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Many of us have been surprised by the way this recession has affected our businesses. Who would have thought OEMs would go
bankrupt and so many new car dealers would close their doors? Then for every independent shop we see experiencing increases
in sales due to lack of new car sales, there is a shop located in a challenging area of high unemployment experiencing decreases
in sales.
The reason some shop owners always make money regardless of sales is they have low overhead. Typically, the reason most shops
go out of business is based on multiple problems happening all at once. It usually is not just one thing. Multiple problems
occurring at once with your market and your employees could affect sales 20 to 40 percent in an instant. Those owners who
are controlling their costs and not just cranking up sales every year to cover their overhead increases are in a much safer
position.
Perform an Internal Audit
My head coach, Brian Canning, has to make sure his coaching staff is putting our 945 weekly coaching clients in a safer position,
especially while the economy recovers. Since last February, he has spent untold hours explaining the virtues of the selling process, the inspection process and the
extraordinary opportunities presented by this current economy all in an effort to assure improved return in an environment
that is far different from what we have seen in the past.
A huge problem I am discovering in addressing sales and gross profit is that we are awash in expense and seeing little or
no benefit to our improved top line performance because our fixed costs are out of control. Or, as in many cases, we are simply
unaware or uninterested in where our operating expenses are and, as a direct result of this, we are working hard to see very
little return.
In the end, the bottom line is the bottom line, and if you are not doing the things necessary to assure that you are profitable,
you are working very hard to get nowhere. I recommend that you perform an internal audit to determine where your profit model
is and work to position yourself for improved profitability going forward. These efforts start paying off the moment you implement
them and generally are simple, with huge potential impact.
Shoot for 20 to 30 Percent Cash Profit
It is a sad commentary on the automotive repair industry to note that the average shop in the U.S. is generating net operating
profit of about 6 percent. I know very few people who work as hard as the average shop owner. I think it's very sad that in
putting in all of those hours, in meeting those huge challenges every day, owners see only a very modest return on his or
her investment in both money and time.
It matters very little if you have great car count, the very best technicians and the most up-to-date equipment and provide
the best customer service if you are not modeled to generate reasonable profit. Reasonable profit in this case would be somewhere
between 20 and 30 percent net operating profit (NOP).
Though many of the shop owners I talk to appear to be ashamed and feel guilty about generating numbers like these, other service
industries routinely achieve similar numbers. And given the reliance our society places on personal mobility, I am very confident
in saying that most of our customers are happy to pay us and see us viable, knowing we are there to service their vehicles.
My effort here is not to talk about gross profit, margins or productivity, but to address fixed cost and our operating expense
to assure that once we have made the sale and generated that gross profit, we are able to hold on to a good portion of that
money and assure cash flow.
