From the NCM Institute Blog: When Should You Compare Your KPIs to Best Practice Guidelines?

Last week I attended NCM’s semi-annual meeting of all its divisional directors, 20 Group moderators, Retail Operations consultants, and NCM Institute faculty members, who, along with our CEO set aside two and a half days to dialogue about what’s happening around the industry and within the company, and how best to address the needs of our clients.  As usual, it was a great encounter, with far too much agenda content and discussion for the overall time allotted.

One of the topics that continually surfaced (and in which yours truly usually became embroiled) was defining and quantifying the metrics related to dealership Key Performance Indicators (KPIs). NCM Associates has always been renowned for providing business intelligence to the retail automotive community. Our data management, benchmarking, and reporting capabilities are widely acclaimed. Because of NCM’s reputation in the business intelligence arena, I’ve always believed that when a dealer or manager asks, ‘what should this number be?’ any NCM moderator, trainer or consultant should be able to provide the answer. After our meeting last week, I’ve seriously reconsidered what our answer should be when we’re asked questions as to the hard metrics for certain KPIs.

After 50+ years in the car business I should know everything, right? No way!! Fortunately, I continue to learn every day. During one agenda module last week, we had a guest speaker who, from an age standpoint, could have been my grandson. Not surprisingly, based on his age, his topic was on digital marketing and management for auto dealers. His very informative discussion led him to present the importance of several KPIs, but he never discussed any best practice guidelines for those KPIs. When I pressed the speaker for hard metric guidelines (often to the chagrin and heckling of my NCM colleagues), he repeatedly stated that he could modify the KPI variables to provide whatever metric I set my heart on. 

He went on to explain that hard metric guidelines aren't important; you first need to clearly define your dealership KPI and how you will consistently measure it. Then establish a baseline, such as what your metric is today. Then your objective should be to improve your metric against your baseline!

Does this mean that there are no solid guidelines for KPI metrics? Certainly not! The vast majority of dealership KPI metrics can be quantified by franchise (or franchise grouping), and NCM has done and always will do a great job of providing this information. When reviewing your dealership KPI metrics against those provided by NCM, you must always ask yourself two questions: (1) am I measuring this KPI at my dealership the same way that most of NCM reporting client-dealers are measuring it?; (2) is my financial reporting consistent with theirs?

You shouldn’t depend on NCM (or any industry resource) for providing valid metrics for certain KPIs—these are the ones for which you need to develop your own baseline, and strive to make improvements against this baseline. Following are only a few examples of KPIs that you should, using baseline comparison, only measure against yourself:

  • Any KPI for which you use a different form of measurement from the norm.

  • Service retention – everyone defines and measures this differently.

  • Internet conversion rates (leads per provider) – there is still no overall industry guidance on defining what is truly a valid Internet lead, much less which was the originating provider.

  • Gross per Service Technician per Month, Gross per Service Advisor per Month, and Gross per Service Department Employee per Month – disparate effective labor rates throughout U.S. geographic regions severely confuse this metric.

  • “All-In” Variable Gross per Retail Unit – manufacturer incentives, Doc. fees, hard packs, and other sales department income reported as Additions to Income rather than Gross Profit, severely distorts this metric from dealer to dealer. Measurement and analysis of this metric also impacts the true metrics for Gross per Sales Consultant per Month,  Gross per F&I Producer per Month, Gross per Sales Manager per Month, and Gross per Variable Department Employee per Month.

KPI Definition, Measurement, Comparison, and Management is a topic consistently discussed during all courses taught at the NCM Institute Center for Retail Automotive Excellence. For more information on the training offered by NCMi, please go to www.ncminstitute.com, or call us at 866.756.2620.

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Comment by Garry House on August 6, 2012 at 5:50pm

Great comment, Ashley! As I like to frequently say, "It's all about the numbers," and they must be reported on an accurate and timely basis!

Comment by Ashley Poag on August 6, 2012 at 5:39pm

I agree with William in that it's important to be able to track progress. Also it's important that when you have a reporting tool that you use it completely and accurately otherwise "Junk in, Junk out"

Comment by Quinton Gentry on July 31, 2012 at 8:22pm

I have had issues with getting our KPI's to match up to the numbers of others around the country and even my autogroup. Conversion rates for websites and internet based leads have been calculated using varying methods which leaves one with an interpretation barrier for management members. You have reminded me that judging performance against our own baseline numbers will allow me to use my metrics with more confidence! Great article.

Comment by Garry House on July 31, 2012 at 3:45pm

You are absolutely correct, William. Thanks for the clarification!

Comment by William Finsilver on July 31, 2012 at 3:21pm

If both the NCM KPI metrics are consistent and the dealers own KPI metrics are consistent (even if both are flawed, but consistently flawed) you can track "progress" relative to the to movement between the KPI results. The trend is what is important to tracking progress, not the absolute numbers.

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