The new formula for culture

April 1, 2014
To enjoy a great ROI, the shop must have a great business net income after a professional owner/management wage has been paid and after the income tax on the profits of the shop have been factored in.

The average shop owner across the country has experienced a challenging couple of years, and the challenges are about to grow with the introduction of the connected car through telematics. But while many owners appear to carry on their business the best they know how, the bottom line for the effort put in just isn’t there. In fact, too many shop owners have bought themselves a job — they know it, but they lack the self-confidence to address the problem.

The main reason for the lack of a bottom line is too many shop owners have not focused on the “core culture change” that is required to drive a proper return on investment (ROI). In order to enjoy a great ROI, the shop must have a great business net income after a professional owner/management wage has been paid and after the income tax on the profits of the shop have been factored in.

Consider that perhaps it is time to define the change required into a mathematical formula format. As everyone knows, math does not lie, but the formula must be understood and one must practice with it to master the outcome desired. Let’s be honest, the real enemy in achieving any business success is the self-discipline to execute, so a discipline of practicing over and over is very necessary.

To prove that you are capable of getting through the issues of your shop from a business management perspective, take some time by yourself and work through the formula. Analyze and answer the questions about your own operation using this formula format, with the letters in the formula representing the following definitions:

NP = CA + CS + RBM

         SLE (2)

NP - Net Profit

CA - Correct Attitude

CS - Competent Staff

RBM - Right Business Measurement

SLE (2) - Service Level Execution Squared

Net Profit

This is the ultimate objective to be achieved within the business. A successful maintenance and service shop will achieve a net income before tax of at least 10 percent of total sales. This is after management has been paid a professional wage for managing the company.

Unfortunately, too many shops have been taught by the industry and seminars attended to be top-line driven — they measure sales and gross profit made on the sales. They do not measure, and have not been taught to measure properly, net profit per work-order/invoice before they close off the estimate or transaction with the customer/client.

To achieve the right net profit in a shop today, management first must learn how net income is created in a service business. The question to ask yourself honestly is, “Do I think and measure net profit in my shop, or do I think and measure sales in my shop on a daily basis?” If you watch sales, then you must enroll yourself into an industry-specific business course that will teach you how to measure net profit per work-order/invoice.

It is most unfortunate, but it has been proven time and time again that, on average, 60 percent of the work that goes through the average shop’s doors does not create $1 of net profit; this work only creates shop activity (sales) and gross profit. This is a business measurement process that must be understood.

Correct Attitude

Everyone acknowledges that you can feel the attitude of a shop the moment you walk into it. Consider that your customer/clients also can feel the shop’s attitude. Is your shop a positive or negative experience?

When management has the right attitude, they can address and fix every, and any, problem within the shop. When management has a closed attitude — that is, not willing to listen, properly evaluate and try other options to running the business — then the bottom line profitability is definitely affected.

Having the correct attitude is the No. 1 step in turning a shop around. One cannot even start to address building proper net income if management has the wrong attitude about the topic. Understand the definition of attitude: “The visual projection of your internal thoughts and feelings being demonstrated through your behavior.”

Competent Staff

The independent sector of the automotive aftermarket industry is truly in the knowledge business today.  Competency is critical in a successful shop. Do you evaluate your staff’s knowledge inventory on a regular basis? Are all members on your staff properly trained to do what you have asked them to do, or are they “kind of” trained? Skimping on proper training leads to shop failure today. 

Training is a measurable investment, not an expense. Training is also a management responsibility — that is, management must search out the right training courses for all staff members to attend, even if it means shutting down the business for a few days. When the right training has been achieved, then all people on the staff, namely, all technicians, service advisors, bookkeepers and management, all are on the same page at the same time.

Does your staff truly understand why they come to work Monday morning? Competent staff understands the culture of the business and how the numbers of the business work in order to produce business net income so all members on staff can enjoy top marketplace wages. Too many shop owners complain they cannot find and retain good staff. Well, there is only one answer to that question, and it is with another question: Why does your shop not attract the best staff in your marketplace? 

Right Business Measurement

Too many shop owners have not been taught how to measure their business. They just watch their sales and their bank account balance. Just focussing on activity does not produce the right net income. It is a fact that the average shop in the aftermarket is missing out on between $60,000 and $90,000 net income per year on the current business coming through the door. This is an incredible amount of money that could change one’s life, and shop’s future, when discovered where it is — as it would be the same additional amount of money per year for the balance of your shop career when executed properly. 

Why does our sector of our industry not want to learn this? There are a few common reasons tossed about:

• I don’t believe it.

• I don’t have time (for anything that worthwhile, but lots of time for hunting, fishing and racing).

• It costs too much.

• I know everything I need to know.

• That is why I have an accountant.

• I’m doing OK, for now.

• When I get the best price, I know I’m doing it right.

Did you ever notice something about the independent sector of our industry? The weak players focus on price to save money, while the strong players focus on value to make money. Which one are you? Do you measure your business on cost or on profit?

More than 95 percent of the shops in the aftermarket have an accountant that does not understand the independent sector of the industry, as they produce shop financial statements putting technician’s wages in as a cost of labor revenue. This is called cost accounting, and for our sector of the industry, it is the wrong way to measure an independent shop’s business. We require a management accounting format, as our firm has taught our clients, “If you can’t measure it, you can’t manage it.”

Service Level Execution Squared

This is the critical portion of the formula for the customer/client to experience. When you examine the real competition, they have concentrated on customer/client retention, facility appearance and the overall customer/client experience when having their vehicle serviced. To execute at a professional service level today, every staff member must be on board and understand the consequences of their actions with the customer/client.

This means the technical and front counter staff must clearly understand their positions within the shop. This is called accountability. When they do not understand, then shop stress moves up, attitudes are negative, comebacks occur too often, staff turnover is common, consumer complaints are too frequent, the facility is not looked after and everyone, including management, sees everyone as customers and no one as clients. When a shop builds a clientele, then the shop understands its full responsibilities to each and every client.

This is a culture within the shop. In the best shops today, true client service levels are achieved because management took the time, made the investment to learn, then executed the blueprint for shop success. Their service level is second (squared) to none. The shop enjoys a loyal clientele; staff and management are rewarded with way-above-average wages; and the shop enjoys a fabulous net income every year. This is a business process that must be learned by everyone involved within the independent sector of our industry.

As I hope you can appreciate, the formula is detailed, and I have only touched the tip of it in this article. If you think you only need to try to work with one or two items within the formula, you definitely will miss the detail required in business management that makes an independent shop financially successful and prosper today. Consider that it is time for management, and the right hand person within the shop, to make the time, write the check and enroll in the course that prepares and supplies you with the tools to properly manage all facets of your business.

The last thing our industry needs today is another how-to sales or infomercial seminar. We truly need proper business acumen/education, and when management clearly makes this acknowledgement that this is what is required within our shop, then a giant step forward has been made for everyone working within the walls of the facility.

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