Think expanding your shop may be the key to higher profits?
You may only need to expand what you already have to its fullest potential. You can customize your own solution for higher profits… by analyzing the needs of your current customer base and maximizing the utility of your shop with cost-effective upgrades.
Sound too simple?
Ninety per cent of automotive shops have not maximized the business opportunities within their current customer base. Nor have they realized the full potential of their shop in terms of services offered and using the shop space efficiently says automotive repair and maintenance consultant Bob Greenwood of E.K. Williams & Co. (Ontario) Ltd.
“If you’re not serving your current customer base properly, then why expand?” says Greenwood. “Your expansion is within your own customer base. The number one function of an owner-operator is to build (and enhance) relationships between clients and the shop – ensure that you’re servicing them properly at every level.”
Slow the business down. Serve your clients more effectively. And bring in more sales.
One straightforward solution is to increase your billings to 2 or even 2.5 labour hours per work order (up from the average of 1.3 to 1.45 hours). One way to help achieve this new target is by bringing your client’s vehicle up to the manufacturer’s recommendations for maintenance – based on the Mitchell or All-Data maintenance system printout. Of course, the amount of additional work you bring in per work order can vary based on your approach. But assuming you add just one half-hour per work order at a labour rate of $70 per hour, that’s $35. Multiply that by the number of work orders per month (200 as an example), and you have an additional gross profit of $7000 per month. Not bad.
And what if you’re only servicing one of your client’s multiple vehicles? Changing your shop’s process with the goal of getting 100 per cent of their business can greatly enhance the gross and net profit of your business.
What stands between you and the goal of servicing 100 per cent of your client’s vehicles? The client may see your shop as “too expensive”, but only because management has not educated them on the value received for the price paid. Educating the client in this area can result in the opportunity to quote for work on their second or third vehicle. To get all the client’s business, management must slow the shop process down… to educate and reassure the clients on the type of work you are qualified to do, that you can service their new vehicle properly and that you do have high-tech equipment if that’s the case.
Build trust through full communication and nurture the client relationship. You need to understand whether the customer owns or leases each vehicle, how many kilometres per year are driven, and whether the kilometres are mainly highway, city or off-road driving, and what the customer’s expectations are with that vehicle.
“This way the shop can set up and tailor a maintenance plan specifically for that customer’s needs,” says Greenwood. By taking the time to counsel the customer, they will understand the shop’s capabilities… and their vehicle’s requirements as compared to what the manufacturer recommends. This approach will maximize the return on investment: as shop owner you will generate more business, and the client will have a safer, more reliable driving experience.
Renovating you customer service area is a low-cost upgrade that will help build the kind of client relationships that enhance profitability. For under $5000 you should be able to add a counseling table, a tile floor and clean up/expand the area. Greenwood points out that the shops with new computers – the Mitchell or AllData maintenance systems – in a clean and bright customer service area charge higher labour rates.
Other low-cost upgrades you should consider: a diagnostic bay, a cleanup bay and one or more additional hoists. These can all add value by helping you service clients at a high level. As word gets out, then you start attracting a better customer base.
Ask yourself this question: Which options make sense for me? Analyze your business, your client base and your own vision for the shop to find out. Ask yourself what you want to do before you decide.
And do the math when you’re considering any option to maximize shop space utility. Will this be a profitable move for me at this time? For example, the simple solution for a guy with three hoists in a 6-bay shop may be to install an extra hoist.
A cleanup bay is a value-added option. Deliver back a clean vehicle and you build client rapport, while adding the opportunity to solicit detailing work. For a small investment in pressure-wash equipment and materials, you can charge $75 to $175 per job. And if the work takes five hours at a wage cost of only $10 per hour, that can represent a nice sideline business. The key is thinking ahead and planning before you leap.
A diagnostic bay is the most expensive of these options. You need the right equipment and a competent diagnostician, but now you’re charging a tier rate of up to $100 or more per hour. It’s best to check out your customer base first to see if a diagnostic bay makes sense for your individual shop. Look at your sales mix of customer parts versus dealer parts. A high percentage of dealer parts means you’re servicing newer cars, and have more opportunity for diagnostic billing. What about adding a fast lube, muffler shop or another franchise-type operation?
If you really want independence and have your own vision for the shop, a franchise may not fit your personality. And friction could result if you have very individualistic management skills. But many shops could benefit from a franchisor’s national identity, plus the strong management skills and trainability that may come with the package.
If you’re serious about the franchise opportunity, again, you need to analyze yourself and your business to see if it would be a good fit. “This is a personal business decision, not an industry one. Sit back and consider this… don’t just jump into anything,” cautions Greenwood. Choosing the right solution always means a close look at your business, your clients and deciding what you really want. What type of service work would I like to offer?
Of course, you’ll want to check the numbers to see if it will be profitable. If you decide to hire a professional consultant to assess your unique situation, it will still be about the numbers, so it’s best if they know your accountant and are able to work together.
Whatever you decide, the key to greater profits is making changes in the process of how your shop does business, says Greenwood. Shop upgrades are not a shortcut to big money in themselves – but they can be a powerful tool in the hands of owners who has committed to changing their way of doing business.
Greenwood recommends management classes for shop owners who want to develop a new business process. “You have to learn your business over again to do it right.”