By Art Vasconcellos 2

Transcription

1 Putting The Pieces Together Does Your Shop Have You Puzzled? The 10 Main Pieces of the Puzzle For Any Automotive Repair Shop Owner or Manager 1

2 By Art Vasconcellos 2

3 Table of Contents The 10 Keys to Success Ten things you need to know for reaching the level of success you and your shop deserve 1. Increasing Shop Productivity 2. Increasing Parts Profit 3. Understanding the Numbers of Your Business 4. Service Writing and Selling 5. Information and Management Systems 6. Charging for Diagnostic Time and Diagnostic Labor Rate 7. Tools and Equipment 8. Marketing and Advertising 9. Employee Development and Retention 10. Business Planning/Goal Setting/Projections 3

4 Chapter 1 Increasing Shop Productivity O ne of the fastest ways to increase your shop profits without having to raise your prices is to increase shop productivity. The average productivity in our industry is only 66 percent. For every eight hours a technician works, he or she only produces 5.3 of billable labor. A technician at 66 percent productivity produces $6, of labor at $60.00 per hour labor rate, working five days and 40 hours a week. At 100 percent productivity, labor jumps to $10,080.00, or an increase of $3, At my shop, The Car Care Center, in California, my technicians produce work at 165 percent productivity or 13.2 hours a day of labor, which is 165 percent productivity. At $60.00 labor rate, they would each produce $16, of labor per month, or an increase of about $10, of labor per month for each of my four technicians. Do my technicians work harder than your technicians? Probably not. Are they more efficient? You bet! Do I know how to sell enough labor hours for every job? Always. Is my shop well laid out? Of course. Do my technicians use a time-clock to log every minute of every day? They sure do. Here are numerous, powerful methods of how you can increase your shop s productivity: Sell enough labor time You may think this is the easy part, but most shops do not sell enough labor. When I consult a shop, one of the first things I do is measure productivity. It s always the management complaining about the technicians not being productive. I look in the shop bays and see the technicians working very hard, and then I head for the office, where I start analyzing completed repair orders to check the amount of labor time charged to the customer. I start seeing jobs such as Replace front brake pads and remachine front brake rotors, with labor charged at ½ hour. Or I see Tune-Up, 1 hour. On the repair order I can see that the shop performed a tuneup, including valve adjustment, all for one hour of labor. Most of the time, shops do not use their parts and labor guides to determine labor. I was once a technician, so I know how much time these jobs should take. When I was wrenching, it took me only an hour to do this job. Everybody else charges book time, and so should you. If your technicians are not as qualified as you want them, get them trained. Less qualified technicians have lower productivity, so you need to charge book time to have a fighting chance to become profitable. Besides, you need the added labor time to help pay for training. How can anyone truly know how much time these jobs should take? I specialize in just a few makes of cars, and I would never guess a labor time, and yes, I am a master technician. If you were a technician once, what was your actual productivity? Cars were much easier to service and repair when you were a technician, right? Look how complicated today s vehicles are. It takes a new breed of technician to truly understand and excel at repairing today s vehicles. Not everyone can be as motivated as you were. Do not give your labor away Further inspection of the shops I visit and consult reveals that there are enough No Charges given away by the shop owner or manager to account for one to two hours of billable labor for each technician every day. If 4

5 each hour of labor given away is $60, and you give one hour away per day, times 21 working days a month (five-day workweek), that amounts to $1,260 per month. I keep hearing how giving labor away is good PR, and I do agree. However, PR stands for Profit Reduction. (I think it s only fair that if you re going to give labor away, don t take the labor away when you measure your technicians productivity.) Let s say your shop has a 10 percent net profit and you want to give $100 worth of repairs away. How much in sales do you have to generate to get your $100 back? Believe it or not, you have to generate another $1000 to have a net profit of 10 percent or $100. In reality, you never get that $100 back. You need to generate $1000 in sales with a net profit of 20 percent to get the money back you gave away, because the next $1000 of sales should be giving you the 10 percent you need to double your profit to gain another $100. What the mass merchandisers do is give, for example, $100 off, knowing any upsells are going to be at more labor time than book time and the parts mark-up will be much higher than normal. We ve all seen the repair orders from the mass merchandisers that gave away a free inspection and we see that they charge much more than we do on the actual repairs. Help your technicians become productive We have never been taught how to be productive. To most, being productive means working harder. Being productive actually means being more efficient with your time. You will find that some technicians do not have a clue about how to become more productive. Take the time to watch your technicians to see if they re inefficient with their time. Naturally, a small portion of their time will be wasted, but if there s a lot of wasted time, it s a result of the shop not setting and practicing good procedures. Such as not having the technicians work area laid out correctly. Even a well laid-out toolbox can help productivity. Most of the time, it s the technicians thought process that needs work. You need to look at your repair orders and develop a plan of attack on how your technicians should proceed with each job. Figure out how they can save time, for instance, if they make sure they do everything they can when the car is up in the air. There are many items on a repair that can be done more efficiently if they re done in conjunction (as a group), versus doing each item by itself. I ve seen technicians check brakes and rotate tires, then put the wheels back on and then realize they have to bleed the brakes. Here s another example: On some Honda Accords, the fuel filter is next to the left-rear tire. If you replace the fuel filter when the tire is off, it s much faster and easier. If you wait to have the car all the way up in the air and you replace the fuel filter, you now have gasoline running down your arm (and we ve all had that burning sensation in our armpits from gasoline). Being more productive, in most cases, doesn t mean working harder, but getting more work done. You and I both know we are more efficient either working on cars or working in our office when our area is clean and everything gets put back in its place. Technicians must learn that it s worth the extra time to put their tools away before they start their next job. Otherwise, they re just fighting themselves on every job. Many technicians just try too hard. I remember NASCAR driver Darrell Waltrip once saying, Sometimes to go faster, you have to slow down. What he meant regarding racecar drivers can also apply to shop technicians, who need to make every step count. They must take more time to think about what they re doing 5

6 now and what they re going to be doing next. To figure out, now, how what they re currently doing on a car can be incorporated into the next item. Such as, if they re moving to the right-front fender of a car to, let s say, adjust the valves, they should keep in mind that the battery is there as well, and they ll need to clean the battery cables. It is more efficient for the technicians to bring all the tools they need to the right-front fender and perform the valve adjustment and immediately after, perform the battery service. Technically, a technician should only have to travel to each part of a vehicle only once, in most cases. If they move back and forth to the same region many times, what repair or service steps are missed along the way? Technicians must learn what steps are missed, and next time, they ll be more efficient, plus they ll have a less-likely chance of having a comeback because they missed something. Comebacks How you handle comebacks can greatly affect productivity. For an example, let s say you have to discipline a technician because the technician forgot to do one line of labor, again. You tell the technician that if he forgets to do any part of the repair order he ll lose his job. Not only is this technician worried, but all the other technicians are as well. So, now they perform each labor line one at a time. The car goes up on the hoist and the oil and filter is changed, and the car comes down. Next, the tires are rotated; and the car goes up in the air again. Next, the brakes are checked; and the wheels come off a second time. All because the technicians now think the only way they ll get fired is if they forget to do everything on the repair order. But the fact is, they may now lose their job for being so unproductive! The solution here, after the comeback, was to make sure each technician put his name or technician number next to each labor line before he turned in his repair order. Do this as a policy change and not as part of disciplining your technicians. (Remember: Keep morale and productivity up.) Here s an example of a problem, and the solution that I would use at my shop. Let s say a technician forgets to tighten the oil-pan drain plug. The vehicle comes back with either an oil leak or a seized engine, right? Your first reaction is to confront the technician. Not only is the technician who worked on the car waiting for this, but the other technicians are as well. They are all worried on how you will react. If you discipline one technician, you re actually disciplining all the technicians. So you must proceed with caution, because you don t want shop productivity to suffer. I view most comebacks as the result of a lack of proper procedures. In this case, of the loose drain plug, I would go to the technician with another oil change. I want to watch his procedure when he performs an oil change, so I tell the technician, Let s change the oil and filter in this car. I watch the oil being drained and the oil filter being replaced. Next, the technician installs the drain plug and walks to his toolbox for the wrench. Right then and there I say, Stop! Here is your procedure problem you never install a drain plug unless you have the wrench in your hand. What happened on your comeback was, you got distracted at this point and never went to grab the wrench to tighten the drain plug. Do you now see what happened? Will you make this mistake again? We all make mistakes, and I ve even been known to make mistakes. If we don t learn from our mistakes, we ll keep making the same mistakes over and over again. Will you make this same mistake again? The technician replies, No never. I say, If you do, what should I do? 6

7 He replies, You should fire me. I say, But now that you ve learned from your mistake, we have nothing to worry about, right? He replies, No, we don t. I say, Well, I guess it s time to go back to work isn t it. And don t worry about your mistake mistakes happen. What is the morale of the shop and every technician? They ve all learned something about procedures and something about me. They ll be more relaxed, and productivity will actually increase. Another example of discipline is a technician getting too many phone calls. This very problem was happening with one of my technicians. One day, I went out to the technician s toolbox with a tape measure. I began measuring the distance from the back wall to his toolbox and to the ceiling, all the while the technician is watching and wondering what in the heck I m doing. The technician finally asked, Art, what are you doing? I then told him, I m calculating how much phone line I need to install your own phone extension on your toolbox since you re getting so many personal phone calls. Everyone in the shop had a good laugh and the technician got the point without me being the bad guy. One last example of discipline is a technician who always comes in late. One of my technicians, habitually tardy, arrived late yet again one day to see me pounding on the time-clock. My technician walked up and wanted to know why I m beating on the time-clock. I told him, Well, the time-clock keeps saying, You re late, but that can t be true, can it? As you can see, I like being one of the guys however, at my shop, everyone knows I m in charge and I know everything that s going on. Purchase and use a time-clock How can technicians become more productive if they have no way of measuring their productivity, job by job? How can your technicians become more productive on, let s say, a clutch job? If your technicians have no idea how much time their last clutch job took, and have no idea how long their next clutch job should take, how can they measure any time, or save time from the first clutch job to the next? I have found that becoming more productive is about the changing of procedures. Once you realize you did not reach your goal of beating flat rate on the clutch job, what are you going to do differently next time to try to save time, even if you have to talk to your technician right after the job to ask him what he would do differently next time to save time? Remember, it s not about working harder it s about working smarter. If you would like to purchase a time-clock, get the time clock with military time in tenths of an hour. You can order the time clock in the picture from: ACTION TIME CLOCK E. Park St. Cerritos, CA

8 How many times did the car go up in the air during the clutch job? Did the car go up and down too many times because the technician forgot to remove a bolt from under the hood? Did the entire exhaust system have to come off, or just be removed from the exhaust manifold and tied up to the side, out of the way? Were bolts broken off the exhaust manifold because the technician didn t take the time to use a penetrating oil to loosen the bolts? Did the technician fail to drain the transmission oil before removing the transmission and now the oil has leaked out and the technician is wasting time cleaning up the mess? Did he or the shop not have the correct tools? You can find a dozen different ways that time was wasted, even though the technician was working as hard as he could. You ll also find that each of those dozen different things that wasted time each could have saved a tenth of an hour, or 1.2 hours total on the clutch job. You will never realize all of this without a time-clock. A time-clock used correctly makes you more money than any piece of equipment you have or will ever purchase. Getting technicians to use the time-clock One of the main reasons why shops do not use the time-clocks they have is because technicians aren t too keen on the idea. Why should technicians want to use a time-clock? They may think that if you can really see how unproductive they are, you may fire them. Or, maybe if they re really productive on one job (possibly because everything came together and it was an easy job), you may expect them to be that productive on every job. They also think you ll expect them to work harder than they are, and believe me, they think they re working as hard as they can. You really can t blame the technicians for not wanting to use the timeclock. Everything is okay right now, so why should anything be changed? What is the problem? Are you not selling enough labor time, or are the technicians not productive? Both are your problem? You need the technicians to help you by using the time-clock to show you if you are charging enough labor on each job. (How else will you know if you re charging enough diagnostic labor time without a time-clock?) What I do during consulting is to talk to the office staff and the technicians separately. I go to each technician and explain to him that I am there to make everyone s job easier. I say, I think you, the technicians, are working too hard. Of course, they agree. I tell them, What I see so far is the office not charging enough labor time on many jobs, and this is why productivity is so low. Now they know how brilliant I am. I am now their friend. I then ask the technicians, How can we solve the problem. Of course they say, Charge more time. But how much time is too much? And how much will cause us to lose customers? (The best way to make sure we charge enough labor time is to charge the amount of time the job really takes.) 8

