More vehicles coming into an automotive service business does not necessarily mean more profit.
In fact, there are a number of industry myths that if overcome can lead to a more successful business, according to Cecil Bullard, CEO of the Institute for Automotive Business Excellence.
Mr. Bullard led a session, "Diagnosing and Repairing Your Business," during the Virtual AAPEX Experience, held Nov. 3-5.
Myth: More vehicles in the shop means more profits.
"Car count and repairs done is not necessarily an indication of your profit or your success," Mr. Bullard said, adding that in some case it could decrease your profits.
He used the analogy of the brown banana. Grocery stores, he said, know there are going to be bananas that don't sell, or go bad, and they cover the cost of those brown bananas in the price of the bananas they do sell.
Service shop owners, Mr. Bullard said, need to be mindful of the things that take up time but don't necessarily make money — brown bananas, like the initial test drive, racking, cleaning the car and putting tools back.
"The more cars you have, the more brown bananas," he said.
He advises shop owners pay close attention to parts margins and labor rates.
"It's really, really important that you hold parts margins," he said, adding that 58% is a good goal and you can overcome pushback from customers with a shop-backed warranty.
"You need to build value for your client so that they don't question your pricing," he said.
He said shops should aim for a labor rate of 68% or higher and can reach this through raising prices, increasing productivity and selling other work that has a higher parts margin — work, he notes, that the vehicles really need.
Ultimately, the pen — an ability to sell higher-margin work — is the best tool in the shop, he said.
"I don't know of how you make money in the business without parts and labor," he said.
Mr. Bullard said that Gross Profit Margin is the most important number in the business.
Myth: If I follow the checkbook, I don't need to track to other numbers.
Mr. Bullard said that what's in your checkbook only reflects the cash you have on hand, and is not a clear reflection of profits, nor does it include accounts payable. He said that while you are making money, you are also building expenses. The average shop that isn't following the margins or break even points is losing about $40,000 a year, he said.
Myth: I will lose customers if I am more expensive than my competitors.
Mr. Bullard said that for many people — specifically the ones that he wants as long-time customers — price plays a much smaller role in decisions than many shop owners realize.
Convenience and the quality of work is often far more important than price.
He said shops need to hold the line on margins in order to maintain quality, and it's OK if that means losing a possible customer who is just looking for the cheapest price.
Myth: The only way to make money is to be dishonest.
"You cannot be dishonest," he said. "If you run your business well, you can make a very good living, and you don't need to be dishonest."
The federal government estimated there was about $2 billion worth of work that was not completed last year, and Mr. Bullard said it's because many shops aren't being thorough enough when it comes to diagnostics and maintenance.
He said if you are looking out for the best interests of your customer, you are finding problems and helping them come up with a long-term maintenance plan.
Myth: Employees should know what to do and do it.
"People who are not trained and managed will never do the job you want," he said. "Even the best employees are probably not doing the best job they could."
He noted that in shops he's worked with, they enlisted the technicians to help design the process for vehicle inspection and diagnostics to make sure they were being profitable, productive and setting a standard at the shop.
Myth: If I hold my employees accountable, I will lose them.
"Employees that have clear goals and boundaries, and that are held accountable to clear company goals and policies, are happier because they know the rules, and they know you care," Mr. Bullard said.
Again, he stressed the importance of being clear with employees so they have a perfect understanding of their position. He said to remember that a paycheck is not a reward, and that going out of your way to acknowledge good work boosts everyone's moral.
Myth: You can't make real money running a shop.
Mr. Bullard said if you hear someone saying this, it's because they feel trapped and they don't know how to change things.
"Shop owners can make a really good living in this business, and still have time for their families and lives," he said.
A replay of Mr. Bullard's full presentation is available at aapexshow.com.