Greenwood’s Garage: How’s your year going?

By Bob Greenwood, AMAM

As we head toward the end of the year, it may be time to evaluate the year, and think about where you should be by this point.

Hopefully you prepared an annual budget at the beginning of the year, complete with revenue and gross profit projections.

If you don’t have a budget and projections, there’s a good chance you’re simply running the business according to your bank balance. Or maybe you think tracking daily sales is sufficient. You know that’s dangerous, right? When you head into troubled waters without a rudder, your ship is at the mercy of the wind and waves.

Stop fooling yourself. It’s time to get proper advice and training.

Here’s what an effective progress report involves:

1. Calculate your average labour hours produced per work-order or invoice. Compared to last year at this time, are you up or down?

If it’s up, well done! You’re getting focused.

If it’s down, consider how you handle a vehicle when it is brought in. Do you have a solid inspection plan based on the client’s needs and how it is used? Do you know the client’s expectations for that vehicle?

Your objective in a maintenance shop for the average consumer vehicle is a minimum of 2.5 billed hours per work order. If you’re a wholesale tire shop that also offers maintenance and repair, your average should be in the area of 1.4 hours per work-order, including the wholesale invoices.

Slow down and look at your shop processes.

2. Revue the shop’s gross profit in each revenue category. Are you in step with your supplier? Does 85% or more of your aftermarket purchases go to a single competent jobber? In the commodity business, volume and cash counts. If you make them a trusted supplier and offer full payment each month, they’ll be in a position to offer great value to your business. That’s only going to help your gross profit and bottom line.

Cost of products is not the only thing that creates profit in your business. Your parts cost is less important today than it used to be. Now there are other issues to be concerned about. Shop efficiency, business client relationships, gross profit mix, and cash management drive the real profit in today’s business environment. A good supplier can assist you on all of these items. But a healthy business relationship must be in place first. All relationships must be a win-win. One-sided relationships do not last.

3. Re-visit your current labour rates. You should have a minimum of three posted rates in place. The maintenance/mechanical rate should be at least 4.5 times your top maintenance/mechanical technician’s hourly wage. The diagnostic rate should be at least 5.35 times the top diagnostic technician’s hourly wage. And a reflash rate should be a minimum of 6.0 times the top technician’s basic hourly wage.

A more accurate way to establish labour rates is to work off the shop’s total cost per billed hour. A very efficient shop can have a competitive labour rate in all three categories and still pay the highest wages in the marketplace.

Review your menu pricing items to ensure that the labour component is properly reflected in the price.

4. 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, there’s a good chance your shop works on newer vehicles. Your rates must reflect the knowledge and equipment required to operate at this level. If you are 90:10, you are probably working on a lot of older vehicles. You should be examining your marketing strategy to secure a better balance of clientele who are looking for a high level of quality and service.
5. Check to see if your oil, tires, batteries, and parts inventory are turning over optimally. Carrying stock that does not turn over, stifles useable gross profit dollars and net income. Review your turnover rates in each category to ensure they’re hitting the guidelines you and your coach have set.
6. Finally, examine the perception your shop is sending out to the marketplace. Stand across the street for 15 minutes with a clipboard and paper. Ask yourself what would make a newcomer to town want to pull into your parking lot, and put their precious vehicle in your care.

Everyone is looking for someone they can trust. Are you that someone? What makes you stand out? What would entice someone to give your shop a try? Do you send out a professional vibe? Or are you just another garage?

Perception is everything. Attract new customers with curb appeal, and keep them with competency and professionalism to turn them into loyal clients.

People will gladly pay for a high level of quality and service.

The year will soon be drawing to a close. We’re past the halfway mark. Review these items so you can earn the results you wanted to achieve this year.

Slow down… get focused. Those are the best four words to concentrate on over the next few months.

Bob Greenwood is an Accredited Master Automotive Manager (AMAM) who offers personal business coaching and ongoing management training for aftermarket shops, focusing on building net income. He can be reached at 1-800-267-5497 or greenwood@aaec.ca.