I’ve been giving advice and answering questions from other shop owners.
One question seems to come up regularly—how to gauge the health of a shop as to what key performance markers to look at and measure.
Too many shop owners fixate on bay car count. I know many shops that work on 10+ vehicles per technician/per day still lose money. I know many shops that work on only four vehicles per day/per technician and make a comfortable profit. Car count is important only to the extent it shows you have clients to work with. Without a steady flow of clients, all other benchmarks of business health are impossible to achieve.
Labour is the most expensive resource a shop owner purchases daily. You purchase eight hours per day from your technicians. Do you sell all eight hours, or do you only sell four without a chance to sell the other four? Imagine how unacceptable it would be to buy eight tires and only sell four—throwing the other four in the trash and never sell them.
Sold hours per day/per technician is one of the most important items to concentrate on. If a shop is only selling four hours per day/per tech and the shop labour rate is $100, then selling one more hour per day/per tech would add over $25,000 per tech to your yearly sales. The $25,000 is 100 percent additional profit. If that sounds attractive, try to find a way to sell one more hour per day. For an action course, try to stop providing free inspections; charge more for diagnostic services; increase your labour rate; sell more maintenance services, and sell more comprehensive inspections.
Parts gross profit
Another important item is gross profit on parts. Selling parts is something we all do. Too many shop owners worry about clients complaining about the price of parts being higher than parts stores may sell for. Years ago, we did an experiment in my shop owners’ training group. Every shop owner was asked what percentage mark-up they use when selling parts. Everyone was asked how many complaints they’d had over the price of parts. Even though the range of mark-up was anywhere from 20-55 percent, the number of complaints was the same (less than 3 percent).
Successful shop owners think of parts as part of the overall package when presenting a repair to a client. Restaurants owners don’t sell a steak dinner and worry the customer could buy the steak for a fraction of the meal cost at the grocery store. When we sell a part, we sell the installation service and guarantee our work. If that part fails while under warranty, we must supply free labour to replace it. All this adds value to the parts we sell. A lot of good shops have stopped allowing clients to supply their own parts—I hope more start doing this. Good shops see a gross profit of 45-55 percent. If your shop isn’t meeting this standard, consider taking training to help you gain the confidence and knowledge needed to do so.
Sales volume is pointless unless your sales are profitable. Profit is necessary if you want your business to grow and survive. New equipment, computer software updates, wage increases or increased staff can only be afforded if your shop makes a profit, regardless of how many vehicles you see daily. A smart person once told me to “make every car count, don’t just count cars”!