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Re-evaluate your business roadmap

Wednesday, May 24, 2017 - 07:00
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We are at the halfway point in the year; let’s evaluate where you are compared to where you wanted to be by this point in time.

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It is hoped that you have prepared an annual budget with revenue, gross profit and key measurement projections. If not, are you running the business by your bank account balance? Are you just looking at sales? If so, you are also heading into troubled waters, as this industry and business is changing fast and 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 labor hours produced per work order for the first half of the year compared to last year at this time. Is it up or down? If it is up, well done. If it is down, consider your processes for handling a vehicle brought into the shop. Do you have a solid inspection plan? Your objective in a maintenance shop is a minimum of a 2-hour average per work order with 2.5 hours as the ultimate target. If you are a wholesale tire shop with a maintenance/repair side included, your average should be in the area of 1.2 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 percent or more of your aftermarket purchases are going to one competent supplier? Ensure the volume with full payment each month is there, and 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 fact, parts cost moves down to one of the lowest in priorities today versus the real issues that create net income in a shop today. Shop efficiency, business/customer/client relationships, gross profit mix and cash management drive the real profit to a business today, 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 — one-sided relationships do not work.

Re-visit your current labor rates. The maintenance/mechanical rate should be at 4.5 times the top maintenance/mechanical technician’s hourly wage. The diagnostic rate should be a minimum of 5.35 times the top diagnostic technician’s hourly wage and the re-flash rate should be 6 times the top technician’s hourly rate. Revenue your menu pricing items to ensure the labor component is reflected properly in the price.

Examine the revenue mix of aftermarket parts to dealer parts. The average shop is 80 percent aftermarket and 20 percent dealer. If you are 70/ 30 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 95/5 (or higher), traditionally you are working on a lot of older vehicles, and you should examine 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 turn over in accordance to guidelines? Carrying stock that does not turn over 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 for maintaining my vehicle? Does your website reflect reality or a fantasy? 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 customer base. Competency and professionalism keeps them. People will gladly pay for this level of quality and service.

These are just 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.  Those 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.

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