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AndersonAuto

How the cheapest oil change in town chased off a bottom feeder

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As I've said in another thread, I've been advertising the absolute cheapest Full Synthetic oil change in town. $29.95 for a domestic/asian 5 quart synthetic LOF. No one in town can touch it. In fact, that's a pretty good price for a non synthetic oil change. As a marketing piece, it's working great.

I used to do $19.95 coupon oil changes with great success, but there was always a few people who were in it for the cheap oil and that's all. Way more upside to the program than downside, so I put up with them. We made the change to full synthetic and $29.95 at the first of the year. We had a guy in today who informed us that we had lost his business for good due to us raising the price on the coupon oil change. $29.95 was clearly out of line. He's been a customer here for 4 years, and brings us 2 cars. The ONLY work he's ever done with us is the oil change, in four friggin' years!  I was heartbroken to say the least. 😀

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AndersonAuto, please don't take this the wrong way. "I REALLY HATE THE CHEAP OIL CHANGE GIMICK."

In my opinion, giving out a cheap synthetic oil change like you are doing gives our industry a bad image. Why? Again, in my opinion, because it distorts the consumers' perception of what it cost to do business.

One of the reasons that fancy car manufacturers strive to have you use a machine to reset the maintenance interval is because it gives the impression that you need a qualified technician to reset the little light.

Think about the biggest industries that thrive in people's ignorance: lawyers, insurance, and finance.

Please do not take this personally, as I understand you have to do what is best for you. But in my opinion, you are hurting yourself and others by doing cheap oil changes.

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If you advertise "low prices" you're asking for those who are loyal to "low prices" and not loyal to you.

He did you a favor giving you this wake up call.

Sent from my SM-N900P using Tapatalk

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For those interested, here is an article I read a while ago that helped me view marketing in a different and better light:

http://robertmaxim.com/auto-repair-marketing/845-coupons-vs-value-based-auto-repair-marketing.htm

 

Quote

Coupons vs Value Based Auto Repair Marketing

 
Saturday, February 11, 2012

You can't deny the popularity of auto repair discount coupons but do they attract the customers you want?

Most auto repair shop marketing uses price discounting to attract new customers. I call this lazy (or desperate) auto repair marketing. Most shop owners are hooked on it and don't know what else to do.

To move beyond price based auto repair marketing shop owners will need to change their whole concept of automotive shop marketing. Auto shop owners must think beyond discount based marketing so they can maintain margins and attract a better quality of customer.

Discounting – A Race To The Bottom

Auto repair marketing downward spiral1Competing on price alone is a slippery slope to business failure. Discounting auto repair prices only attracts price driven, disloyal customers which lead to lower profit levels that can't sustain a healthy company.

You will always have a competitor who will sell services or products for less. If you join this no-win game you will end up in a race to the bottom. So how should auto repair shops market their services to retain profit margins? Base your auto repair marketing on value - not price.

Stop Price Comparison

Marketing of auto repair services should instead use “packaged” services that focus on increasing the “value” that people see in the “total” package. Instead of using a lower price as the carrot use added value to catch people's attention. Change the focus from the “price” of your offer to the “value” gained.

The key to maintaining auto repair shop profitability is auto repair marketing that can not be directly compared on price. You need to get away from using copy-cat specials that shoppers can directly compare on price.

Rather than competing with everyone else in town for the cheapest oil change, charge a higher price for a package deal that includes an oil change combined with another service or two that most people would want. Make your oil change “package” unique so that people can't straight across price compare. Make your "special" YOURS and something your competitors can't easily match. If done well enough it can become part of your Brand and something that your business becomes known for.

Better Response Rate

Sure your “package” promotion may not get as much attention, but the response you do get will be from people who will be of a much higher long-term customer value. Your marketing is changed from targeting “price” shoppers to focusing on attracting people looking for “good value”.

So the bottom line is stop relying on no profit loss leaders to build your business. Use value added promotions to attract a better caliber of customer. Some people say that any customer is a good customer but profitable auto repair shops need long-term, loyal customers rather than one time bargain shoppers.

Use Your Time Wisely

Auto repair shops sell their “time”. And you only have so much of it in any one day. If you are smart you will seek the highest profit work for the time you have available. Do you want to do low profit oil changes based on a hope the bargain shoppers will return, or high profit brake or timing belt repairs?

Your shop size limits the time available for the work you produce. Auto shop management needs to be selective about the “type” of jobs (and customer) their auto shop marketing attracts. Promoting a bunch of low/ no profit specials with the hope of converting people who respond into more profitable work has very poor success. The conversion rate is often so low it is largely a waste of your limited resources. What you want to do is customize your auto repair marketing “product” for a select group.

