Percentage Vs Profitboost's Profit Index Factor (pif) For Measuring Financial Performance

By: Rosemary Rutherford

Recently, a client asked me a very good question about Profit Boostweb-based auto repair software. The question was: "Why is it that an estimate that we created in PIFPro deliver 62% gross profit (which is considered an industry accepted profit level) but when measuring the same job using the Profit Index Factor (PIF) it was $40 per hour short of satisfying the financial need of my company?"

The truth is that although measuring financial performance based on a gross profit percentage has been taught for years in our industry as the only way, it is an unreliable method of monitoring profits. It simply is not reliable.

But back to the clients question; they were installing a flywheel in a vehicle. This auto repair shop invested six hours of production time combined with the profit from a flywheel sale. What the shop needed was $147 gross profit dollars per hour (PIF). However, this job only delivered $107 gross profit dollars per hour (PIF).

About $40 more per hour was needed to meet the business hourly need. The gross profit percentage was a green light but when using PIF as a financial analysis it revealed the profitability was far short of the financial need of his auto repair business. The client was starting to understand the PIF principle but he did not fully trust it because he had been taught that the gross profit percentage method was the only method. But since he was beginning to waiver, I wanted to drive my point home with him.

I asked our client to create a Repair Order for a remanufactured transmission installation a completely opposite kind of the other one. This kind of job had low labor (5 hours) and a high parts sale. The GP percentage on this job was a dismal 39%. The PIF on this repair was just shy of $300 per hour. It would have been his most profitable job this week. Had he pushed this job price up to 60% GP the job would have been priced so high it may have resulted in a lost sale and it would have been a shame to lose it because it was very profitable at 39% GP.

If you are selling by gross profit percentage you are leaving money on the table. As this particular client pointed out to me, "By not measuring our repairs properly I have been subsidizing my customers' car ownership cost without them or I knowing it. That is a kick in the freaking head."

You do not want to price yourself out of any jobs or subsidize your customers' cars. Look intoProfitBoost web-based automotive repair shop software, because it really works.

Article Source: http://yourfinance.co.za