Key Numbers for Shop Survival

By Tom Ham. If we take a look at a shop that survives slow times and another shop that closes its doors we will find the difference is typically in several key numbers. And, contrary to what many believe, those numbers are primarily due to the choices and the decisions of the shop owner.

They may not be easy ones to make, but for most shops they are doable. Some choose to survive and others decide not to do so. Let’s take a look at a few of those key numbers so you can begin to create a roadmap for keeping your shop in good financial condition.

Total Spending:
If you spend like the government, or for that matter, like many Americans do, you may as well call an auction company today to get the closing process going. Money is serious stuff. Unfortunately, too many shop owners are focused more on fixing cars than they are at handling their money well. Just think of it; a relatively small shop today has a lot of money going through its hands. That amount is usually hundreds of thousands, or even millions of dollars. It would seem one could retain enough of that to survive, right? Your total spending, on everything except your salary and the net profit of the business, should not exceed seventy to eighty percent of your total sales. If it does, and business gets soft, you will be struggling at best.

Total gross profit:
Shops should not charge too much, nor should they charge to little. When shops close, the latter is often the issue. This problem becomes even bigger in a weak economy since the temptation is to discount excessively, reduce prices, and give things away. When going Christmas shopping at the mall recently, you soon found that many stores were discounting heavily to keep the sales numbers as high as possible. Yet, for many stores, sales still dropped. Not all stores took that approach. At least one well known clothing retailer stated that they were not going to play the discounting game, even though their sales were down over twenty-five percent. Instead, they were going to focus on excellent service and cost reductions. They intended to at least make decent money on the sales that they could generate. The total shop gross profit target, for all sales of all types, needs to be in the fifty-seven to sixty-three percent range. You should track the trend of this number weekly, monthly, quarterly, and annually to prevent you from winding up working all day just to trade dollars with little or nothing left for you.

Repair and maintenance found per car:
This is an extremely critical number that very few shops know, much less track. It is simply the total of everything that the tech found when he looked the car over. You estimate every single thing he found, right? If not, this is good time to start. Once you do so, then simply add up everything that is estimated and divide by the number of cars serviced to determine your average found per car. For the typical shop $500 to $600 is a very reasonable goal. Odds are that if you did an inspection with a fine tooth comb on ten cars in your parking lot tomorrow, you would come up with at least $10,000 in repair and maintenance. A reasonable inspection of every car in your shop should easily identify half or a bit more of that amount. If you ever wonder why your average RO always seems too low, this is one of the reasons. We sure can’t sell what we don’t find. And, if we don’t look, we won’t find it.

Oil change rate:
Of the cars in your shop during a normal week, how many receive an oil change? A common answer is: “As few as possible!” Unfortunately, that approach can be deadly today. We all know that an oil change, which might be better called regular factory scheduled maintenance, is the most frequent service that your customer has performed. It even comes with an advertisement for your shop nicely placed on the windshield! You want your customer and his or her car trained to go to one place for every type of service they may ever need. Nothing increases that frequency better than you doing all of their oil changes. If you consider every car in your shop that has an oil change due or overdue or due soon, odds are that it will exceed fifty percent. Your goal for oil changes performed should be in the forty to fifty percent range. It is likely the easiest service in the world to sell, so it mainly becomes a matter of simply asking for the job.

New Customers:
Quite a few of your current customers are going to vanish during the next year. Job changes, health issues, finances, and moving are just a few of the causes. You can’t change those things. Also, assuming that you are doing a great job of getting your current customer’s cars in good shape, those cars will need less service in the near term. Studies have shown that for you to grow, or at least stay even, you need to have at least twenty percent of your RO’s to be first time customers. Twenty-five percent is a good target number if you want to grow your business. Far too many shops are at ten percent or even less. This number is an excellent crystal ball for seeing into your future and knowing how busy you are likely to be six months from now. Make sure that you track the number of new customers monthly and monitor the trend.

Employees — Techs vs. Non Techs:
Many shop owners believe that if an employee is not turning a wrench, their value is significantly less than a tech. Nothing could be further from the truth. Today, shops need great salesmen (or saleswomen)! There is no product or service that moves in this world without some kind of salesperson. Remove them and the whole economy stops. Whether you admit it or not, you have a sales staff. You may not call them that, but that’s exactly what they are. Techs have no cars to fix without someone making those sales. Far too may shops have an incorrect ratio of techs vs. non techs. One to one is about the right number for most shops. Some of those non techs will be sales staff (service advisors), others will be in the office, and others will perform a variety of necessary tasks. In most cases, a shop with three employees in the front and three techs in the back will have greater sales and profits than a shop with two employees in front and four techs in the shop. When considering staff changes, make sure you do not get this number lopsided, or you will have techs turning in low numbers of produced hours. While techs are certainly important, your biggest guns are at the front counter.