Greater ROI

For greater auto repair marketing ROI make your promotion compelling and relevant to a smaller, more value driven group of customers. Be more selective in who your marketing is targeting. Pre-screening your prospective customers weeds out the time-wasting, low profit work allowing you to provide a higher standard of service. To do this you need to build a “customized” offer, not a “product” that can be price comparison shopped.

Offers That Satisfy Customer Needs

To make your offer attractive to this different (better...) group of prospective customers you should focus on assisting or satisfying the total customer “need” set. Create an offer that looks at the customer's needs holistically. In reality an oil change is very low on the priority order of most people's to do list. To stand out shops need to provide a packaged, multi-dimensional offer that includes a set or group of services that considers the many needs people have in their lives. Auto shop marketing should not see an oil change as just a specific service, but as a small, low priority part of the many things a person may need to get done that day. To increase the priority of that service in the mind of the customer, and the opportunity for you to get the job, your offer must “assist” the customer in a greater way that extends beyond the benefits of the repair work you do.

It's All About Time

Time is the most important commodity for people. They may need their vehicle serviced but in the big picture of their busy lives it is a low priority. Auto repair shops can raise the priority of the work they do, and get a premium price for it, by helping people multitask.

A large part of the value added component is the “arranging” of the package. For example, getting an oil change service plus full interior detail and exterior hand car wash all in one appointment would be a “convenience” people would pay a premium for. Often sweetening the package with an unrelated service or product is very successful. Movie tickets, manicure, coupon for lunch or dinner, etc. are all combinations that can be attractive to people. The secret to making value marketing work is including an element that is valuable, difficult to purchase, and most importantly, difficult to price comparison shop.

Here is a realistic example. A busy mother needs to get her vehicle's air conditioning serviced, grocery shop for a family BBQ, care for her two young teenage kids and two of their friends, and meet a friend for lunch. Your offer can include:

  1. Air conditioning service;
  2. Lunch for two at nice local restaurant;
  3. Tickets for a day at the local water-park for the kids;
  4. Grocery shopping service;
  5. Provide on-call transport to and from shopping center including grocery pickup.

The shop can prearrange a discount at a local restaurant and water-park in exchange for co-marketing arrangement. The grocery order can be emailed or faxed to a local store. Transport is provided by your in-house shuttle service for transport to and from the restaurant. Customer picks up their vehicle and collects the groceries and kids on way home from your shop.

At $199 the package price provides a high profit margin. And instead of competing on price you are competing with the perceived value of your offer. The customer not only gets their vehicle serviced but help with all the other things she needs to get done that day.

Here is a comparison to clarify your understanding of Price Marketing versus Value Marketing.

Price Marketing Value Marketing
  • Choose service to sell
  • Choose customer group to target
  • Select benefit to promote
  • Determine customer needs
  • Set price to attract customers & capture market share
Create packaged offer
  • Sell service to as many customers as possible & hope for repeat business to reclaim profits lost from discounting.
  • Sell fewer high profit services to loyal customer group. Easier up-sell and repeat business.
  • Further discounting to acquire new customers.http://robertmaxim.com/node/845/edit
  • Sell high margin services to chosen loyal customer groups.

The goal of “value” auto repair marketing is to target high value customer groups from the start so that you don't have to waste time on doing profit eroding, loss-leader, low success rate customer acquisition service work. The concept is to initially target customers with the highest probability of providing high profit, repeat business. If you have been collecting and building your customer list you should have a good group to target with email or direct mail.

You may need to advertise Value Added services in different ways. You need to be able to describe the added value of your offer in enough detail for the person to grasp what is all included and decide it is good value. Print advertising such as newspaper, direct mail, and hand bills can be effective especially if you can attract people to your website.

Placing your offer on your website allows you to fully explain the value of your offer. Using Robert Maxim Website Solution's Promotions Calendar feature is a great way to expose your Value Added special to the search engines and people looking for the auto repair service your value added package is related to.

 

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That's ok, you can hate it. I don't mind.

Define "hurting myself" for me.

If by hurting myself, you mean years of double digit growth, fine by me. The first year I started the cheap oil change coupons, my business went up by 37%. My net for the two businesses (the shop and the LLC that owns the building) was 317K last year, plus the 78K that's on my W2, plus the shop bought me a BMW 650 Gran Coupe for a company car. This year I'm on track to clear about another 50-60K on top of that. The painful part is writing the check to Uncle Sam in a few weeks. That's gonna hurt.

Bragging? ok sure. But here's the thing. You can either see my marketing strategy as a gimmick and that I'm hurting myself and other shops by cheapening the perception of our value, or you can see it for what it is. It's a means for bringing customers into my building so they can spend money. Period.

I feel sorry for shop owners who allow their prejudices about coupons to get in the way of making great money. It is after all the whole point of having a business, to make money. It's time to detach yourself from the emotions of what you think is the right way and just do things that make money. It doesn't matter what that method is, as long as it's ethical and honest. If it's "low life" coupon clippers that make you rich, then fine. You're still rich, right?