9 They agree, telling me how some jobs just take longer than others. Then, it s my job to convince the technicians that the only way the office can determine how much time a job really takes is to use a timeclock. All of a sudden I am not their friend. I then assure them that there is no ulterior motive to use the timeclock, such as it being used to fire anyone. I tell the technicians, But until we can measure how long every job takes, how will we ever know how much time we should charge? Are the labor guides always correct? No! Do you know the office is only charging a half hour for a front brake job? They didn t know any better. That s what they ve always charged and they never realized the labor guide says the job should take 2.5 hours. Do you all now see the reason for the time-clock? They always agree. They may not be happy about it, but at least they realize they need to use the time-clock. I then show them how to properly use the time-clock and the time-cards. How they punch OFF the job on the time-card and then immediately punch ON to the next time-card flag. This way the shop can see every minute of every job. The technicians see that it s not that hard to punch off one job and then go to the next job. They learn that the time-cards have three copies and the technicians are supposed to peel off the label with the amount of time on that flag and put it on the repair order. I tell them, You may have 10 or more time-card flags on one repair order, but the sum of the time on all the time-card flags is the amount of time you spent on the job. Just because you spent more time on the job than we quoted for doesn t mean we can charge the customer more labor. From this information, though, next time we will charge more labor time. If you do more work than the job called for, you need to tell the service writer so he or she can call the customer and get more labor time. For example: if the bolt on the exhaust flange to the exhaust manifold does break, even though you used penetrating oil, we should charge extra labor time. We didn t cause the bolts to rust over the years; and it s not our fault if rusty bolts break. If seals, such as the front or rear transmission seals are leaking, we need to charge extra labor time. If you look in the labor guide, it always shows you extra labor time to replace items such as seals, etc. You ll also notice you need to charge extra labor to remove the flywheel, remachine the flywheel, and to replace the rear main seal. As technicians, you need to look at the labor times to make sure enough time is being charged. I always ask the technicians, How can you prove how productive you really are? Without a time-clock you can t. I then look at their work areas, their toolboxes, the air hoses, and the shop equipment. I watch them performing repairs and I point out ways they can save time and not work as hard. While following some of their jobs, I see a technician check the brakes, put the wheels back on the car and park the car. He then writes on the repair order, Needs brakes. Why did he not report to the service writer that the car needs brakes? The technician s response is, The repair order said to check the brakes, not replace them. I then point out how much labor time he wasted and how he needs to report to the service writer and give an accurate report as to what s needed so the service writer can sell the job while the wheels are still off. I show the technicians it would save them a half hour, which only makes their productivity go up. But then I ve noticed technicians coming back to the office and saying, The car only needs front brakes. The technician needs to report the condition of the calipers, rotors, brake hoses, master cylinder, and rear brakes. 9

10 I tell him, As a technician, you need the office to sell everything that s needed. And you can t start the repairs and then have to stop and tell the service writer that the shop also needs to do this or that. It wastes your time and the service writer s time. Next, I explain that they need to help sell more work, if needed, on every car. I was at a shop and followed one job: the replacement of a thermostat. Not only did it take twice as long as it should, but when the technician turned in the repair order I had to stop everyone and say, Time out! Why didn t you tell the service writer the timing chain is so noisy that it may break at any moment? The technician replies, Well, the repair order didn t say to listen for any noises. At that moment, I realized it was time to stop the entire shop and have a meeting. Not reporting everything that s wrong with a car to the service writer does not help the shop or the customers. If the timing chain were to break on the customer s way home, the customer would have blamed the shop, of course. Here, we let a thousand-dollar job leave the shop and we re complaining how business is slow. If the customer declined to have the timing chain repaired, then fine. But if it breaks on the way home, we would not be the bad guys. Every technician started thinking of all the jobs that got away because he didn t tell anyone that the car needed more repairs. Everyone understood that if the shop sold the extra work, the technicians productivity would go up. The next day, every technician arrived at work early, ready to use the time-clock. They know they have everything to gain and nothing to lose by using the time-clock and time-cards. Remember, if you start using a time-clock for the above reasons, do not use the time-clock as an excuse for letting your least-productive technician go. The rest of the technicians will never want to use the time-clock again. How can you blame them? Service writers Everything I gained with the technicians is wasted if the office doesn t do something with this newfound information. First, I need to know how jobs are quoted, such as a front-brake job. I say, How did you come up this price? It s a competitive price, replies the service writer. I say, How much labor time are other shops charging? What exactly are they doing for the labor charge? Are you doing more than them? What quality parts are they using? What is their warranty? So, you re doing more, using higher-quality parts, and have a longer warranty, but you re charging the same amount? The service writer replies, We ll lose jobs if we re not competitive. I say, What if the other shops want to raise their prices, but they realize you still charge the same amount? But all of this doesn t really matter your labor cost is higher, and you have more benefits than the other shop. You need to sell the customer on why you charge more and why it is a benefit to the customer. (I go into Service Writing and Selling in a later chapter. 10

11 What we need to do next Use the time-clock and time-cards as I described above. Use your labor guide on every job. Measure the labor time on every job. If the labor time spent on a job is excessive, stop and ask why? Did we not charge enough labor time? Did we not have the correct tools or equipment? Did we have to wait for parts or for authorization and we didn t have another job lined up for the technician? Was the technician not trained for the job? Find the problem now and fix it. Do not make the same mistakes over and over again. If you do, don t blame the technicians. We need to learn something new every hour of every day. Otherwise, you ll be like the technician with 20 years of experience. The technician learned all he was ever going to learn in the first year. So this technician only has one year of experience, repeated over and over for 19 more years. We want 40 years of new experience in those same 20 years. Are you working on your first year of experience? You can teach an old dog new tricks. The final chapter in this book is Business Planning/Goal Setting/Projections. You should, at this very moment, write down that you re purchasing a time-clock and time-cards, and use them as explained in this chapter. 11

12 Chapter 2 Increasing Parts Profit M ost shops think of increasing parts profit as getting a lower price on their parts purchases, or charging the customer a higher price for parts. Of course, both of these methods are correct, but I have found in the multitude of shops I consult that they have already done this and still, their endof-the-month parts profit is much lower than the percentage of profit they make on each part. Why? Because, of the many parts that get put into vehicles during the repair and service process, lots of parts never get listed on the repair order. I ve seen one shop, for instance, make around 40 percent profits on its parts, on average. This shop sold for the year $250,000 worth of parts; and their costs for the year were $275,000! Yes, that s right that their parts costs was higher than their parts sold, and their parts inventory value did not go up. Do you think a few parts, ones that were not charged for, made it into the customers vehicles and not onto the repair order? This shop s parts profit should have been $200,000, but they lost $25,000. Here s how you should manage your parts purchases, inventory, and parts mark-up to your greatest advantage: We have three problems to correct in most cases: 1. Not all the parts are getting onto the repair order. 2. We need to modify the way we mark up our parts. 3. We need better inventory control (at most shops, this means some, or any, inventory control). Making sure all the parts get onto the repair order Here I see several potential problems: 1. Technicians pulling their own parts from inventory. Every one of us has worked on a car and forgotten to list all the parts on the repair order. I ve done this and so have you (it s easy to do). How do we prevent it? 2. First, never allow technicians to pull their own parts. Their job is repairing cars, not pulling or looking up parts. At my shop, every part is pulled and labeled with the customer s name before the technician gets the job. In most cases, we put all the parts on the technician s toolbox as the technician is pulling into his stall. How much time is being wasted each day if the technicians have to look up the parts and pull their own parts? That s the service writer s or parts person s job, plain and simple. 3. All the parts included on the estimate should be listed with part numbers. Only the parts listed should be used. If the technician needs more parts, he or she should tell the service writer so the service writer can determine if more labor time is needed or if the customer needs to be called with a revised estimate. Not only are we selling more parts, but more labor as well. 4. What if you don t have much of an inventory and you order most or all your parts by the job? When you call the parts store or warehouse, only order parts for one job at a time. Give the repair order number as a purchase order number. If you re ordering parts for three cars, you want three parts invoices. While you re ordering parts, get the parts numbers and the parts costs on all parts and put them on the repair order right away. When the parts arrive, you ll know which parts invoices go with 12

13 which repair order numbers. Recheck to make sure all the parts made it onto the repair order. Then staple the parts invoice to your copy of the repair order. This way, either you the owner or the bookkeeper can recheck to make sure all parts made it onto the repair order after the job was done and paid for. If not all the parts were put on the repair order; it is time to find out why not! The service writer should initial the parts invoice, stating that he or she listed all the parts on the repair order. This is a simple task that saves you lots of money in the end. Make this a policy at your shop and if someone doesn t do his job, stop and ask him why and make sure he doesn t do it again (especially if you catch him forgetting to charge for a part that s installed on a vehicle.) Again, you don t have to yell or get upset. Show why you have procedures, and explain to your employees that the shop loses money when procedures aren t followed. We have to learn from our mistakes. 5. During diagnostic jobs, such as a drivability problem, it is easy for technicians to keep pulling parts from inventory in an attempt to repair the car. Here, they don t want to admit they are struggling. So they put parts on and may not take the parts off that didn t solve the problem. They don t want to admit to all the parts they put on the vehicle to solve the drivability problem. If you knew how many parts they changed, you would wonder about their diagnostic abilities. So, without admitting any guilt, they may forget to mention all the parts they used. In effect, some parts left your inventory and you lost money. I have to wonder how much labor time was spent changing all those parts? (Refer to Chapter 1 Increasing Shop Productivity regarding time-clocks.) Marking up parts How do you mark up your parts? Do you use suggested list price? Or do you have a way of marking up all parts? 1. Suggested list price is exactly what it states, suggested list price. All prices are based on the shop that sells them. You may not think you can charge more than what the car dealers say is list price, but you probably have no choice to charge more. Most car dealers charge their service customer more than list price. Take the time to call your local car dealer and get a price on an item, say, a throttle position sensor. Acting as a customer, call the service department and get a price quote for the replacement of this throttle position sensor. Ask for the labor price and the parts price. Most car dealers are getting percent over list price. Why? You ll find out later in Chapter 3 Understanding the Numbers of Your Business that they have no choice. Their service department, just like yours, cannot make a profit on labor only. Our expenses are too high. Our overhead eats up all our labor profit and most of our parts profit. Take a look at your shop s Profit & Loss statement. Look at your shop s parts profit. Now compare it to your net profit. Your parts profit is probably twice as big as your net profit. (We are surviving on our parts profit.) Every shop should be making at least 40 percent parts profit percentage every month. If not, why not? 2. Marking up parts. A part costs us $10.00 and we charge the customer $ What percentage of profit did we make on this part? Did we make 100 percent or 50 percent? We marked up the part 100 percent, but we only made 50 percent parts profit percentage. If you think you made 100 percent, what then if you wanted to give a 50 percent discount. Twenty dollars times 50 percent equals $10.00, your cost. How can you make 100 percent profit on a part? What mark-up percentage would you have to use? Think about it. There are only two ways to make 100 percent profit on a part. a. You charged the customer for a part and you never purchased the part or put the part on the vehicle. You charged for the part and had no cost. Of course this is illegal. Even if the part you needed fell out of the sky at your feet, you still had a cost to put the part in inventory, etc. b. There is only one legal way to make 100 percent profit on a part, and I do this at my shop every once in a while. I order a part for a customer, and they pay me for the part. They never 13

