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.
Over-discounting can lead to Red Herring measurables, which can be extremely detrimental to your business’ progress as you can become distracted by numbers that aren’t actually adding to your bottom line. For example, just because your shop is busy doesn’t mean you’re doing well. If you attract the wrong kind of customers – customers like coupon chasers who aren’t liable to return to your shop after they’ve gotten whatever discounted service they’ve come for – you most likely aren’t turning a profit.
Having a high car count isn’t necessarily a good thing. This may sound crazy but it’s true, believe me. You need to be attracting the right kind of customer in order to be consistently profitable.
At one point in Keller Bros. history, we consistently had lines around the block and were as busy as could be. The problem? We weren’t making any money because (a) our pricing matrix wasn’t right and (b) we were attracting the wrong type of customer. The ticket on our average job was simply too low and we were losing money despite all our bays being full.
Sometimes less is more. If you are attracting the right type of customer and have the correct pricing matrix, having less activity in your bays at a greater ROI is definitely more profitable.
Grow your brand
I’ve said this to more shop owners than you can imagine over the years and I’ll say it here one more time: re-investing your profits back into marketing is something you must do!
The Better Business Bureau recommends investing anywhere from 5-10% of your net profits into marketing to ensure you are able to both maintain your current client base and stay in the new customer game.
On top of this, you need to stress to your staff that marketing your shop is everyone’s responsibility!
We preach to our techs and service writers that the flow of production begins as soon as a customer walks through our front doors.
Establishing a sense of trust and familiarity with your customers is imperative to maintaining a strong retention rate. When you have regular, repeat business from a high-quality roster of car owners you’ll be able to get a better handle on what your average weekly/monthly/yearly revenue streams will look like and from there you can work towards incrementally increasing your car count and profit lines.
Lead the charge and stay the course!
Setting personal goals is also something every shop owner and manager should focus on. Self-evaluation is tough to do when you’re in the eye of the hurricane that is small business ownership but being able to constructively critique your leadership style and its effectiveness is as important to your success as anything.
Part of being a good leader is keeping your eyes on the big picture and not getting too caught up in the trap of defining success purely based on monetary factors. Refraining from obsessing over every penny coming in and going out of your shop is tough – believe me, I know. This is something I’ve struggled with my entire career and I’ve learned that taking a step back and getting some perspective on things is the only way to maintain your mental health as well as the health of your business.
Running a small business is tough. You need to have a solid work ethic, strong business instincts and an iron will in order to make a go of it and a lot of days and the number of obstacles you face over the course of a week can sometimes seem to go on forever. But at the end of the day – it’s all worth it when you realize you’re making a living doing what you love!
If you could use a helping hand or some guidance in your business management, Auto Profit Masters is here for you! We offer classes, coaching sessions and digital platforms that offer real solutions to the problems you face on a daily basis – call us at 866-826-7911 for more info!
