By Bob Greenwood AMAMBusiness Coach, International Business Speaker, Instructor, Business Consultant, Author
We have just passed the half way point in the year, and it is recommended that you evaluate the year compared to where you expected to be by this point in time.
It is hoped that you have prepared an annual budget with revenue, gross profit, and measurement projections.
If not, are you running the business by your bank account balance? Are you just looking at sales? If so, you know you’re tight. You are also heading into troubled waters without a rudder on your ship, as this industry and business is changing drastically. It is time to get proper help and advice/training; please stop fooling yourself.
If you have the numbers, review and do your comparisons.
Calculate the average labour hours produced per work order compared to last year at this time. Is it up or down? If it is up, well done you’re getting focused. If it is down, consider your processes for handling a vehicle when one is brought into the shop. Do you have a solid inspection plan based on the client requirements on how that vehicle is used compared to the client’s expectations with that vehicle? Your objective in a maintenance shop is a minimum 2.5 hour average per work order. If you’re a wholesale tire shop with a maintenance/repair side included, your average should be in the area of 1.3 hours per work order including the wholesale invoices. Slow down and look at your shop processes.
Review the shop’s gross profit by each revenue category compared to expectations. Are your buy/sell habits in check with your supplier? Are you maximizing your relationship with your supplier to ensure 85% or more of your aftermarket purchases are going to one competent supplier?
In the commodity business volume and cash does count. Ensure the volume with full payment each month is there, and I know your supplier is then in a position to offer value to your business, which in turn affects your gross profit and bottom line. Cost of products is not the only thing that creates profit in your business. In reality, the parts cost moves down to one of the lowest in priorities versus the real issues that create real net income in a shop today. Shop efficiency, business/client relationships, gross profit mix, and cash management drive the real profit to a business and a competent supplier can assist you on these items, but the business relationship with the supplier must be in place first. All relationships must be a win/win as it has been proven for many years, one sided relationships do not work.
Re-visit your current labour rates as it is now necessary to have a minimum of three in place. The maintenance/mechanical rate should be at 4.5 times the top maintenance/mechanical technician’s hourly wage, the diagnostic rate should be at a minimum of 5.35 times the top diagnostic technician’s hourly wage and the re-flash rate should be 6.0 times the top tech’s hourly wage. Review your menu pricing items to ensure the labour component is reflected properly in the price.
Examine the revenue mix of aftermarket parts to dealer parts. If you’re average, you will be about 80% aftermarket and 20% dealer. If you are say 75%-25% aftermarket vs dealer (or better), traditionally your shop works on newer vehicles and your rates must reflect the knowledge, and equipment, required to maintain this level of expertise. If you are 90%-10% (or higher), traditionally you are working on a lot of older vehicles, and you should be examining your marketing strategy to secure a better balance of clientele who are looking for a higher level of quality and service.
Does each revenue category of oil, tires, batteries, and parts inventory turnover in accordance to guidelines? Carrying stock that does not move does not create useable gross profit dollars and net income.
Examine the “perception” your shop is sending out to the marketplace. Stand across the street for 15 minutes with a clipboard and paper. Ask the question “I’m new in town, what would make me want to turn into to your place and check you out for maintaining my “precious” vehicle? I’m looking for someone I can trust, so why should I, and what makes me, want to try you out?” Are you sending out a perception of professionalism, and a highly skilled shop, or are you sending out the perception of a typical garage that the consumer thinks about? Perception in business is everything to attracting the right clientele base. Competency and professionalism keeps them. People will gladly pay for this level of quality and service.
These are but a few items to review at this time of year, so you can get focused to target the issues, and problems, within the business, in order to get the results desired for the second half of the year.
Slow down, get focused. These are the best four words to concentrate on within your business today. This process forces us to realize that our business is constant and always in perpetual change. Growth is optional, but we must choose wisely if we are to succeed.
Bob can be reached at firstname.lastname@example.org and phone number 1-800-267-5497.