14 got the part because they moved away or never came back for whatever reason, even though we tried to contact the customer. Now we have a part we can sell and we have no cost. Not only do we not have any cost, but we can make a profit twice on this part. 3. Parts profit percentage. From now on, you have to forget the words mark up and replace them with parts profit percentage. Instead of marking up a part 100 percent, let us say, we make 50 percent parts profit percentage. When you look at your Profit & Loss statement you can only calculate the parts profit percentage, not the mark-up figure you used. In Chapter 3 Understanding the Numbers of Your Business you ll see how important the parts profit percentage is in relationship to your shop s gross profit and net profit. 4. How do we purchase parts. Many shops mark up their parts the same, such as doubling their cost, which is 100 percent mark-up or 50 percent parts profit percentage. This will give you a 50 percent parts profit percentage at the end of the month. But did you cheat yourself? Let s examine who we purchase our parts from: a. New car dealer b. Parts store c. Warehouse distributor It would be great if we could purchase a cylinder head from the dealer for $1, and charge the customer $2, to make 50 percent parts profit percentage. As you can imagine, this may be rather difficult. But if you purchased a part from a warehouse for $10.00 and charged the customer $20.00, you cheated yourself. I know you made 50 percent parts profit percentage, but if the list price was $30.00, you lost $ It used to be a warehouse would sell a part to your parts store and make 25 percent profit. Then the parts store would make another 40 percent when it sold you the part. In this example, the warehouse purchased the part for $7.50, sold it to the parts store for $10.00, who charged you $16.70 (40 percent parts profit percentage). You then charged the customer a list price of $33.40 (50 percent parts profit percentage). So, if you purchased your part from the warehouse for the parts store s cost (jobber) and doubled your cost to sell the part for $20.00, you didn t make the profit you should have. I would have doubled the parts store s cost of $16.70 to $33.40, but purchased the part at the warehouse for $10.00, sold it for $33.40 for a parts profit percentage of 70 percent. Increased to 20 percent the parts profit percentage and added an extra $13.40 of profits to the bottom line. 5. Calculating parts profit percentage. You take the part s selling price minus part s cost to give you your parts profit. Take the parts profit divided by the selling price. In our above example we sold the part for $33.40 and had a cost of $ That s $33.40 minus $10.00 equals $23.40 parts profit. Now take $23.40 and divide it by $33.40 and this equals.7005 or 70 percent parts profit percentage. This means 70 percent of the selling price was profit. Again, we generally purchase our parts from three main sources. 1. New car dealer. 2. Parts store. 3. Warehouse distributor. All three of these should have their own way of how you calculate your parts profit and the price you charge the customer. You can use a certain percentage of profit for each source. Or you can vary the parts profit percentage by how much each part from each source costs you. It is easy to take a seal that costs you $1.00 and charge the customer $4.00 (75 percent parts profit percentage). But a new or rebuilt engine costs you $1, Are you going to charge $ more for the engine? Below is an example of how to mark up your parts by source. This is what I charge, but you probably do not have the guts to charge 14

15 as much as I do. That s because I have the reputation that allows me to charge more than other shops. Determine what works for you and modify as needed. New Car Dealer Costs between Multiply by Equals this Parts Profit Percentage $ $ % $ $ % $ $ % $ $ % $ $ % $ $ % $ $ % $ Up % Parts Store Costs between Multiply by Equals this Parts Profit Percentage $ $ % $ $ % $ $ % $ $ % $ $ % $ $ % $ $ % $ Up % Warehouse Distributor Costs between Multiply by Equals this Parts Profit Percentage $ $ % $ $ % $ $ % $ $ % $ $ % $ $ % $ $ % $ Up % Inventory control or is it Inventory Out of Control Most of you have computer systems that should track your inventory, but then again, most of you probably don t use the inventory programs you have. Remember, we are living off our parts profit, and if we do not know how much a part costs us on our parts shelves, who do we blame if we do not charge the customer 15

16 enough for the part? There is no excuse for not having your entire inventory in your computer system. The entire inventory should be corrected when we sell parts on our repair orders and when we place stock orders for parts. I remember the day I took some wiper blades from my parts room and put them on my car. Fifteen minutes later my parts person wanted to know how our wiper blade inventory got off. I was busted. I am sure he saw me do it, and he made me an example of how no one messes with his inventory and gets away with it. This is what I expect from my employees. When our inventory is under control, life is much easier. We are more productive. Our parts profit percentages are always higher. If you do not have a computer system to track your costs, do what I used to do before the days of computers. (Yes, I am that old.) We would put our cost on every part. We would not use a dollar sign and we would put the number 9 before the price and the number 2 after the price. For example, you would see on a part. My cost was $10.55, but if I sold the part over-the-counter to a customer, he or she had no idea what the number meant. Actually, forget this! Just get a computer system with the best shop management system you can buy. This is, after all, the 21 st century. Rebuilt parts Parts that have been rebuilt are always a hassle for returns if the parts fail within their warranty period. My computer system stores the purchase date, part number, plus vendor name and vendor invoice number. I used to make a copy of each invoice for each rebuilt part we purchased. Then I would attach that copy to our shop copy of the customer invoice. So, if nine months from now the part failed, I just had to go to the customer s file to retrieve the parts invoice copy to return the part. Of course, this is much easier than having to go through all the old parts invoices. Our parts profit is the lifeblood of our shops. We all need a certain amount of inventory in our shops. However, with faster deliveries of parts we need smaller inventories than ever before. Every manufacturer uses just-in-time parts ordering. This means a company, like General Motors, only has enough parts at any one time to keep its assembly lines going for only 45 minutes. The company receives its parts all day long as needed. This saves GM millions in inventory costs. I only stock the parts I know I may need in less than 30 minutes, such as spark plugs, filters, service parts, brake pads, and brake shoes, etc. Do I stock clutches? No way. I have more than an hour before we ll have the transmission out. I have a $50,000 inventory and I sell $50,000 of parts per month. Not that I sell every part every month, but most of them. I do stock one of a lot of parts. And when I use that one, my computer is ready for a below-stock report, which we do two or more times a day. We can check every part in our sales history to see how often we have sold that part. If we don t sell at least one per month, we change our stocking level to 0. My computer also tells me what parts we keep adding to repair orders that aren t in inventory to tell us if we should consider stocking that part. It is a lot of work getting your inventory into your computer system. But it s an investment you make in both your computer system and in inventory. You have to make them both pay for themselves in any way you can. Take the time to get your inventory under control and take the time to keep it under control. If you re planning on incorporating your inventory into your shop management system, this should be added to your business plan, with the date you expect your entire inventory to be entered into your computer system. If you don t have a computer system, I feel real sorry for you. That s because you don t know how much harder you re working. Part of your business plan should include finding a great computer system. Start asking other shops what shop management system they use. Ask them if they would purchase the same system over again if they had to. 16

17 Chapter 3 Understanding the Numbers of Your Business B usiness is a game of numbers, and you will never reach the level of success you deserve unless you know how to interpret the numbers of your business. You don t have to become an accountant to understand the basic numbers of your business. In fact, there are only a few numbers you need to understand. If you don t have a great accountant, and if you don t get a Profit & Loss statement every month, then you should start today. Your bookkeeping should be computerized. Most shop management systems have bookkeeping functions built in. Learn your system and use it. Every day of every month, you need to make the numbers of your business come out the way you want and need them to. You can t wait another year to realize that you didn t make the profits you needed to efficiently run your business and life. You need to know how much profit you are going to make this year and you need to know what to do to make the profit you deserve. The basic numbers you must understand are productivity percentage, parts profit percentage, gross profit percentage, total expenses percentage, and net profit percentage. Here s how to calculate and understand the numbers of your business the numbers that will quickly give you the financial rewards you deserve: Before we can figure out where we want to be, we first have to determine where we are. To do this, we need a Profit & Loss statement. Every shop has to have one each year just for their income taxes regarding the business. If you do not have a Profit & Loss statement, call the accountant who did your taxes for last year. We are going to make calculations from these numbers, we can t guess, unless you have absolutely no choice. If this is the case, find an accountant today! You can call other shops to find out which accountant they use and see what that accountant does for them to make sure you ll be getting the help you need. Find a Profit & Loss statement from the end of a year, or use year-to-date numbers to give you an average of many months. One month, either good or bad, is not what you do, on the average. If the numbers you re going to be using are for several months, then divide all the numbers by the number of months the Profit & Loss statement is representing. We are looking for average numbers for an average month. Every Profit & Loss statement differs greatly, so try to determine the numbers as needed from your Profit & Loss statement. You should see groups of numbers such as total sales, cost of sales, gross profit, expenses, and net profit. Total sales Total sales should be your labor sales, parts sales, sublet sales, discounts, shop supplies, hazardous wastes, etc. Cost of sales This should show your technicians labor costs, parts costs, sublet costs, etc. Our main focus again is the labor costs and parts costs. 17

18 Gross profit Gross profit is your total sales minus the total cost of sales. Expenses You know what they are. Net profit The first number we look at. (The number that s never large enough!) Total sales For our purposes, we are most interested in labor and parts sales. If your Profit & Loss statement does not separate the labor and parts sales, stop, and call your accountant or bookkeeper. If you have access to those numbers, let s proceed. We need to know the labor sales to determine productivity, and we need parts sales to determine parts profit and parts profit percentages. If you sell tires or gasoline, you need to remove those numbers from the total sales for now. If possible we need to see only the labor generated by your technicians. If you, as an owner, work on cars and if you can separate your labor sales, then great, if not, we can work around it. Look closely at your sublet totals and make sure they are not part of labor sales or parts sales. Again, we are trying to find the actual labor sold by your technicians for calculating productivity. If you sell items such as rebuilt transmissions as a unit, but you actually rebuilt the transmission and sold it as a part, try to separate the parts and labor if you can. If you sell items like this as a unit or part, you should write a repair order on every transmission to track the parts and labor time. How will you ever know if you made a profit on the rebuilt unit or part? Owner technician If you have any technicians, and, as an owner you work on cars (as is the case with most shops), and if you cannot determine how much labor you produced, then try to guess how much labor you produce on an average month. Then subtract this labor amount from labor sold. Again, we are more interested in the technicians productivity. You already know how unproductive you can be when you re trying to run the shop and work on cars. I remember the day my technicians pushed my toolbox outside and blockaded it. I stopped working on cars and productivity went up and comebacks were reduced. I also became a better service writer and manager of my business. Once you ve determined how much labor and parts were sold for an average month, go to page ### and start entering labor and parts sales, (lines # s 1-7). If you have good numbers for sublet sales, shop supplies, and hazardous wastes, then note them as well. If not, our main focus is labor and parts sales. Cost of sales Labor cost: We need to know what the technicians labor cost was for this period. If your Profit & Loss statement does not show this number, then call your accountant or look at payroll records. This is mainly for shops that pay their technicians by the hour. If you pay your technicians by flat rate (so much per hour sold), or by commission (percentage of labor sold), you may be able to calculate those numbers yourself. If you can get exact numbers, all the better. (It would be great if you have the amount of hours your technicians worked for the period of the Profit & Loss statement we re using.) 18

