Running a small business is anything but easy.
Between dealing with employees, vendors, customers and a million different logistical issues every hour of every day, being your own boss can sometimes feel like more trouble than its worth. It’s a good thing we love what we do!
One of the most challenging aspects of running a small business is being able to forecast the level of profit you’ll be able to attain and how long you’ll be able to sustain it. Countless external factors – the local and national economy, weather, new competition – all affect your bottom line, meaning that making accurate financial predictions is difficult to say the least.
Setting goals based on qualitative progress can often be more productive than using quantitative criteria. Just like a successful athlete or team – if you stick to the process and do things the right way, the results will come more often than not.
You should have two sets of goals when establishing your business’ plan of attack: short-term and long-term. Your short-term goals should be geared towards building and streamlining your operation into a lean, mean fighting machine and then you can think about the long-term plan and how you can grow your business at a realistic rate.
Establish favorable margins
First things first, you need to have a strong grasp of what your costs are – equipment, labor, rent, etc. – before you can determine what you’ll be charging for both parts and labor. Once you know what you are spending, you will have a better idea of what you will need to charge customers in order to turn a profit.
At our shop, we have a sliding scale on markups, with low-cost items having the highest margin and vice versa. We aim to achieve a gross profit of more than 50% on parts by marking items up between 1.8 and 2.3 times what we pay for them.
It took us a while to determine where to set which price points and what to include in which category – your pricing matrix constantly adapts and evolves to various circumstances and it should definitely be changed if and when you notice it is not producing the results you need. Flexibility is important in business and the longer you stick with a plan that isn’t working, the worse your headaches will get!
… And protect them!
Once you’ve got an idea of what your margins will look like, you must protect them at all costs. If you offer coupons or discounts to try and attract new customers, make sure you’re still making money on every transaction.