Are you letting big profits drip out by not managing the little leaks?

Sales growth is a waste of time! Yep, you read that right. I said what most hesitate to say! In some circles, there is a pervasive business philosophy that a busy and fast-growing shop is a profitable one. Unfortunately, the exact opposite is true – a shop that is run with specific intention and focus on the things that matter is what wins the day.

You certainly remember one of Aesop’s most familiar fables, the story of the tortoise and the hare. The tortoise slowly (intentionally) plodded his way through the race, while the hare outran the tortoise then took a break. By taking a break, a nap, and, ultimately, his eyes off the race, the tortoise soon passed the hare and eventually won the race. 

Have you averted your eyes from some key elements of your shop? Are there holes in your management bucket that let profits leak away?

Parts

One of the simplest ways to ensure you are on pace to achieve your parts gross margin goal is to implement a matrix geared toward 54% gross margin on all of your parts sales. Exclude tires, batteries and other accessory items from this exercise. 

Don’t just set and forget your matrix – if you do, you set yourself up for reduced gross profits. Monitor it frequently, addressing issues such as overriding the matrix because an advisor isn’t comfortable with your margins. When this arises, training will be required along with further monitoring to ensure the issue has been overcome. 

Labor 

Keeping a close eye on your effective labor rate – not your stated labor rate – will save your bacon. You’d probably be surprised to know just how many shops who have a door rate of $139 actually end up with an effective labor rate of $109.

The math for effective labor rate is pretty straightforward. It is simply your labor dollar sales divided by the total billed technician hours.

Here’s a real-world scenario. A tech who bills out $4,600 of work in 42 hours has an effective labor rate of $109.52. ($4,600/42 = $109.52.)

No, it’s not bad, but, in this case the shop’s labor rate is actually $126 per hour. Left unchecked, this can and will cost thousands of dollars as each day of the year passes. 

To see what the shop is missing, the math here is $109.52 (what you’re actually getting) divided by $126.00 (what you should be getting) multiplied by 100. In this case, the effective labor rate is just 86.92 percent of what it should be. A highly efficient and productive shop should have no problem achieving 125 percent consistently. 

Leakage

    Monitoring what comes in, what goes out and what makes it to the bank is key. Establish systematic checks and balances to ensure each day’s receipts match up with what is invoiced, collected and refunded against the daily reports. Reconcile deposits and audit each day’s purchases against what the parts store invoices. Have purchase orders on each part purchased. These checks go a long way toward making sure your shop stays healthy and remains a vital part of the community your serve.

Workflow

Today’s management systems have robust capabilities to help you manage your shop’s workflow. Everyone should have a pulse on what cars are in the shop, what is coming in, what is expected in and what their individual job assignments are. When each member of each department knows what is expected of them, their performance increases. 

Marketing, technical and service resources can be set in place to address challenges, ranging from a lack of to an overabundance of work. Becoming familiar with your systems’ workflow is as simple as being part of the User’s Group or getting individualized training on the product. An underutilized shop management system is a waste of valuable resources and finances – make a commitment to get the most out of yours. 

Next Steps

So what’s next, after the shop? You can never go wrong having a long-range goal as it relates to your life. I knew a businessman who had a picture of a house on the wall of his office. It was a mountain retreat set in the Colorado ski country. Next to it was a countdown timer with a large number slowly ticking away. When I asked Dan the meaning behind what I was looking at, his answer was pretty inspirational.

He said, pointing to the picture, “That’s the house I’ll build in Colorado,” and then, pointing to the numbers, “Those are the days until I retire”. He not only built the house exactly as it was pictured, but he also walked out of his office the day his timer hit zero.

Today, Dan serves on the mountain as Ski Patrol in the winter and enjoys his days post career. He looked past the day-to-day grind and had a vision for life after work. Because he had a vision and purpose for his post-9 to 5 days, he easily transitioned into a fun and fruitful life. 

Taking care of your shop today and having a vision for what tomorrow will bring enables you to make some of the harder adjustments in your shop. Plugging the holes today will ensure your bucket stays full. Remember, it’s only money! If you don’t watch out for it, who will? 

Your focus shouldn’t just be to be busy and have a high car count, but to make every car count, then to make sure the efficiency/productivity and dollars collected all line up. Being super busy isn’t always a recipe for super success.