19 Owner/technician As with the labor sales, if you have any technicians, use only the labor/technician costs of the technicians. If you only have one technician and if you are able to separate your labor produced from labor sales, then all you need is the cost of your technician for this period. If you cannot separate your labor produced, this is okay. But you need to guess how many hours per month, on average, you think you actually work on cars. Try to guess on the high side. Once you determine how many hours per day you work on cars, multiply by the average number of days worked per month. Once you have this number, determine how much per hour it would cost you per hour for a technician with your skills (if you could possibly find one). Try to use the honest labor-per-hour costs of a master technician if you are at that skill level. We are only trying to determine your shop s labor costs if you were paid like a technician. Sublet, shop supplies, and hazardous materials costs We actually need the costs of any item you show in total sales, such as tires, gasoline, car sales, etc. If you sell tires, gasoline, or cars, you need to know if you are making a profit on those profit centers. If you sell cars and your shop is putting on parts, and if you do not have a repair order to show all your costs, the numbers we re trying to determine won t be accurate. If your Profit & Loss statement shows costs of sublet, shop supplies, or hazardous materials, but they are not separated out of the total sales, we need to again call the accountant/bookkeeper. I look at sublet, shop supplies and hazardous materials as their own profit centers and they each should bring a profit. If you do not have the sales and costs determined, how do you know if you are making or losing money on these items. Many shops actually lose money on sublet, mainly because customers don t get charged for sublet. Once you have determined your sublet, shop supplies, and hazardous materials if any, then note them on sublet costs, line #10, hazardous materials, line #11, and so on. Expenses The most-hated word in business. Expenses should be all your other costs other than technicians, parts, sublets, shop supplies, hazardous materials, tires, gasoline, and car sales costs as it applies. This should include rent (or shop payments), insurances, office staff, clean-up employees, parts runners, office supplies, phones, utilities, etc. Corporations Your salary as an employee of the corporation comes out in expenses as officers salaries. For this exercise, take out all the officers salaries from the expenses, page #xxx line #17. If you are a technician, then you should have determined your costs, as stated above. Once you have this number, then note it on page #xxx, line #8, as added labor cost. Now we should have all the numbers we need for this exercise. These number changes are only for this exercise so we can compare our profits as a sole proprietor. I will explain more about this later. Total sales Regarding total sales, we are only interested in the total labor sold and parts sold. Now add both those numbers and put the total on total sales, line #7. If you have other numbers in both sales and costs, you can add them as well, but only if you have both the sales and costs for each item. Cost of sales 19

20 Again, only the calculated labor/technicians costs and parts costs will be used, unless you have other numbers, as stated above. Now add your total costs of sales as it applies on line #14. Let s make our first calculation for productivity: Take your total labor sold, line #1 and also enter this number on labor sales, line #22. Now divide labor sales, line #22 by your labor rate, line #23, or your average labor rate if you changed your labor rate during the period these numbers are from. If you have multiple labor rates, then determine what you think your average labor rate is. Enter this number on labor rate, line #23. Line #24, hours sold, is the number of hours you sold for the period of which we are using numbers. For a quick calculation, calculate how many hours all your technicians work in a month and add them together with the number of hours you, as an owner, work on cars in an average month. Enter this as hours available, line #25. Then multiply this number by your labor rate or average labor rate and enter this on labor rate, line #28, projected labor sales at 100%, is the projected labor sales at 100 percent productivity. One line 29, projected labor sales increase, take your projected labor sales, line #28 and subtract your current labor sales on line #22. This is how much labor your shop would increase if you were 100 percent productive. Hopefully this got your attention. Next we need to determine how many hours our technicians worked for our average month. Again, as an owner/technician, add your labor hours here as well. On line #26, hours worked, enter number of hours worked. Try to make these numbers as accurate as possible. Productivity Try to determine how many hours were worked for the period we re using numbers from. If you pay by the hour, you should be able to come up with the number of hours the technicians worked. If you are an owner/technician, add up the number of hours you think you worked on cars. Enter the number of hours worked on hours worked, line #26. If you do not have the number of hours worked by the technicians, take the number of hours available, line #25. Use either hours worked, line #26, or hours available, line #25. Take the number of hours sold on line #24 and divide it by the number of hours worked, line #26 (or hours available, line #25). Example: 250 hours sold divided by 500 hours available/worked. Two-hundred-and-fifty divided by 500 equals.50 or 50 percent productivity. Enter this number as productivity, line #27. The average productivity in our industry is 65 percent or 5.3 hours sold per each 8 hours worked. If your technicians are working eight hours and only producing 5.3 hours of customers billable labor, you have plenty of room for improvement. Do not start taking it out on your technicians (yet). We have a lot of work to do to determine why your numbers are what they are, so hang in there. Parts profit Take your total parts sold, line #2 and place the number on parts sales, line #30. Now take your parts costs, line #9, and place that number on parts costs, line #31. Now subtract your parts costs, line #31, from your parts sales, line #30. Enter this number on line #32 as your parts profit for your average month. Parts profit percentage Take your parts profit, line #32, and divide it by line #30, the parts sales. Example: A parts profit of $5,000 divided by $15,000 in parts sales equals.33 or 33 percent parts profit percentage. Enter this number on parts profit percentage, line #33. This is not parts mark-up, but actual parts profit percentage. In increasing parts profit, you can see the difference of parts profit percentage and parts mark-up. 20

21 Before you lose your temper, you must determine why your parts profit percentage is lower than what you think it should be. Today, shops need at least an average of 40 percent parts profit or higher. Gross profit Gross profit is your total sales minus your total cost of sales. On page #xxx, you have the numbers to make this calculation. Take the total sales, line #7, and subtract total costs of sales, line #14, and enter this number as gross profit on line #15. Gross profit is the profit we have from our labor and parts sales minus our costs of sales, labor, parts, etc. From the gross profit, we have to pay all our expenses, and whatever is left over is our net profit or loss for the month. Gross profit percentage Take your gross profit, line #15 and divide it by your total sales, line #7, and enter this number on line #16, gross profit percentage. Example: $10,000 in gross profit divided by $25,000 in total sales equals.40 or 40 percent gross profit percentage. Gross profit percentage is one of our most important numbers of our exercise. Total expenses and total expenses percentage Total up all your expenses (all expenses other than labor, parts, sublet, hazardous materials costs, etc.) and enter that number on total expenses, line #18. Now divide your total expenses by your total sales, line #7, and enter this number on line #19, total expenses percentage. Example: $12,000 in total expenses divided by $25,000 in total sales equals.48 or 48 percent total expenses percentage. Total expenses percentage is one of our most important numbers of our exercise. Net profit Take your gross profit amount, line #15, and subtract your total expenses, line #18. This is your net profit. Enter this on line #20, net profit. If your gross profit is, for example, $10,000 and your expenses is $12,000, then you lost $2,000. Bummer. Net profit percentage Now take your net profit, line #20, and divide it by your total sales, line #7. Enter this on line #21 as your net profit percentage. You can also use percentages. Take your gross profit percentage of 40 percent from our example and subtract your total expenses percentage of 48 percent and you have an eight percent loss. Hopefully, when it comes to your own numbers, you have a profit. The average net profit in our industry is only $4,000 per month, or 4.4 percent. Pretty sad, isn t it? Corporations You can see what your average net profit is without your salaries as an expense, such as shops that are sole proprietorships or partnerships. Like sole proprietorships or partnerships, you need to know the actual profit of the business before your salaries are added as an expense. What to do with the numbers we now have Productivity Ninety-nine percent of the shops I visit or consult complain that their technicians are not productive enough. But every time I analyze the shops repair orders I see the shops are not charging enough labor time for the jobs. They are not looking up labor times, or they are afraid to charge what the labor time is supposed to be to correctly do the job. If you re not charging enough labor time, how can you blame your technicians? (More on this subject later.) Go back to Chapter 1 Increasing Shop Productivity if needed. 21

22 Parts profit and parts profit percentage: Most of the time, shop owners complain that they re not getting a good enough deal from their parts suppliers. I don t care where you purchase your parts from, be it a parts store, warehouse, or the dealers. You need to mark up your parts to give you at least 40 percent parts profit percentage. Again, most of the time the reason parts profit is too low is because so many parts are being put on cars and not being charged to the customers. Go back to Chapter 2 Increasing Parts Profit if needed. Expenses: We have spent the last two decades trying to reduce our expenses. Expenses are only going to increase. That s life. This doesn t mean we should forget about our expenses. We must consistently keep track of our expenses and know what increases we have and determine how we can modify our prices to compensate for expenses increasing. We ll go into this further in Chapter 10 Business Planning/Goal Setting/Projections. Net profit This is our gross profit minus our expenses. If our expenses are not going down, the only way we can improve our net profit is by making our gross profit larger. Sounds simple enough. This means we have to become more productive and have a higher parts profit percentage. The easiest way is to determine your gross profit percentage on every repair order. Most of your shop management systems give you this figure you just didn t know what the number meant. This process is called job costing. Job costing: First, we have to determine what our total expenses percentage is, which will go on line #19, total expenses percentage. We have to determine what net profit percentage we would like, but let s be realistic. If we have for example, a total expenses percentage of 40 percent and we want a 20 percent net profit for an example, we need a 60 percent gross profit to give us a 20 percent net profit. Again, 60 percent gross profit percentage minus 40 percent total expenses percentage equals 20 percent net profit percentage. Simple, isn t it? Now that you know what profit number you need, let s make it happen. You can make it happen. Any journey starts with one step at a time. Every day and every month we need to improve our numbers. And if not, why not? Every chapter in this book is to help you improve the bottom line. I tried to keep this book as short as possible to help you recognize and use each of the 10 keys to success, so don t stop here. We will be using these numbers in Chapter 4 Service Writing and Selling and with my Magic Formula the very next chapter. We now need to measure our gross profit percentage on every repair order. Yes, every repair order. Most shop management systems give this number on every repair order. (If not, maybe you should be looking at another shop management system.) But let me show you how you can do this manually in just a short time. We know how much labor we charged a customer on a repair order. We need to determine how much time the technician spent on the job. If you do not have a time-clock and time-cards, something we talked about in Chapter 1 Increasing Shop Productivity, you need to purchase or order them today. Even if you pay your technicians by flat rate or commission, you need to know how much time is spent in order for you to know if you charge enough labor time. Productivity First, we know we sold, let s say 1.5 hours, but the technician took 2 hours to complete the job. Productivity is time spent divided by hours sold. Example: 1.5 divided by 2 equals.75 or 75 percent productivity. 22

23 Labor costs If we know how much time the job took, we need to determine our labor costs. First, we need to determine what our technician s cost really is? Take the technician s hourly wage, flat-rate wage, or cost based on commission and add 25 percent to account for employer s contribution for withholding taxes, Worker s Compensation, vacation pay, uniforms, training, etc. For example: a $12-an-hour technician really costs you $15.00 per hour. If your technician spent two hours on a job, the labor cost is $ Parts profit We know how much we sold the parts for, but how much did the parts cost us? Your shop management system should give you this number. You can calculate your parts profit percentage and parts profit on any and all jobs. If not, if you attached the parts invoice to your copy of the repair order, you should have most of your costs of parts. Job costing Take your totaled repair order with labor, parts, sublet, etc. Subtract your total costs on the job for labor, parts, sublet, etc. This is the gross profit on the job. Now calculate your gross profit percentage by taking the gross profit divided by the total of the job. I do not include sales tax in my calculations since what you charge should also be your cost, so it s a wash (or you can add your sales tax cost in your cost of sales and leave the sales tax in the total sales if you like). What do we do now? If our gross profit percentage was 45 percent and we wanted 60 percent, what went wrong? Did we lose on productivity or parts profit? If it was productivity, was it from not charging enough labor time, or did we not have the correct shop tool, equipment, or training for the job? If so, then get the correct tools and equipment, and find the training needed for your technicians. Maybe the technician was waiting for a part or for authorization and was just waiting around. If so, find him another car to work on until you get the parts or authorization. If your shop didn t charge enough time, whether it was because of you or your service writer, solve the problem, and solve all of the problems right now. Don t make the same mistakes over and over again. If you do, you only have yourself to blame. Parts profit If you didn t make percent parts profit percentage, why? Are you not marking up your parts correctly? Did you purchase most of the parts from a dealer? Was it an engine or transmission purchase? This will show you how hard it is to make your profit goal if you install rebuilt engines or transmissions. It s why mass merchandisers usually don t replace engines or transmissions they have done the numbers. Sublet and shop supplies Should give you percent profit as well. Hazardous wastes In California, where my shop is located, we aren t supposed to make any profit on our hazardous wastes. But we have costs to store the materials, to train our staff, and to do all the paperwork. So what are our costs, really? I take everything into account when I set my prices for oil, oil filters, coolant, and brake fluid disposals. Summary Take the time to work with your accountant. Make sure your Profit & Loss statement separates the labor, parts, sublet, shop supplies, and hazardous wastes sales and costs. Each month, look at your Profit & Loss 23

