NP = SLE2/CA + CS + RBM

The average shop owner across the country has experienced a difficult couple of years. They appear to carry on their business the best they know how however, the bottom-line for the effort put in, just isn’t there.

The main reason for the lack of a bottom line is because too many shop owners have not focussed on the “core change” issues to drive a proper ROI (Return on Investment). In order to enjoy a great ROI, the shop must have a great business net income after a professional management wage has been paid and after the income tax on the profits has been factored in.

Consider that perhaps it is time to define the change required into a mathematical formula format. As everyone knows, math does not lie, but the formula must be understood and one must practice with it in order to “master” the outcome desired.

Analyse and answer the questions about your own operation using the above formula format with the letters in the formula representing the following definitions:

NP — Net Profit

SLE2 — Service Level Execution Squared

CA — Correct Attitude

CP — Competent Staff

RBM — Right Business Measurement

Net Profit: This is the ultimate objective to be achieved within the business. A successful maintenance and repair shop will achieve a net income before tax of 10% of total sales. This is after Management has been paid a professional wage for managing the company. Unfortunately too many shops have been taught by the industry and seminars attended to be “top line” driven … they measure sales and gross profit made on the sales but do not measure and have not been taught to measure, net profit per workorder/invoice before they close off the estimate or transaction with the customer/client. Question yourself honestly — do you think and measure “net profit” in your shop or do you think and measure “sales” in your shop on a daily basis? If you watch “sales” then you must enrol yourself into a industry specific business course that will teach you how to measure net profit per workorder/invoice. It is most unfortunate but it has been proven time and time again that on average, 60% of the work that goes through the average shops doors does not create net profit; this work only creates shop activity (sales) and gross profit. This is an issue and a business measurement process that must be understood.

Service Level Execution Squared: This is the critical portion of the formula that the customer/client must experience. When you examine the real competition, they have concentrated on customer/client retention, facility appearance, and the overall customer/client experience when having their vehicle serviced. To execute at a professional service level today, every staff member must be on board and understand the consequences of their actions with the customer/client. This means the technical and front counter staff must clearly understand their position within the shop. When they do not understand, shop stress moves up, attitudes are negative, comebacks occur too often, staff turnover is common, consumer complaints are too frequent, the facility is not looked after and everyone, including management see everyone as “customers” and no one as “clients”. When a shop builds a clientele, then the shop understands its full responsibilities to each and every client. This is a “culture” within the shop. In the best shops today, their service level is “second” (squared) to none. The shop enjoys a very loyal clientele, staff and Management are rewarded with way above average wages and the shop enjoys a fabulous net income every year.

To achieve and execute the right service level, the bottom portion of the equation must clearly be developed. Consider the following:

Correct Attitude: Everyone acknowledges that you can “feel” the attitude of a shop the moment you walk into it. Consider that your customer/clients also can feel the shop’s attitude. Is your shop a positive experience or negative experience? When Management has a “closed” attitude, that is, not willing to listen, properly evaluate and TRY other options to running the business then the bottom line profitability is definitely affected. Having the correct attitude is the number one step in turning a shop around. One cannot even start to address building proper net income if management has the wrong attitude about the topic.

Competent Staff: The Independent sector of the automotive aftermarket industry is truly in the “knowledge” business today. Do you evaluate your staff’s knowledge “inventory” on a regular basis? Are all members on your staff properly trained to do what you have asked them to do? … or are they “kind of” trained? Skimping on proper training leads to shop failure today. Training is a measurable investment, not an expense. Training is a Management responsibility, that is, Management must search out the right training courses for all staff members to attend, even if it means shutting down the business for a few days. When the right training has been achieved, then all people on the staff, namely, all technicians, service advisors, bookkeeper, and management are all on the same page at the same time. Does your staff truly understand WHY they come to work Monday morning? Competent staff understand the “culture” of the business and how the numbers of the business work in order to produce business net income so all members on staff can enjoy top marketplace wages. Too many shop owners complain they can not find and retain good staff. Well, there is only one answer to that question … and it is with another question … why does your shop not attract the best staff in your marketplace?

Right Business Measurement: Too many shop owners have not been taught how to measure their business. They just watch their sales and their bank account balance. Just focussing on “activity” does not produce the right net income. It is a fact that the average shop in Canada is missing out on between $30,000 and $90,000 net income per year on the current business coming through the door. This is an incredible amount of money that could change one’s life, and shop’s future, when discovered as it would be the same additional amount of money per year for the balance of your shop career. Why does our sector of our industry not want to learn this? Well there are a few common reasons, namely:

1. I don’t believe it.

2. I don’t have time … (for anything that worthwhile — but lots of time for hunting, fishing and snowmobiling).

3. It costs too much.

4. I know everything I need to know.

5.That is why I have an accountant.

6. I’m doing OK … for now.

7. When I get the best price I know I’m doing it right.

Did you ever notice something about our industry? … the weak players focus on price to save money, while the strong players focus on value to make money. Which one are you? Do you measure your business on “cost” or on “profit”? Over 95% of the shops in Canada have an accountant that does not understand the Independent sector of the industry as they produce shop financial statements putting technicians wages in as a cost of labour revenue. This is called cost accounting, and for our sector of the industry it is the wrong way to “Measure” an independent shops business. As our company slogan says, “If you can’t measure it, you can’t manage it”.

As I hope you can appreciate, the formula is detailed and I have only touched the tip of it in this article. If you think you only need to try to work with one or two items within the formula you will definitely miss the detail required in business Management that makes an Independent shop financially successful and prosper today. Consider that it is time for Management, and the right hand person within the shop, to make the time, write the cheque and enrol in the course that prepares you and supplies you the tools to properly manage all facets of your business. We truly need proper business acumen and when Management clearly makes this acknowledgement that this is what is required within our shop, then a giant step forward has been made for everyone working within the walls of the facility.