KPI and best practice provided by Jeff Smith

KPI and Best Practice ideas for improving profitability in cars, trucks and bikes, KPI measurment and Customer Satisfaction

Definition of Recovery Rate for Automotive Service Department

Hi Jeff,

I contacted you a while back regarding Productivity / Efficiency ‘’terminology’’ versus calculations, and you kindly responded. I have another point of contention (albeit I don’t believe it is).

I was at a recent franchise conference here in NZ, and the discussion point came around to Service Department (Workshop) Recovery Rate. The conversation became a little bit heated around how recovery rate should be measured and/or calculated.

In my mind it’s straight forward, but there were several points of view. Without giving anything away (I may be wrong), could you please give me your take on calculating Recovery Rate?

I appreciate your time, and I look forward to hearing back from you very soon.

Kind Regards
Jerry

 

Hi Jerry,

the reason for the confusion and conflict is because you’re trying to establish a measurement without first stating what it is you wish to measure.

Conflicts such as these are commonplace because most people think KPI are answers when in fact they are questions. You must begin by asking the question, “What it is it exactly you wish to measure?”

Now to the matter in hand…

The term Recovery Rate in all industries is about money – how much money are we “recovering” based on a known factor such as per item sold for instance. Now let’s take that premise and apply it to the Service Department.

Firstly, we can rule out anything to do with technicians time clocked onto jobs because a Recovery Rate is about money versus items sold. There are KPI based on Technicians time, but they are not Recovery Rates in the true sense of the word. In this case it’s the amount of money received for labour on an invoice divided by the number of hours sold in the same time period. Example:

A) Labour Charge Out Rate £80
B) Labour Sales £33,445
C) Hours Sold 500
D) Recovery Rate £66.89 (B ÷ C)

More importantly, why would you want to know this information?
Well, if the labour charge out is £80 and the Recovery Rate is £66.89 that means £13.11 has been given away in discount (or invoice errors). Now the questions become, where has that discount been given, why and what do we do about it?

However, whilst this is a good measurement to apply to your own business, it’s not so useful for a group meeting with other businesses. This is because the other businesses in the room will almost definitely have different charge out rates; this immediately renders the Recovery Rate as useless for comparison purposes.

A better measurement for group discussion is the Recovery Rate % because this levels out the playing field. Example:

A) Labour Charge Out Rate £80
B) Labour Sales £33,445
C) Hours Sold 500
D) Recovery Rate £66.89 (B ÷ C)
E) Recovery Rate Percentage 83.61% (D ÷ A x 100)

This is much more stable for group discussion because it measures the Recovery Rate as a percentage of the Charge out rate, which means the price of the charge out rate doesn’t matter. Now you can compare the Recovery Rate Percentage of everyone in the room and apply real world meaning to its value.

I’m always happy to help you, but on this occasion I’m obviously too late because the productivity of your meeting was probably lost or compromised because as you say, no one in the room could agree on a definitive meaning. The KPI Book would have solved all your problems there and then.

I trust the short explanation of Recovery Rates has cleared things up for you and you can forward this post onto your colleagues who were also at your meeting.

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