24 statement and calculate your numbers as needed. Your accountant can give you most of the percentages without you having to do much. You will still have to calculate your own productivity, but most of the other numbers should be done by your accountant or bookkeeper. I personally do not like bookkeepers. I prefer a certified accountant. They have more training and they are certified. Your accountant should be your new best friend. With your accountant s help, go over the numbers we talked about and determine what your net profit and gross profit goals should be. Job cost every repair order Work with your employees and show them the numbers you need. Have shop meetings to talk about productivity, customer service, how parts are ordered and put on the repair order, and why everything is done a certain way. Find out which jobs the technicians know about that you aren t charging enough labor time for, and solve these problems. If you make the proper gross profit percentages and you keep your expenses in line, your net profit will be what you want it to be. Of course, you have to keep working on the other items in this book, such as marketing and advertising, goal setting, employee motivation and incentives, etc. Remember: Take it one step at a time. Total Sales 1 Labor Sales $ 2 Parts Sales $ 3 Sublet Sales $ 4 Hazardous Materials Sales $ 5 Other Sales $ 6 $ 7 Total Sales $ Costs of Sales 8 Labor Costs $ 9 Parts Costs $ 10 Sublet Costs $ 11 Hazardous Materials Costs $ 12 Other Costs $ 13 $ 14 Total Costs of Sales $ Gross Profit 15 Gross Profit $ 16 Gross Profit Percentage % Expenses 17 Expenses $ 24

25 18 Total Expenses $ 19 Total Expenses Percentage % Net Profit 20 Net Profit $ 21 Net Profit Percentage % Productivity 22 Labor Sales $ 23 Labor Rate $ 24 Hours Sold 25 Hours Available 26 Hours Worked 27 Productivity % 28 Projected Labor Sales at 100% Productivity 29 Projected Labor Increase Parts Profit 30 Parts Sales $ 31 Parts Costs $ 32 Parts Profit $ 33 Parts Profit Percentage % Sublet Profit 34 Sublet Sales $ 35 Sublet Costs $ 36 Sublet Profit $ 37 Sublet Profit Percentage % 25

26 N Chapter 4 Service Writing and Selling ow that you understand more about the numbers of your business such as productivity and parts profit let s make the numbers happen through service writing and selling. Much of your problem with productivity is that you don t sell enough hours. You also don t always get all the parts listed on some repair orders as well. As a service writer, you are the quarterback of your team. Any successful team needs a great quarterback. As we talk more about service writing, and then, on how to sell your services and repairs for the amount you need to reach your sales and profit goals, I will give you my Magic Formula that makes every quote and every repair order give you the correct estimate and not a penny higher or a penny lower than the exact price you need to make the exact profit you must have to reach your success. Note: Here s the first step to becoming a better service writer and shop leader: Make use of Information and Shop Management Systems Understanding the customer s wants and needs All of us need to better understand the customer s true wants and needs. Do our customers really know what they need? Not very often, even though they may think they know what they need. Customers are always coming in asking for a tune-up. Why? Is their car running bad? If so, will a modern day tune-up of spark plugs solve the customer s problem? Probably not. If you do a tune-up and it doesn t solve the drivability problem, you ll have an unhappy customer who now expects you to solve the problem for free. Most of the time, the customer just thinks it s time for a tune-up. In my shop management system and in the vocabulary of my shop s office staff and technicians, there is no such term as tune-up. When is the last time car manufacturers recommended a tune-up? For any tune-up customer, I would get more information such as how many miles are on the vehicle and when was the last time the customer had a 60,000-mile or 90,000-mile type of service? Most of the time, the customer doesn t know what a service is. At my shop, we take the time to show customers our list of what their car manufacturers recommend. Once the customer understands what is needed and why it is needed, the customer will make an appointment. The customer is happy spending $400 or more on a complete service than spending their planned $50 tune-up. That s because customers know spending the money for a complete service is a much better value and is better for them and for the car now and in the long run that just wasting money on a do-nothing tune-up. If a customer comes in and demands a tune-up, I ll send him or her down the street to a tune-up shop every time. They are simply not my type of customer. Take the time to know your customers and what their true wants and needs really are. Remember: They only want what s best for them and their vehicle. Service history and vehicle inspections How can we, as service writers, advisors, or consultants, help our customers unless we know the service and repair history of their vehicles? Just as we proved in the example above, regarding performing either a tuneup or a major service for the customer, by asking some appropriate questions and doing what is honestly needed, we can save the customer time and money. When one of our customers comes in for service or 26

27 repairs, the first thing we look at in our shop management system is the work we ve done on the vehicle in the past. This helps us determine what s truly needed. We ve all had customers come in 10 times for oil changes and never once do they realize they need servicing and why they need it. They ll even miss their 60,000-mile service and timing belt service. With service history, we can provide customers with full information and let them know what they need. Once they realize what is needed, it s an easy sell. Another time you need to know your customer s service history is before you sell an item. We all know what it feels like to try to sell a customer, let s say, a water pump only to have the customer reply, Didn t you just replace that? If you don t have the right answer, you look extremely unprofessional to the customer. But if you have thorough service history on a customer s vehicle, you ll know exactly when you replaced the water pump, and when it needs to be replaced again. Vehicle inspections The vehicle inspection is an important aspect of selling services. Let s imagine you sold a service instead of a tune-up. And let s say that this service also called for a vehicle inspection. The customer actually paid you to look for other items that need repair. You found that the car needs brakes, shocks, CV boots, etc. You called the customer and he said, Go ahead and repair everything. Now think, if you had instead merely done a tune-up, would you have known about the other items? Rather than providing your customer with a $50 tune-up, your shop ended up performing an $800 job and your customer is very happy. They got much more than they expected and now they have less to worry about. A major reason my shop uses vehicle inspection forms is that I want my technicians to circle or check what is needed instead of me having to decipher their handwriting. Even if the job only called for the brakes to be inspected, the vehicle inspection form still works. The technician doesn t have to check off everything on the form; only what s needed. Want to increase your sales by 20 percent? Start performing vehicle inspections every chance you get. The customers will love you for it. Servicing At my shop, percent of the work we do is routine service. Nice and easy work. It s clean, and takes a lesser-skilled technician to perform the work. Most services performed in conjunction with the vehicle inspection create more work. And most of all, it keeps customers coming in like clockwork for every service. You will find that your technician s productivity is higher on services. You parts profit is higher on services; and such parts as filters, spark plugs, etc., have very good profit margins. You ll find that your gross profit per job is higher. It s difficult to have a comeback on a service. Plus, another benefit is that you can schedule services. If most of your competitors are not performing services, and you do, you will gain customers. Servicing is the best way to steal customers from the dealerships. The hardest thing about doing services is determining precisely what a service is and what parts are needed. Again, this is why you need an information system such as ALLDATA or Mitchell s OnDemand. Telephone selling technique Our very first contact with most of our customers is through what? The telephone. That s why your telephone personality is so important. Call your shop sometime and carefully listen to how your shop answers the phone. When I call shops, I m shocked by how some shops sound when they answer the phone. If you sound rushed, bothered, gruff, or short with the customer on the phone, what do you think the odds are of the customer actually coming in? Plus, most of the time I can t even tell the name of the shop by the way the phone is answered. 27

28 Every time we answer the phone at my shop, it s, Good morning (or afternoon). Thank you for calling The Car Care Center. My name is Art (or the name of whoever picks up the phone). How may I help you? Every time we answer the phone we pause, take a breath, relax, and then answer the phone. Every person at the shop, including every technician, knows that after so many rings, he or she will stop and help answer the phones. We never pick up the phone and blurt out: Can you hold? It s always, Good morning (or afternoon). Thank you for calling The Car Care Center. My name is Art. How may I help you? The customer usually says what he or she needs and then I say, I am currently helping another customer can I please put you on hold I ll be with you in just a few moments. Even if we have to occasionally bother a technician to help the customer on the phone as soon as possible, we do it. We all hate being on hold for a long time. At my shop, if we must put a customer on hold, we at least have a great on-hold message talking about the services we offer, our warranty, and how we have a free customer shuttle to anywhere in our county, plus customer pick-up us as well. Customers on hold have learned of other services we offer, and sometimes, when they get off hold, they now want us to perform additional services for them as well. More work all because of a good on-hold message. Upsells Your phone technique really comes into effect when you have to call customers to inform them that their car needs more work. If you sound like you re not sure of yourself or don t sound confident in performing the work you re trying to get authorization for, the customer will pick up on it and not authorize the work. At my shop, when we call a customer, we sound very relaxed and professional; we have all the items worked out, in order of importance, with prices. We start off by saying, of course, who we are. We then usually say something like, When you brought your car in, we mentioned we would be performing a vehicle inspection and if we found any items that needed attention, we would call you. Well, we did find a few items you need to know about. Of course, the customer is expecting a call and is prepared for whatever you bring up. They re not thrilled you called, but they already knew that their car probably needed some extra work. Preparing an upsell Start with a well-written repair order. Get all the customer s vehicle information, including mileage and accessories. Review the vehicle service history and check the vehicle inspection report. List items by priority: 1st, 2nd, 3rd, etc. Always use the labor guide. Don t be afraid of adding time if you think it will take longer than book time. Check parts prices and availability and mark up your parts as per the guide supplied in Chapter 2 Increasing Parts Profit. Calculate all upsells individually, and with sales tax. As you can see in the chart below, I calculate each upsell item and how much the total revised estimate will be, up to that point. (Remember, every time you make quick additions or subtractions, mistakes happen.) This job started as a minor service and needed the following items: 28

29 Labor Operation Parts Labor Time Labor Sales Tax Total Revised Estimate 67,500-Mile Service $81.61 Front Pads $ $78.00 $3.74 $ Turn Rotors 2.0 $ $ Brake Total $ $ Water Pump $ $ $6.35 $ Coolant $12.35 $0.00 $0.99 $13.34 Disposal $3.75 $0.00 $0.30 $4.05 Belts (3) $42.69 $3.42 $46.11 Water Pump Total $ $ Clutch $ $ $14.92 $ R&R Flywheel.5 $30.00 $30.00 Rear Seal $ $18.00 $ Flywheel Sublet $35.00 $35.00 Clutch Total $ $1, Struts (4) $ $ $27.68 $ $1, Struts w/align 1.0 $60.00 $60.00 $1, Selling the upsell Call customer and smile while you re on the phone. If you smile, you sound more confident and it improves your mood. Explain how you performed a vehicle inspection and how you found items to bring to customer s attention. Understanding customers We all like to spend money. We just don t like anyone telling us how we have to spend our money. We like to make our own decisions regarding our money. But it s our job as shop owners, managers and service writers to honestly help customers make the correct decisions regarding their vehicle services and repairs. We never, ever sell any customer anything they do not truly need. Start with item #1 You call the customer and say, You mentioned that you thought the brakes were sounding a little noisy. You are correct about a problem you need front brake pads and need the front brake rotors remachined. The total to replace the front brake pads and to remachine the brake rotors is $ This brings your revised estimate to $ Explain why the brakes should be repaired now, versus later. If necessary, explain the possible costs if the item goes without repair, such as the brake rotors being ruined. At the end of each upsell item, tell the customer how the work can be completed today (only if you can get the repairs done today). Be sure to ask if you can proceed with the repair of that item. Then stop talking and let the customer make his or her decision. Again, be sure to ask for the sale 29