Coupons work when done right. If you have any doubts, look at Kohl's. They used to advertise much like Macy's. Beautiful models wandering aimlessly through their commercials in the latest high fashion, and the Kohl's logo on a white background at the end. You know, lifting the image of the department store, promoting their value over price. 🙄 Then in the late 90's they switched gears and started doing coupons, % off scratchers, and Kohl's cash.Their ads feature the discounts as much as the clothes. They're now the second largest department store in the US. They're not the cheapest on everything, and everyone knows it, but the coupons bring their target market in the door to spend money. Isn't that the goal?

BTW Harry, I scanned through the article you linked to, and at the bottom it includes an "About the author". In it, you'll find this line: "He provides an inexpensive, easy to use, website based marketing system that is designed from the ground up for automotive repair shops." It seems the author knows how to attract his target audience, but then advocates a different approach for everyone else.

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9 minutes ago, AndersonAuto said:

That's ok, you can hate it. I don't mind.

Define "hurting myself" for me.

If by hurting myself, you mean years of double digit growth, fine by me. The first year I started the cheap oil change coupons, my business went up by 37%. My net for the two businesses (the shop and the LLC that owns the building) was 317K last year, plus the 78K that's on my W2, plus the shop bought me a BMW 650 Gran Coupe for a company car. This year I'm on track to clear about another 50-60K on top of that. The painful part is writing the check to Uncle Sam in a few weeks. That's gonna hurt.

Bragging? ok sure. But here's the thing. You can either see my marketing strategy as a gimmick and that I'm hurting myself and other shops by cheapening the perception of our value, or you can see it for what it is. It's a means for bringing customers into my building so they can spend money. Period.

I feel sorry for shop owners who allow their prejudices about coupons to get in the way of making great money. It is after all the whole point of having a business, to make money. It's time to detach yourself from the emotions of what you think is the right way and just do things that make money. It doesn't matter what that method is, as long as it's ethical and honest. If it's "low life" coupon clippers that make you rich, then fine. You're still rich, right?

Coupons work when done right. If you have any doubts, look at Kohl's. They used to advertise much like Macy's. Beautiful models wandering aimlessly through their commercials in the latest high fashion, and the Kohl's logo on a white background at the end. You know, lifting the image of the department store, promoting their value over price. 1f644.png Then in the late 90's they switched gears and started doing coupons, % off scratchers, and Kohl's cash.Their ads feature the discounts as much as the clothes. They're now the second largest department store in the US. They're not the cheapest on everything, and everyone knows it, but the coupons bring their target market in the door to spend money. Isn't that the goal?

BTW Harry, I scanned through the article you linked to, and at the bottom it includes an "About the author". In it, you'll find this line: "He provides an inexpensive, easy to use, website based marketing system that is designed from the ground up for automotive repair shops." It seems the author knows how to attract his target audience, but then advocates a different approach for everyone else.

I don't want to turn this into a pissing contest, because this is one argument that is not profitable for me to spend my time on. But I will bite for the hell of it.

1. 37% is impressive, but 37% of what dollars in revenue? net profit? car count? etc.

2. 317K again, is impressive, but are you sure you are not double counting your net dollars if you are taking your shop's net into account into the LLC's? And that 78K is it not a part of the cost of which you made that net 317k? I think you need to talk to your CPA.

3. I won't even mention the car, because BMW.

4. Now, I give you this, you are right that emotion should not play a part in marketing decisions. And you know what, you are right about Kohl's and their Kohl's cash, they have a great system there, the way they use their coupon and discounting with their Kohl's cash, very nice way they keep their customers coming back and lowering their customer acquisition cost.

But that is the thing, by your own example, it took you four years to lose a bottom feeder! That means your own systems are not running up to par to fire unwanted patrons!

5. Regarding the article, I took from it what it benefited me and discarded the rest, you may be right the author may not be doing what he preaches, however, I did find his take useful from what he gave in that article. In other words, acquiring knowledge is like gold mining, you find it in nuggets at a time, but you have to sift through a lot of ore.

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17 minutes ago, HarrytheCarGeek said:

I don't want to turn this into a pissing contest, because this is one argument that is not profitable for me to spend my time on. But I will bite for the hell of it.

1. 37% is impressive, but 37% of what dollars in revenue? net profit? car count? etc.

37% increase in revenue over a 900K previous years sales. GP remained steady at 59%. Net back then was meager at best because I had just moved into my MUCH bigger building and my expenses were out of sight.
2. 317K again, is impressive, but are you sure you are not double counting your net dollars if you are taking your shop's net into account into the LLC's? And that 78K is it not a part of the cost of which you made that net 317k? I think you need to talk to your CPA.

