Greenwood On Management: Does Your Business Mind-Set Create “Activity” or Manage “Productivity”?

When you start to really slow down and think about how the rest of the automotive aftermarket industry operates, one can see why so many Service Provider shops within the Independent sector are weak in “profitability”. The fact is, three quarters of our industry are in a different type of business. This is 2002, and it is time to bring our heads out of the sand, and acknowledge two realities that are with us today.

1. The average Independent Service Provider lacks tremendous self-confidence when it comes to “managing” the business side of the shop. Most of this is due to the fact that surveys consistently show that in excess of 75% of this sector of the industry has a Grade 12 education or less, as their last year of “formal”education. From there, they went on to “trade school”to learn to become a competent technician. The questions that must be raised include: where in high school did one learn how to read a Balance Sheet, measure and manage productivity, understand inventory management, how accounts receivable affect the business, understand gross profit, or how the proper gross profit mix creates net profit in business? These shop owners’ natural instincts, therefore, are to feel a little “sheepish” when it comes to the topic of “Business Management”, as it was not, and is not, a priority in any of the technical training courses taken in the past, or today.

2. The rest of the industry is in a different “type” of business. The Jobber, Warehouse Distributor, and the Manufacturer, are in the “commodity” business. They need “volume” to drive their business, as volume reduces their unit cost of a product, as in the case of the manufacturer, or the cost per square foot through higher inventory turns for the WD and the Jobber, thus increasing their bottom-line. It only makes sense then, that when these levels of the industry address an issue, they are the first ones to bring up the topic about the “volume” of the shop.

The Independent Service Provider business, however, is in the “knowledge” business. To service the vehicle professionally, and build/maintain credible relationships with a customer/client, takes “time”, therefore, the labour component, acknowledged by measuring labour hours billed, at the right door rate, is the critical measurement, and study, for a professional Service Provider business today.

Too many weak shops still concentrate on the measurement of parts and other hard goods that are sold in their shop, and they expect those commodities to be profitable enough to make their bottom line, rather then concentrate on the labour component of their business. They measure their business by “average SALES per work-order”. In other words, someone has taught them to create and measure “activity”, NOT “productivity”.

Today, to be financially successful in the average Service Provider maintenance/service business, one must realize, and measure, the labour component (productivity) of the shop to produce the desired ratio of $1.20:1, that is, $1.20 in labour dollars billed for $1.00 in aftermarket and dealer parts combined, coupled with a minimum level of 2.0 hours of billed labour per average work-order/invoice. This is acknowledging, and measuring, “knowledge”. Too many shops don’t, and can’t, obtain the right ratio, or billed hours required per work-order/invoice, because they focus on the “hard goods profit” (such as white box products, and shop half a dozen different jobbers on price) and the “volume” (they market cheap oil changes so hopefully they can find some work) for their shop. They always have an excuse as to why they don’t want to take the time to learn how to execute a service/quality business through “professionally servicing”, and “managing” a client based business, and grow the “number of labour hours billed” per vehicle.

This lack of focus, and understanding, is a costly mistake. Consider that our surveys are showing the average Independent shop in Ontario is coming in at 1.35 labour hours billed per work-order/invoice. Consider that the average customer/client is coming in 3 to 4 times a year for service. Now do the math, because math doesn’t lie. The sector of the industry is saying to the client, that it only requires 1.35 hours, times 4 visits per year, equals 5.4 hours of labour per year, per vehicle, and you will have an exceptionally reliable vehicle, which will serve you well by exceeding the 250,000 to 300,000 kilometers the vehicle is capable of going today, Mr./Ms. Client.

I don’t think so !!!!!! Shop owners know in their own mind, that the average number of labour hours should be closer to double the 5.4 hours, IF one were doing his/her job right. The Independent sector of the industry is working on the “volume” philosophy of “bang them in, and bang them out, and go get some more”.

What would happen if you slowed your processes down, and got focussed on YOUR business, and YOUR clients? If you increased the productivity by an average of 1/2 hour per work-order/invoice, at a low $65 per hour, averaging 300 work-orders/invoices per month, you would create $9,750 per MONTH. ($65 divided by 2 = $32.50 X 300 = $9,750). OK, so your not that good and you only accomplished half of that. That is still $4,875 per MONTH or $58,500 per YEAR. Try to make that kind of additional money with “hard goods” in one year, and you will be spinning your wheels forever.

SLOW DOWN !!!! Make sure you are communicating, and educating, the customer/client. Make sure you take the “time” to build solid, trustworthy, relationships. Make sure you are comparing service intervals to what the manufacturer recommends, printing it out for the client, or going through the owners manual, and clearly reviewing it with them. Discuss the issues based on how the customer/client uses the vehicle and their expectations with that vehicle, then COUNSEL them…………..don’t sell them. Make sure you, as the expert, take control and “manage” the customer/clients vehicle for them.

How many vehicles do your clients have in their family….one….two….three? Are you servicing all of them regularly? Why not? Lay out a plan for the year as to what servicing will be required based on how the vehicle is used and the number of kilometres they drive per year. Discuss this with the client fully, and work out a monthly budget for them to work with. Customer/clients can relate to a monthly budget. Counsel them on how well the vehicle will serve them, and their needs, if “managed” properly. Express that you would like to be the one who is willing to take that responsibility and “manage” their vehicle for them. You have the technology.

Make sure you don’t fall back into the industry trap of totally relying on the weather, and the customer/client remembering to bring their vehicle(s) back in. The weather is too unpredictable, as seen this past winter, and the client is too busy with their own life’s work and problems, to remember.

The interesting thing I noticed this past mild winter in Ontario, is that the vehicles had not stopped moving. They were out there, running and performing. They need to be looked after. They need proper servicing, and maintenance, and it seems no one wants to take that responsibility. Shops are now waiting for the spring/summer season to begin. They hope the customer remembers them for servicing. Look around you today.

Don’t get fooled!! Do the math. Make sure you have the right discipline to shut out the talk about more volume; instead, look at what you have with your current customer/client base, prioritize the service level required for each and every client, and their vehicles. Discuss, and counsel them. Be sure to stop playing the “price” game, and start charging the right labour dollars, that recognizes your competent staff and their talent, your “time” and your “knowledge”. Think “productivity” not just “activity”.

Robert (Bob) Greenwood is President and CEO of E. K. Williams & Co. (Ontario) Ltd. and Automotive Aftermarket E-Learning Centre Ltd. Bob has over 27 years of Business Management experience within the automotive industry, counseling individual sho
ps in Ontario. E. K. Williams & Co. (Ontario) Ltd. offices specialize in the independent sector of the automotive industry, preparing analytical operating statements for Management purposes, personal and corporate tax return completion, Business Management consultation and Business Management and Employee Development Courses. Visit E. K. Williams & Co. on the Internet at www.ekw.ca and sign up for their FREE monthly management letter sent to you by E-mail. Automotive Aftermarket E-Learning Centre Ltd. is a company devoted to developing Automotive Shop Business Management skills through the E-Learning environment over the inter-net. Students learn at their own speed, and at a time, and place, that best suits their needs; available 7 days a week 24 hours a day. Visit Automotive Aftermarket E-Learning Centre Ltd. on the Internet at www.aaec.ca Bob can be reached at (613) 836-5130, 1-800-267-5497, FAX (613) 836-4637 or by E-mail; greenwood@ekw.ca or greenwood@aaec.ca