30 Fact: More than 80 percent of all salespeople fail to ask for the sale. Let s Summarize What We Did We told the customer why it s advantageous to repair the vehicle now, versus later. We told the customer of the possible future costs involved if the item goes without repair. We explained the costs of performing the repair today. And, at the end of each item in the upsell, we asked if we could proceed with the repair. Let s move to the next item on the list: You now say to the customer, We also found that your water pump is leaking. The cost for the water pump and drive belts is $ The new revised estimate is $ We can replace the water pump for you today as well. Can I go ahead and replace your water pump and belts? Now wait for customer to respond. At this point, all the customer can think is, My car needs this work, the shop has the time to repair my car, so the best choice is to say yes. You continue your conversation, The next item is we noticed your clutch is starting to slip. You have some time left on the clutch, but I prepared an estimate to replace the clutch. Cost to replace the clutch is $ This brings the estimate to $ However, we can t get the clutch replaced today. We can get it done tomorrow, if you d like. If this repair creates a transportation problem for you, we can get you a free rental car. Should we go ahead and also replace the clutch for you? The customer says, Why not, since you have my car already. And thanks for the offer of the free rental car, but I do have another car. So, now, we move to the last item on the vehicle inspection. You say to the customer, Your shocks/struts are worn and causing some time-wear. The shocks aren t dangerous and can go without replacement today, if you decide. But if you d like, we can replace the shocks/struts while we have your vehicle in the shop. The cost to replace the shocks/struts, with an alignment, is $ This brings your total and final revised estimate to $ And, this too can also be completed tomorrow. Should we go ahead and get everything done for you? Remember, wait for the customer to answer your questions. It doesn t matter if the customer says yes or no. We did our job of informing our customer of what her vehicle needed. If she decides to repair all the items, great, we ll have more work that will increase profits and productivity. If she says no, document your findings, and if she has problems down the road, she cannot blame you for not warning her. Summarize all repairs and possible problems. Confirm the revised estimate amount. Document all revisions and the revised estimate amount authorized. Confirm pick-up day and time. When done with the servicing and repairs, wash the car and pick up the customer if needed. 30

31 Image and customer perception What does a customer think of your shop s image? What is the customer s perception of you and your shop? The truth is, the image and perception that a customer has of you and your shop help determine in his or her mind how trustworthy you are, and what your knowledge and skill level are. If your shop is clean, organized, efficient, and you appear honest, trustworthy, knowledgeable and skilled, you have a much better chance to get a customer to say yes to anything you suggest his or her car needs. But if your shop is dirty and disorganized, what is the customer perception of you and your trustworthiness and skill level? Of course, probably very low. How can you and your shop project an image of higher skill level and professionalism if you look like every other shop in town? If your shop looks better than the others, your shop must be better, at least in the customer s mind. How much does it really cost to clean up your shop, do some painting, and organize both your shop and office? Magic Formula This is a formula to make every estimate give you the gross profit percentage you need to meet your profit goals. You can go back to Chapter 3 Understanding the Numbers of Your Business to determine the profit percentage you need on each job. In Chapter 2 Increasing Parts Profit we learned how to mark up parts to give us the parts profit percentage we need. We can use the same formula to give us the gross profit on repairs. First we have to determine our cost on the job. In the example below, the job took two hours and our labor cost was $25 per hour, or a total labor cost of $50. Our parts cost was $50, so our total costs for the job was $100. If we want to make 60 percent gross profit, we need to multiply our costs by 2.5. Two-and-a-half times $100 equals the $250 we need to sell the job for. Simple isn t it. Now we need to determine how much labor and parts to charge in order to give us our needed price of $250. With our parts cost of $50 (and we want to make 50 percent profit on our parts), we have to multiply our Parts Cost by 2, or $100. We want to sell the job for $250, and with parts being $100, it means we need $150 of the job to be labor. Now, to determine how many hours this is, we take the labor of $150 and divide it by the labor rate of $60 per hour. One-hundred-and-fifty dollars divided by $60 equals 2.5 hours. Yes, that is right we need to sell this 2-hour job for 2.5 hours to give us 60 percent gross profit. All you have to do is sell the job. If you don t, you ll have to be willing to settle for the profits you ve been living with. 31

32 Magic Formula: Labor Cost 2.0 X $25 = $50 Parts Cost = $50 Total Costs $50 + $50 = $100 Profit Desired 60% Cost X 2.5 = 60% Selling Price $100 X 2.5 = $250 Parts List (50% GP) $50 X 2 = $100 Labor Amount $250 - $100 = $150 Hours of Labor $150 / $60 = 2.5 Hrs Total of Job Labor Parts Total $150 + $100 = $250 Sell The Job! I have many shops call me and tell me how much they were able to increase their sales and profits by using the Magic Formula. In most cases, the first time they tried the Magic Formula they strongly felt that the customer would say No. But instead the customer said, I thought it was going to be much more go ahead and do all the repairs. We can no longer assume how much the customer is willing to spend, and try to make our estimate meet our expectation of what we think the customer can afford. I feel that if I don t charge everyone the same, I am actually cheating some customers. This is why I don t give any discounts. If I give one customer a discount, I must be overcharging everyone else. We don t have enough space here to talk about everything you need to know about Service Writing and Selling. That is why I am working on another book, such as this one, but exclusively on Service Writing. At the end of this book, you ll find information on how to order Service Writing For Fun and Profit and all the other products I have. 32

33 Chapter 5 Information and Shop Management Systems A n important aspect of service writing and selling is estimating. To estimate properly, you must never guess at any price on any job. Why should you have to, especially when there are information systems that can quickly give you parts and labor guides to provide you and your customers with complete, accurate, and more presentable estimates. You need a very good information system, such as ALLDATA or Mitchell s OnDemand. If you don t have either ALLDATA or Mitchell s OnDemand, you are fooling yourself. There is so much information available through these systems and so much information is needed each and every day for estimating both parts and labor. And if you aren t using Technician Service Bulletins (TSB s), you aren t doing a very good job for your customer, or for your technicians. Time is money in any business, and if you can save yourself time, and especially your technicians time, you can save much more than the cost of either ALLDATA or Mitchell s OnDemand. I have both systems in my shop. If one system doesn t have the information I need, the other one does. I must admit, we use ALLDATA almost 95 percent of the time, and we only use Mitchell s OnDemand if we can t find the information on ALLDATA (which is not very often). But this is merely my preference. If you do not have a shop management computer system, you ll never know what you re missing. Again, we have so much information to store and retrieve just for our customers, and it s much easier to have instant information access through a well-equipped computer system. Yes, I must admit, most shop management systems are not very good, but the good ones will certainly make your life much easier. Let me give you an example of the shop management system I use. That way, you can see how much time it saves me, plus you ll see the incredible amount of information my system utilizes and offers to my shop. First, you have to understand that the shop management system I use is not mine. (It is not currently for sale). The cost to support and sell any computer system on a national basis is enormous. So, please don t call me to find out how you can purchase the system I use, unless you have a lot of money to market and sell a system on a national basis. If so, please give me a call. Here s an example of an ideal interaction between a customer and my shop when it comes to service writing and selling (of course, my shop has a highly competent office staff that makes full use of a quality shop management system). What follows is the chain of events that begin the instant the customer contacts the shop: A customer calls on the phone for an appointment. We put the customer s name into our system. Up comes the customer s vehicle year, make, model, engine, transmission, and body style. Our system then shows us the customer history on the car so we can see what we ve done in the past to help us determine what is needed now. The customer needs a 90,000-mile service and timing belt. On the labor screen we type 90 and it lists all the labor and parts for that year, make, model, engine, transmission, and body style. Next we type entb, for engine timing belt, and again it lists all the labor and exact parts needed for the car, and recommends we also replace the drive belts. We add belt to the labor line and it lists all the belts. Note that all we typed was, 90 and entb, and belt and it gave us an exact estimate, to the penny, for the customer. The system asks which day to make the appointment on, and tells us how many hours are already 33

34 booked on each day and how many are available for each day. We type Wednesday and we re done. It took much longer to explain here what we did than it actually took to create the appointment or repair order. When the customer arrives for her appointment, the estimate is already complete. We ask the customer if there are any other items she needs, and if she says yes, we input the needed additions. The system then prints the estimate on our laser printer. The customer signs the estimate, and we have a vehicle ready to give her a ride to home or work. All this took approximately 30 to 45 seconds. Our system also prints a copy of the repair order on economical white paper for the technician (versus our more-expensive colored-paper forms we give to the customers). Now the system tells us what parts are currently out of inventory and the system asks us if we would like to fax a copy of the parts order to the vendor we purchase those parts from. If we say yes, the system creates a purchase order with the exact parts numbers we need, with the year, make, model, engine, transmission and VIN number, so if the parts supplier has any questions, it has all the information to fill our order. When the parts arrive, the system allows us to receive the parts in the system and once we verify or correct any parts prices, the system corrects inventory levels and prices. It then posts the purchase (or to our accounts receivables) and all our bookkeeper has to do is print the check at the end of the month. Our shop management system also creates a Profit & Loss statement for us. Next, we tell the system which technician we want to work on the car and it dispatches the work to that technician. The technician then punches ON to the computer (which is also our time-clock), and he starts working on the car. If the car needs added work, we go to the computer system, and add let s say, brf (front brake pads), brrtrtrn (remachine front brake rotors), dlcvbbo (driveline CV boots both outers), and instantly we have a new estimate with all parts and labor. We simply call the customer and get authorization, and give the parts to the technician, and the rest of the work is completed ahead of schedule. Once the technician is done, he automatically knows which job to do next, and he proceeds onto the next job. Because of our shop management system, our time-clock automatically knows the next job and starting time. We now can track Productivity on every job and every technician, automatically. On the repair order, we can see, to the penny, our exact costs for both labor and parts and our profit and profit percentages, automatically. To finish the repair order, all we have to do is add any recommended services or notes as needed and print the final repair order. The day after the customer picks up her car, our system prints out a nice Thank You letter for the customer. The system knows exactly when the customer s next service is due and calculates how many miles she drives per day and generates a Service Reminder letter that gets sent out two weeks 34

35 before she should be at the mileage her next service is due. The letter tells the customer when her car was in our shop last, and how many miles she should have on her car at the moment. It explains what service is due and any other recommended items needing to be performed that were listed at the last service. During all this, our system printed out below-stock reports to order and receive parts. Our system automatically corrects our inventory as parts are received and then posts the parts invoices to our accounts receivables. If during this customer s job, we determine the labor time we charged her wasn t enough or if any of the part numbers were not correct we change it in the system and every similar job from then on is corrected. My system knows every year, make, and model vehicle that shares the same labor time, labor description, and parts. So, changing the labor amount or a part on any one car changes all the labor and parts for all of the years, makes, and model cars that share exactly the same information. This is just a small part of my shop management system. You can only imagine how much time it saves my shop every day. I couldn t even visualize running a shop without a shop management system. Just ask any successful shop owner if he or she could manage their shop without a shop management system. How much time would it take you and your shop to do the tasks my system did? Don t try to tell me you can create a repair order faster without a computer system, or at least, not against my system that is. If you don t have a shop management system, start looking today. If you don t have ALLDATA or Mitchell s OnDemand, call your representative today. Be sure to ask other shop owners what they use. I love ALLDATA, but that s my preference. 35

