TABLE OF CONTENTS Sep 2002 - 0 comments

MYOB: Are You Getting Your Share of a Service Provider's Business?

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By: Bob Greenwood

Over the past 10 years, I have often referred to building a client-based business rather than a customer-based business. It should be easy to define the difference.

Simply put, from a service provider's perspective a client is a person whom the shop has developed a trustworthy relationship with, and for whose vehicle the shop does all the maintenance and service that is required. The shop understands the responsibility it has with this individual, and never lets him down. A customer, on the other hand, is a person who has not developed a relationship with the shop, and who is focussed mainly on the price of the work rather than the service and quality offered for the price being charged.

From a jobber's perspective, it pays huge dividends to develop relationships and enjoy all of a shop's business--a client relationship--rather than spend all of your time running around dealing with "cherry pickers." Jobbers can incur substantial costs serving cherry pickers, or customers, in terms of delivery costs and the ongoing costs associated with low-volume shops.

The important point to understand, and calculate, is which shops are the jobber's clients, where the jobber is receiving 85% or more of the aftermarket purchases available from that shop, and which ones are playing the customer game and shopping all over town.

I mentioned earlier that it should be easy to define the difference, but it isn't always so.

Just because a shop is purchasing $6,000 per month does not mean it is a client. Its potential purchases could be $15,000 per month. Yet, $6,000 per month from a shop representing 90% of its potential business is a true client to the jobber's store. The trick is, how do you calculate the potential aftermarket business from an average service provider's shop to determine where you stand?

Consider the following facts and mathematical process.

A service provider is in the service business. Consequently the labor component is the critical issue to be monitored and measured within the business. When maintenance/mechanical labor is sold, parts are sold also. The fact is that the current average ratio in a service provider's business is that for every dollar sold in labor, a dollar in some type of part is sold also. We call this a one-to-one ratio of labor to parts. Also, a shop's total parts purchases are averaging 80% aftermarket parts and 20% dealer parts. The average shop operates at 64% efficiency in its labor productivity.

With these facts, we can now set out to calculate the potential parts purchases of a given shop by going through an eight-step process.

Step One: Calculate the number of working days the shop's technician has available for maintenance/mechanical work.

For example: Total days in operation per year 365

LESS:

Closed on Saturdays - 52

Closed on Sundays - 52

Statutory Holidays - 8

Vacation Days of Each Technician -10

(2 weeks = 10 working days)

Total working days per year per technician= 243

Step Two: Multiply the number of hours per day one technician works times the number of days available in one year; that will equal the number of paid technician hours worked.

For example:

8.8 hours per day x 243 days per year = 2,138.4 available hours to produce work

Step Three: Multiply the available hours times the number of licensed technicians of the shop. If the shop has an apprentice, then count the apprentice as half a technician.

For example: Two licensed technicians and one apprentice technician

= 2.5 technicians for the shop

2138.4 hours per year x 2.5 technicians = 5,346 hours available per year to produce labor

Step Four: Take the total technicians' hours per year that are available to produce labor and divide it by 12, which will equal the number of labor hours per month from all technicians.

For example: 5,346 hours divided by 12 = 445.5 hours per month to produce labor

Step Five: Multiply the hours per month by the shop's labor rate for maintenance/mechanical work, which will then equal the potential labor that the shop could produce. For example: 445.5 available technician hours per month x $65 per hour

= $28,957.50 potential labor

Step Six: Multiply the potential labor by the shop's average efficiency rate to find the actual labor dollars being produced.

For example: $28,957.50 potential labour x 64% efficiency = $18,532.80 actual

labor being produced

Step Seven: Since the industry is averaging a one-to-one labor to parts ratio, multiply actual labour by the aftermarket parts sales mix and the result will equal the total available aftermarket parts purchases for the shop.

For example: $18,532.80 x 80% (industry average aftermarket parts sales percentage mix) = $14,826.24 available aftermarket parts purchases.

Step Eight: Take the shop's actual average aftermarket parts monthly purchases from your store and divide it by the potential aftermarket parts purchases, which will give you the percentage of the shop's available business you are getting. For example:

$6,000 average monthly purchases divided by $14,826.24 potential = 40% of the shop's available business.

It is obvious that in this example, the jobber has a customer, not a client. If you are not getting a minimum of 85% of the shop's potential business, you have to ask yourself honestly why not? Ultimately, analyzing your customer's business sheds as much light on yours as it does theirs.

Do you have the proper business relationship in place? If not, why not? What true value do you offer the shop over the competition? Don't know? Why not? Are you stocking properly to the shop's needs? Is your delivery service in line with the shop's needs? If not, why not?

As you can see, by doing a little math and thinking about the potential that may be available with a shop, you can now make an informed decision as to whether you want this shop as a client. Stop just looking at sales numbers and start looking at the percentage of available business number.

I think you will find that you will start to work smart instead of working hard. Too many jobbers work hard with no bottom line benefit to show for their efforts.

Consider the real math. It does not lie.

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