Feature August 1, 2011 by
Murray Voth, TACT (Total Automotive Consulting and Training)
There Has Got To Be A Better Way To Do This
One of the constant challenges we face in small business is that we are so busy working that we can’t look up to see where we have come from and where we are going, or even why we are working as hard as we do. Year after year goes by and...
One of the constant challenges we face in small business is that we are so busy working that we can’t look up to see where we have come from and where we are going, or even why we are working as hard as we do. Year after year goes by and nothing changes or improves. A great expression I heard goes something like this, “If we keep doing things the way we always do things, we will keep getting the same things we always get.” The automotive service industry, as a whole, continues to stagnate at 54 per cent productivity and generates on average 1.1 sold hours of labour per invoice or transaction. In addition, Canada Industry Statistics reports the average gross profit margin on parts in automotive shops in Canada is 33.3 per cent. These are statistics. What about reality? In the last six years, it has been my privilege to work with hundreds of shops in our ProShop Performance Groups. I have been able to see and analyze financial numbers from most of these shops. It has been interesting to find that whenever I meet a new shop owner and the staff that has had very little in the way of management training, their numbers are the same as the statistics I quoted you at the beginning of this paragraph. There seems to be a default setting in this industry. Unless we are shown a different or better way, we default to 54 per cent productivity, 1.1 sold hours per work order and 33.3 per cent gross profit margin on parts. By the way, most of the shop teams new to this training are below one sold hour per work order when they first come for training. Why Are We Stuck Here? What is it about these default settings in our industry? Why are we stuck at these financial numbers? I believe that if we know the why of something, we can figure out the how and what of that something. Let’s begin with the parts margin. The industry benchmark for the gross profit margin on parts required to achieve business success is 45 per cent (this does not include tires). I believe there are three main reasons why this industry is stuck at a 33.3 per cent parts margin. 1) Many shops are still using mark up rather than margin to calculate what they are going to sell their parts for. I have many shops tell me that they mark up their parts by 50 per cent. Take a part that costs you $100, mark it up by 50 per cent and you will sell it for a list price of $150. Your profit is $50. Divide your profit $50 by the list price $150, and you get a margin of 33.3 per cent. Your shop needs to focus on margin and not on mark up. 2) Many shops just use the suggested list provided by their suppliers. My research shows that many jobbers use a suggested list price that gives the shop between a 35 per cent and 40 per cent margin. Dealers range from 10 per cent to 20 per cent margin on their suggested list prices. If you take a rough average of those margins, again adjusting for the mix of parts used, you will end up in the 30 per cent to 35 per cent range almost every time. We keep forgetting the word “suggested” is not the same as “commanded.” Work from your cost up to decide your required profit. 3) I am not sure about this currently, but in the past there were industry consultants that taught shops that 30 per cent was the proper margin to achieve. In today’s market, the cost of keeping a business up to date in technology and the increased value offered to consumers in parts and labour warranties require that we have a great parts profit margin. The Productivity Conundrum Our definition of productivity is the number of hours a technician spends performing paid work on vehicles, compared to the number of hours they are available to work at the shop. This number is expressed as a percentage. If a technician is available for eight hours on a particular day, and works on cars for 4 hours that are billed out, he or she is 50 per cent productive. The glaring question is, “Where did the other four hours go?” I find that management in this industry generally blames the technician for this problem. They are looking at the wrong person. Instead, they need to look in the mirror. This whole industry needs to look in the mirror. There is something in how we view the process of servicing and repairing vehicles that keeps setting us up to have low productivity. This is a topic worthy of a year’s worth of articles, but I will begin with some simple basics to start with. Many shops think of scheduling as just writing down the customer’s name and phone number so it is not forgotten. As well, there is a view that the more cars booked in a day the better. In addition, we have taught the consumer that the appointment we give them is with the technician, which causes no end of frustration when the technician is still tied up on another vehicle and the customer begins to ask why their car is not being worked on yet. When you add up all the time of pulling technicians off jobs and reassigning them to others, of driving vehicles in and out of the bays, of trying to squeeze in “will wait” appointments, most shops loose at least an hour per technician per day. Three suggestions are: 1) When you make an appointment with a customer make sure that you and the customer understand that the appointment is with you, the service advisor, and not with the technician that will be working on the car. Explain that you will need a few minutes to review the customer’s concerns regarding the vehicle and then will assign the vehicle to the next available technician. 2) Explain to the customer how long you will need the vehicle for and offer rides or courtesy vehicles so that the vehicles can be left for a decent length of time. Remember to under promise and over deliver. Ask them to leave the car longer than you actually might need it and surprise them when it is done sooner. 3) Limit the number of “will wait” appointments you offer in a day and only offer them at certain times of the day. For example, offer one or two first thing in the morning and maybe one or two right after lunch. Offering a “will wait” appointment at 10 o’clock in the morning sets you up for failure right away. What happens if all the earlier vehicles are stuck on the hoist due to unforeseen challenges? Finally, sold hours per invoice. The main reason why the industry averages 1.1 sold hours per invoice is the fact that we are only doing the one thing the customer asked for. The customer asks for an oil change or they come in for a brake noise or they come in with the check engine light on. We solve that one problem and send them on their way. We rarely ask them at the time of the write up if they have any other concerns with their vehicle. Many shops do not offer to inspect the vehicle to ensure that it is safe, reliable and economical to operate. Most shops do not test drive the vehicle before they service it to see if there are any noises, rattles, or other concerns that the average consumer would not identify. Don’t Be Afraid Of Your Customer You may say to me, “W5 just slammed us for up-selling customers and not even solving the problem they came in for; how in the world can I sell them more than what they came in for?” I am not talking about up-selling. I am talking about informing and educating the customer about the condition of their vehicle and what it requires to keep from having costly and unexpected breakdowns. How many times has it happened in your shop that a customer comes in with a problem and asks, “Why did you not see that when you were working on my car?” or “Ever since you worked on my car it has three other problems”. Our first response is to blame the customer. We say things like “The customer never asked us to look at that other area of the car” or “Those problems are completely unrelated. How can they blame us for that?” When a customer drops of their vehicle we should take th e time to listen to their concern or concerns very carefully and assure them that they have been heard, and that there will be an estimate before the shop proceeds. Then ask them if they have any other concerns with the vehicle, which will prompt them to remember other issues. Then inform them that included in your service today is a short test drive and a visual inspection. Explain that the purpose of these is to keep them informed about the condition of their car, that there is no obligation to buy today, but that they will be given the options of how to proceed, either over the phone or when the vehicle is picked up, whether it is a safety related repair, or an item of preventative maintenance. We need to stop being afraid of our customers. They are relying on us for our professional opinion. Provide that to them and then leave the choice up to them whether to spend their money with you or not. I guarantee that when your customers sense you are doing this for their benefit and not just for a sale, the sales will still happen. Figure out the why, and the how and what look after themselves. More on your “why” and productivity next time.