36 M Chapter 6 Diagnostic Labor Charge ore and more, at our shops, we are diagnosing something from drivability and electrical problems to rattles, vibrations and wind noises. With all this extra diagnosing going on, we need to be purchasing more equipment and looking for additional training for our technicians and ourselves. In fact, every new car brings some new gadget or flashy piece of equipment that only comes on that model. Is it ever going to stop? Probably not. It s getting harder to find the money to purchase the current equipment (or find the latest training) to handle all the new automotive technology that rolls off the assembly lines on an almost daily basis. Who is paying for all this modern shop equipment? That s right. You and I are. So, how do we get our return on investment? We ve all purchased new equipment guaranteed to increase sales, productivity, and profits only to find just another lease payment and no increase in sales, productivity and profits. A good shop that doesn t have modern diagnostic scopes and scanners can easily take a few hours to diagnose a problem. That same shop might spend many thousands of dollars for new equipment and now it can diagnose the same problem in an hour. But the problem is, the shop only charges the customer an hour to diagnose the problem. Essentially, the shop spent thousands just to save the customer money. You see, the new equipment never pays for itself. Let s look at this problem from a different perspective. As an example, let s take a normal repair job that takes an hour to complete. We sell the labor for $60 and we sell $50 worth of parts for a job total of $110. We re able to complete the job in an hour, and sell the job for an hour. Our technician s labor cost is $20. Our parts cost is $25, for a total cost to do the job of $45. We sell the job for $110, for a profit of $65, or a gross profit percentage of 59 percent. Now let s look at a sample diagnostic job. We sell the job for one hour, or $60. We put our most expensive technician on the car, and use our most expensive equipment. This is a job we can t break flat rate on, plus it has a very high possibility of being a comeback, or even worse, we waste a lot of time looking for the problem and can t find it. So, let s look at the numbers. The job sold for $60. We had no parts sales, and no parts profit. The one-hour job took us 1.5 hours to complete. Our higher-priced master technician cost us $25 per hour. So, 1.5 hours times $25 means our labor costs was $ We made a labor profit of $22.50, which is also our gross profit, leading to our gross profit percentage of 37.5 percent. We made $27.50 more on a simple repair job, so why diagnose anything? We are simply losing money on our diagnostic work. Let s put some numbers together that make diagnostic work profitable. Labor Rate $ Lost Parts Profit $ Equipment Cost $ (We need to charge something for the equipment.) Training Cost $ (Training should pay for itself as well.) Total Diagnostic Rate: $ (These numbers are only suggestions and you need to figure out what numbers work for you.) 36

37 Right now, I know you re saying, I can t charge $ per hour I ll lose all my customers. However, I don t tell my customers how much I charge per hour, and you shouldn t either. Instead, I state: My diagnostic charge for this item is $105. And, if my shop can t determine the fault in this amount of time, I call the customer and ask for more money. What choice do we really have? We ve been subsidizing diagnostic work for years. Let s look at this diagnostic labor charge in a different way. Let s say we have three technicians. Each day, the technicians spend only one hour a day diagnosing a vehicle at the new, higher diagnostic labor rate of $105. So, each technician brings in an extra $45 each day ($45 over our $60 per hour labor rate) or a total of $135 for the shop each day. The technicians work 20 days this month, so you bring in an extra $2,700 for the month, or $32,400 for the year. Now, how much equipment and training could you afford with an extra $32,400 a year? Those of you who say you cannot charge this much per hour for diagnostic work, you are probably quoting your customers two hours or $120 for your diagnostic work. So, you are already charging more. The problem is, you re giving your technician two hours to diagnose the problem. Tell the technician he only has an hour, but keep your labor charge the same. Our best technicians are the ones who do most of the diagnosing. What do they have to gain? They have the most stress, the most tools and equipment, and they go to training classes the most. Are they making more per hour or per year than the parts changers? We are seeing fewer and fewer technicians wanting to step up and become the shop diagnostician. You can t blame them. They don t have that much to gain over the parts changers. What if the technician diagnoses to replace an expensive computer, but that doesn t solve the problem? (You can t return the computer and now you have a computer in stock for a Yugo.) When you see all the frustrations these great technicians go though, it s hard to believe anyone would want their job. If you pay your technicians by flat rate or commission, they re not making as much as the parts changers. Or if you have a productivity bonus, again, the diagnostic technician loses. Not only do we need to charge a higher labor rate for diagnostic work, but we need to sell more time as well. If a great technician diagnoses a problem in an hour, how much should the customer be charged? If this same technician is 150 percent productive on all his other work, shouldn t we charge at least 1.5 hours for the job, which took one hour? Every shop is looking for someone with great diagnostic skills. But how many shops are willing to pay for their technicians to get trained? Of course, you want the technicians who went out of their way and paid for their own training. Most of you probably have a technician who can become your shop diagnostician, with the proper motivation and training. Later, in Chapter 9 Employee Development and Retention we ll delve deeper into the science of developing our technicians. Until we, as an industry, start paying our dedicated diagnostic technicians percent more than the parts changers, it s going to be harder and harder to find these highly trained technicians. With all of us having such a hard time finding technicians either qualified or not finding a diagnostic technician may become impossible that is, until we pay these technicians what they re truly worth. Unless you charge more per hour for your diagnostic labor rate, you may never be able to afford the technician you need. 37

38 I am not telling you how much to charge per hour for your labor rate or for your diagnostic labor rate. But the numbers speak for themselves. If you want to survive and prosper in auto repair, you must charge a higher labor rate for diagnostics. I consider a diagnostic job as anything that doesn t require parts, such as brake inspections, checking for rattles, electrical problems, etc. This is another reason the mass merchandisers don t diagnose cars; it s because they have worked out the numbers. Someone in each community has to be the first to charge a higher labor rate for diagnostics, even if you do have competitors who still diagnose cars for free. (I guess their time isn t worth anything.) What is your time worth per hour? 38

39 W Chapter 7 Tools and Equipment hen I visit shops, I see two types: 1) Shops with every tool and piece of equipment you can think of. 2) Shops with amazingly little in the way of tools and equipment. But stop and think about tools and equipment for a moment. What tools and equipment are really needed and how much of each are too much? We ve all had tool and equipment salesmen tell us in a slick fashion, Purchase this tool and your productivity will go up and you ll pay for the tool in the first month! This statement almost never comes true. The truth is, we end up with another tool or piece of equipment that sits around and never gets used. Worst of all, if it s a piece of leased equipment, we have to make payments on something that s not even being used or making us money. I see many shop owners desperately trying to come up with sales by purchasing a new piece of equipment. At a seminar of mine, I once mentioned how hard it is to purchase an alignment machine and get it to pay for itself. A shop owner in attendance spoke up and said he did not agree. He said he could dramatically increase his sales with an alignment machine. Then, another shop owner, one who owns a quite-large shop that does half of its business in tires and front-end work, stood up and said, You can buy mine! Even tire stores have a tough time selling enough alignments to justify an alignment machine and the space it takes up. I am not saying that you should never purchase an alignment machine, or that nobody can make money performing alignments. But what I am saying is, it s a matter of looking at your business and determining what s best for you and your shop. When you re trying to figure out what your needs are, you must analyze several factors. I look at equipment, the technicians required to operate that equipment, and the space that equipment takes up. Then, I look at what that equipment will do for the shop, especially the shop s sales and the shop s profits. If there is no other shop (or very few shops) doing alignments and there is a great need in your area, then maybe give it a go. First off, however, you ll have to treat the alignment part of the business as its own profit center. Calculate the costs of the alignment equipment and the space it takes up in the shop. Space in a shop is very valuable. Add the cost of maintenance and updates. Add the cost of training and the higher-paid technician you ll need to efficiently operate the equipment. Then, the most expensive part is the cost to market and advertise the alignments. If you go back to Chapter 3 Understanding the Numbers of Your Business you can review the section regarding a labor operation that has no parts sales, such as alignments. You ll see that you have to charge a higher labor rate. And yes, you ll sell a multitude of parts, such as ball joints and shocks, by doing alignments. Just remember though, the job of doing alignments sells no parts. Let s look at a working stall, with its accompanying technician. This technician is 75 percent productive. For every eight hours worked, this technician produces six hours of billable labor. At $60 per hour, that s $360 worth of labor each day. With labor sales, we of course have parts sales. Most shops have equal parts sales to labor sales. Okay, we have $360 worth of labor sales and $360 of parts sales per day for the technician. With a 40 percent parts profit, you make $144 of parts profit, for a labor sales and parts profit total of $504 per 39

40 day. If you add the cost of the equipment, plus training, maintenance, updates, and advertising, you are easily looking at an added $50 per day of costs, probably much more. Now this stall needs to generate $554 worth of sales. You will have to generate 11 alignments a day at $50 each just to break even with an existing stall that s dedicated to doing repair and service. This gives you only 42 minutes for every alignment to set up, make adjustments, road test, and make any final adjustments if needed. (That s an extra 11 cars a day and you better have an extra 11 parking places to handle the increased car count.) Mirage of upsells Let s say that 25 percent of the alignment jobs need extra work. Now your technician has to stop working as you calculate the upsell and call the customer to hopefully make the sale. All of a sudden, you re behind in getting other alignments done. If you do sell the added work, you are faced with two choices: 1) Have another technician do the work, so your alignment person can keep producing alignments; or 2) Have your alignment person do the repairs. Whoops. You just found out you have to wait for parts. Oh great, now the alignment machine is tied up. What does the alignment technician do now? I guess he ll have to wait. Do you charge for the time to set up the car on the alignment rack, or do you add this to the repair cost? The only way I feel an alignment machine can make money is if you have your other technicians do the upsell work. Most mass merchandisers look at alignments as a loss leader. They lose money on the alignment, hoping to sell shocks, ball joints, idler arms, etc., all at a much higher labor time and higher parts mark-up than normal, to make up for the cost of the alignment. The same goes for smog checks, A/C charges, and brake inspections. I personally don t charge one customer more than another. I make every job pay for itself, or I don t do that kind of job anymore. I don t do alignments or smog checks, and I charge for brake inspections. Okay, if you haven t figured this out yet, I m big on specializing. My rule is simple: Do what you do best. Too many of us try to do too much. That s because we have The Fear. The fear that if we don t do every service under the sun, we might lose a customer. Many of us feel we have to work on every kind of car, we have to do alignments, smog checks, tune-ups, transmissions, cooling systems, engines, machine work, A/C service, electrical and drivability diagnosis. Plus, we feel we need to sell tires, and sell parts over the counter. We need to work six days a week and even offer extended hours. In reality, most shops probably shouldn t be doing any kind of diagnostic work, especially if they don t have the qualified technicians and modern equipment required to perform high-tech diagnostics. With qualified technicians getter harder and harder to find, and with the wages these technicians are starting to demand, it s time to determine if it s worth the hassle of doing diagnostics. Most shops can easily sublet the various kinds of work that they do not want to perform. I feel that any shop can increase its sales by 25 percent without purchasing any new equipment. It s all about managing your shop and doing what you do best. Most shops sublet their alignments, A/C service and repairs, transmissions, and machine-shop work. Regarding my own shop, I get a lot of other shops subletting their drivability and electrical-diagnosis projects to my shop. Do I give these other shops a discount? No. I know what my costs are. Let s look at the equipment that s really needed, other than the technicians hand tools Hoists: You need a hoist for every technician or more. If you don t have enough hoists, you re only kidding yourself. 40

