Sales Variation

Year Gross Variation

2000 $758,9852001 $784,463 $25,4782002 $823,208 $38,7452003 $845,564 $22,3562004 $855,022 $9,4582005 $858,278 $3,2562006 $854,820 ($3,458)2007 $819,122 ($35,698)

Data for figures 9 and 10Data for Figures 9 and 10

Metrics Matter: Introducing Variation

If you’re an ATRA Member you can go to the What’s Working section of the ATRA web site. Just go to www.atraonline.com and scroll down to the what’s working section and click on the down loads link. There’s a member area there that’ll contain a file called “variation.xls”. It’s a simple

Excel file that’ll allow you to enter your gross sales over a period of ten years, or a month-by-month view for a single year. Enter some of your historical data into it and see what the variation chart reveals that a standard chart does not.

The difference in the information that the variance chart reveals becomes

even more dramatic as the period

increases.

Figure 10

Annual Gross Sales Variation

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