41 Air: You need a good air compressor and air lines everywhere. My shop has four air hoses hanging over every car in every stall. One at each corner of the car, another hose over the technician s workbench, and another by the stall door. Plus, I have hanging water hoses, for filling radiators and windshield washer bottles. Shop information system: ALLDATA or Mitchell s OnDemand Parts washer: I prefer the jet-spray parts washers, which work like a dishwasher. Just imagine how much time it takes a technician just to clean a very dirty valve cover, or pair of valve covers. Just put those valve covers in a jet-spray parts washer and in minutes they re perfectly clean. Think of how much time each day a technician is cleaning some kind of part. A parts washer on a lease will probably cost you $10 to $20 a day. But how much is your cost for the technicians to hand-clean their parts? Battery/starter/alternator tester: We all sell batteries, starters and alternators. Which means we usually have to put a load on the battery to test the alternator, etc. The new breed of testers is now handheld. Check them out. Battery charger: Scan tool: It s very difficult for any shop to get by without a scan tool, even if you don t do diagnostic work. On some cars, you can t even turn off the Service Due light without a scanner. McPherson Strut compressor: A wall-mounted strut compressor is the only way to go. It s safer and faster. Before you purchase a wall-mounted strut compressor, think about how many shocks and struts you re selling. Probably not enough. You need to purchase shocks and struts at a great price to be competitive. Floor jacks and jack stands: Brake bleeding machine: My shop goes through six-to-eight gallons of brake fluid per month. Most cars call for brake flushing and bleeding as part of routine service. Chemical containment: We need to double-contain our waste oil, oil filters, coolant, brake fluid, and carburetor dip. You should even have your new oil, coolant, brake fluid, and any solvents or degreasers double-contained. If you ve ever known a shop that had an accident where hazardous material made its way into a storm drain, you know the costs related to cleaning us the mess. An out-of-control spill can cost $250,000, and your insurance company won t cover this in most cases. In California, by law we must have special shelves to contain our batteries and aerosol cans in case of earthquakes. If you keep your waste containers out back on dirt with the dirt showing signs of any kind of contamination, clean it up now. If a city or county official sees that, you can be put out of business due to the cost of clean-up. You should also have a written plan on how to handle your chemicals what to do and whom to call should there be a chemical spill. Optional equipment: A/C charging and recycling equipment: If you work on a lot of Fords, you know this is really needed. Diagnostic scope: Look at handheld units if you re in the market. 41

42 Lab scope: If you perform any drivability diagnosis, you need a lab scope. Alignment machine: Two out of 100 shops need an alignment machine: Tire balancer: (Same as above.) Coolant recycling machine: The time they take, plus the chemicals they use, is why I drain and refill only. Brake lathe: Many areas have trucks that come to your shop to turn rotors, drums and flywheels. Flywheel machine: Same as brake lathe. Regrets Most of us have so much equipment we don t have enough wall space to store the equipment. I ll never purchase another piece of equipment without first consulting my technicians. There s nothing worse than spending lots of money for a new piece of equipment only to find out that the technicians don t like it and never use it. Also, I ll never purchase another diagnostic scope without it being handheld. Nor purchase any equipment from a company with poor customer service and support. For example, there s a diagnostic scope I really like, but the company has such poor customer service, so I ll save myself some headaches in the long run and do without the scope. (It s getting harder to justify the purchase of equipment from small companies, especially in light that some of them won t be here for very long to support their equipment.) Take your time and look at all your tools and equipment carefully. Consult your technicians before purchasing anything. Look at the equipment company and their service and support with an eye to their past, present, and future. Look at the cost of upgrades and support. (The costs involving some of the scan tool upgrades are getting out of hand.) Talk to other shop owners, who may have the equipment you re looking for. Take a close look at your business and be very sure you want to enter that type of repair or service. You may already have a qualified technician who can use the equipment, but what if he leaves? Only purchase new equipment when you have exhausted all your options and you find that doing without the equipment is costing you more than the cost and support of the equipment. All of us can easily justify to ourselves almost any piece of equipment. You must fight that desire. You cannot afford the mistakes that go with purchasing more equipment than you need or purchasing equipment that never gets used. 42

43 T Chapter 8 Marketing and Advertising Every business needs a marketing plan he successful shops are not only busy, but they re busy with all the great customers. For my shop, I don t want all the customers just the great ones who understand the importance of servicing their car. Customers with newer vehicles and higher incomes who are willing to spend money, like clockwork, to keep their cars maintained. The customers who get their cars repaired as soon as their cars need it. Customers willing to pay higher prices to receive quality work and better customer service. Customers who appreciate the hard work you go through every day to be the best shop in town. To accomplish this, you need to know who these customers are and where they are. So, who and where are your potential customers? I know everybody is a potential customer, but where are those great customers we want, the ones with money to spend on servicing and repairing their cars? Most shops are located either near where these customers live, or near where they work. Which is it for you and your shop? Both have their advantages and disadvantages. Find out more about the people residing or working in your shop s area. What kind of local community events do they attend? What vehicle models do they drive and how far? How far away do they live or work? You need to know where the great customers live, work, and play. Know what papers they read, what radio stations they listen to, and what television stations and programs they watch. And very importantly, what are the good customers in your area looking for in auto service and repair? Many of my shop s customers commute to Silicon Valley, which is approximately miles away from my shop. So, I have early drop-off service and late pick-up services to help my customers. I also offer loaner cars. Talk about a large expense and hassle try loaning out cars. I have a tough time keeping my loaner cars mainly because insurance companies aren t too keen on the idea. Marketing starts with knowing information about your customers current and potential customers then applying that information through suitable advertising mediums to reach your market. You must know your market. Here s an example of failing to do so: I knew of a shop (through one of my consultations) that advertised every month for years in a countywide newspaper that had a circulation of 1.5 million readers. I was evaluating the shop s office, and began examining the repair orders, when I found that 99 percent of the shop s customers came from within five blocks of the shop. This shop s market was its own neighborhood, not the entire county. We ditched the expensive newspaper campaign, and sent out our own cost-effective newsletter each month to the houses in the shop s neighborhood. Sales doubled and of course, advertising costs dropped. I consulted another shop owner, who was convinced that since he was on a very busy highway, he didn t have to advertise. Yet, I remember I had a hard time finding his shop. After speaking with the shop owner for a while, I went outside and walked down the street, then turned back to look at the shop and all I saw were trees. Trees blocking his sign. To make matters worse, the speed limit on the highway was 50 MPH. Cars were going by so fast, and with the trees in the way, no one could realistically see his shop. I don t know about where you live, but in most states, you don t cut down trees just to make your sign more visible, 43

44 especially trees on the side of a highway owned by the government. So, for our Florida shop owner, cutting down trees was out of the question. Moving the sign was a better option, but even that was limited by city ordinances. What was the answer to this invisible shop owner s dilemma? Let s analyze the situation further. The shop owner was looking for customers amongst the cars flying past his shop, right? But these drivers were driving right on by his shop to get to other parts of the city where they lived or worked. In fact, most customers won t travel very far from home or work when it comes to having their car repaired or serviced (unless you re operating a specialty shop, or have a great reputation, or both). The shop owner was looking at the street for customers, but I noticed something amazing while on my walk, at the rear of his shop. Directly behind his shop was the upper-middle-class area of the city. Huge, beautiful homes, block by block, with shiny, newer cars sitting in the driveways. Thousands of customers in the shop owner s very back yard. All he needed to do was prepare a flyer, or even better, a brochure or newsletter, and send it to his neighbors. It wouldn t have been hard to drive by and write down all the addresses. (In most cases, you re not allowed to put your own flyer, brochure, or newsletter in mailboxes; and if you do that, the U.S. Postal Service will be visiting you soon.) The way the streets were laid out behind his shop, most of the people who lived there never drove past his shop. They would turn into their area before they d get to his shop, and when they d leave their homes, they would enter the highway past his shop. For this shop owner, with his sign being so hard to see through all the trees, plus the speed of the highway drivers, he might as well have had no sign. Customers who work near your shop Most customers would rather drop off their vehicle on the way to work because it s more convenient for them. But trying to advertise to these customers at work can be very hard. For instance, I consult a shop that s real close to a General Motors plant with thousands of employees. The plant has guards at the gates, so there s no access to the employees. I consult another shop, this one in San Francisco near the financial district, within walking distance of hundreds of large buildings that hold thousands of employees (potential customers) in each building. But again, there s no access to most of the buildings. With the above examples, your best choice is to use word-of-mouth advertising. Try to get each customer you have to spread the word. The problem is, unless you provide exceptional customer service, why should your customers go out of their way to recommend your shop? (Look at how hard it is just for you to recommend another shop.) Why should your customer take the chance of recommending your shop to a friend if there s a chance that their friend will have a bad experience with you? Their friend would be mad at them. The way around this is for you to give discounts to your customers for every person they bring in, but this can get messy, because customers think they sent in more customers than they actually did, and they of course expect larger discount or rebates. I ve had good luck using brochures and newsletters that my customers post on their offices bulletin boards for all to see and read. Most of the time, the best form of advertising is to advertise on radio stations, especially the stations with traffic reports. Most people who have to deal with traffic and possible delays often listen to traffic reports. These stations (and the hours you need to advertise on) can be very expensive, but the amount of people you reach in a short period of time can certainly be worth it. To keep costs down, I advertise only during the morning commute. Depending on what time your shop closes and what time the commuters get home, advertising on the commute-home hours might not work well for you. Other options are television stations and newspapers. If any of these serve the size market your customers come from, then you may want to consider these medias. 44

45 Advertising to a large area can be expensive. But if your customers come from a 20 to 50-mile radius, you may have to consider this as an option. Most customers who work near your shop need rides to and from your shop. It s hard for your customers to rely on a workmate to pick them up. I would advertise the free customer shuttle as an option. Like tools and equipment, a shuttle vehicle and the person to drive it can be expensive. If you re going to use a shuttle vehicle, like my shop does, be sure to have your name on it. You wouldn t believe the extra customers you gain who see your shop s name on the shuttle vehicle, especially if the sign says it s a free customer shuttle from your shop. Customers who live near your shop In most cases, you ll find the majority of your customers come from a single ZIP code. Find the ZIP code (or ZIP codes, if your shop is located near the border of two or more ZIP codes) of the best customers and the closest customers, and send flyers, brochures, or newsletters to customers in those areas. You can purchase CD s with every home and business address in the country for under $100. Just pick out the ZIP codes you want, print labels, and you re ready to begin marketing your shop. You can even drive down the desirable streets you want and write down potential-customer addresses. Remember, find the nicer neighborhoods. Definitely, have a professional set up your brochure, flyer or newsletter. Sloppy and boring marketing materials will make the reader think you have a sloppy and boring shop. Be sure to include information as to why the reader should come to your shop. Don t simply state that you have better customer service. Tell them why your shop has better customer service. Do you give rides to and from the customer s home or work? Do you wash the customer s car after a repair or service? Do you have special hours? Are your technicians highly trained? If so, let the world know. Strive to be different than your competitors. If readers (as in, potential customers) of your marketing materials believe your services are the same as those offered at every other shop, then isn t your shop the same as the others? Why would a customer drive a couple of miles out of the way to go to your shop instead of a closer shop? Simple: Your shop offers the image of quality, quality, quality. Most of my customers have addresses and these high-tech customers love using , which is great for my shop. That s because an newsletter costs me very little to create and costs me nothing to send. Let s start advertising Once you have a strong idea of who your market is, it s time to determine the advertising you need to reach these potential customers. I could tell you advertising is a waste of money, but without advertising, your business will grow much slower and maybe not attract the customers you really want. The challenge is to find the best advertising for the money. Be consistent with your advertising and project the image that puts your shop in the best possible light. Be sure to mention why your service and warranty are better than your competitors. What will it take to lure other shops customers away? Don t use price as a customer lure. You want to drive home the fact that your shop offers better service and quality of repairs whenever possible. Don t forget to look at new-car dealers for new customers. Lots of customers at dealerships aren t treated very well so, use this to your advantage. I market to newcar dealership customers all the time. I tell these customers that they don t have to go to the stressful dealership, and instead, they can come to my relaxed and stress-free 45