The net on the S-Corp was 251K. The net on the LLC was 66K. My salary was expensed from the S-Corp prior to calculating the net profit, as you would any employee, hence the W-2. I don't need my accountant for that.

3. I won't even mention the car, because BMW.

You ever drive a 650? Lots of fun, and super luxo liner at the same time.

4. Now, I give you this, you are right that emotion should not play a part in marketing decisions. And you know what, you are right about Kohl's and their Kohl's cash, they have a great system there, the way they use their coupon and discounting with their Kohl's cash, very nice way they keep their customers coming back and lowering their customer acquisition cost.

But that is the thing, by your own example, it took you four years to lose a bottom feeder! That means your own systems are not running up to par to fire unwanted patrons!

Does Kohl's fire a customer if they only shop when they have a coupon in hand? If their coupon system makes them money, as mine does, why would they bother?

5. Regarding the article, I took from it what it benefited me and discarded the rest, you may be right the author may not be doing what he preaches, however, I did find his take useful from what he gave in that article. In other words, acquiring knowledge is like gold mining, you find it in nuggets at a time, but you have to sift through a lot of ore.

You're right, you pick up bits here and there. We all do.

The web site guy you linked to uses my friend Brian's web site as an example of his great work. Brian loves him. Brian also has no luck with discount mailers because his clientele is wrong for that type of marketing. Which goes to show you that just because discounting isn't your cup of tea, doesn't mean it doesn't work. Like everything, it all depends....

 

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15 minutes ago, totalautocare said:

Try this for a read.

https://cloud.tapatalk.com/s/58d9b51da3c45/Percieved%20Value.pdf


Sent from my SM-N900P using Tapatalk
 

A great one is Influence by Robert Cialdini. In it he discusses the perceived value influence to buying. Kohl's is probably the best example of using this very effectively. Every "original" price is a number none of us would ever consider paying for the item. But subconsciously, the perceived value is planted. Then they "mark down" the item to exactly what everyone else sells the item for. Every single customer knows this, but who sells more clothes? Kohl's does.

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I was thinking about this thread, and trying to figure out how it is that some guys could be so opposed to a method of growing their business that has worked so well for me. How could they not understand the value in it? Then it occurred to me. We have different problems to solve.

Both Total Auto Care and Harry's service are two bay shops with as much office as shop space. Shop space is at an absolute premium and can't be wasted on cars that might be profitable a few visits from now. Every new customer must be the creme-de-la-creme, which we all know is the word of mouth referral customer. They buy the first time they're in, and buy more than non-referral customers. Since space is at a premium, discounting to attract customers is probably the dumbest thing they could do.

I have a different set of problems. 

Different problems mean different solutions. Problems like how do you pull in enough customers to feed 13 employees? So far this year we've written almost 1100 repair orders, while carrying over a $420 ARO including the damn near free oil changes. Fortunately I've hired well, and my guys just knock it out of the park almost every day with very little input from me. I certainly wouldn't want to have the problems associated with a two bay shop. While many people say they'd like to have my problems, trust me, they're still problems.

2012-07-11 10.34.00.jpg

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Anderson, I think you just nailed it.  You have excess capacity so driving higher car counts makes great business sense.  However, if a shop has limited capacity then higher car counts can be counter productive.  Our shop is somewhere in the middle. We have seven bays and could easily use 3-5 more.  What I have to be careful of is spending advertising dollars to attract new customers only to have to be able to turn them away due to lack of bay space.  We have reached a point that we can handle only limited walk in oil changes.  80% of what we do are appointments.  In an ideal world I would have two dedicated quick lube lanes plus 8-10 additional service bays. I envy the space you have. 

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44 minutes ago, xrac said:

Anderson, I think you just nailed it.  You have excess capacity so driving higher car counts makes great business sense.  However, if a shop has limited capacity then higher car counts can be counter productive.  Our shop is somewhere in the middle. We have seven bays and could easily use 3-5 more.  What I have to be careful of is spending advertising dollars to attract new customers only to have to be able to turn them away due to lack of bay space.  We have reached a point that we can handle only limited walk in oil changes.  80% of what we do are appointments.  In an ideal world I would have two dedicated quick lube lanes plus 8-10 additional service bays. I envy the space you have. 

One of the worst things you can do for your business is to drive people to the front door, only to turn them away. Not only did you waste your marketing dollars, but very few of those customers will come back even if referred by a friend. 

I'm very fortunate (or more likely, just stupid enough to buy a giant building) that when I see a sustained busy period, I don't throttle back the marketing, I just start pricing racks.

The local BMW dealer has 25-ish bays, not really sure exactly how many. They run one bay per tech. 25 bays, 25 techs. I can't imagine how organized things have to be to do this, but talk about an efficient use of their building. If they can do it, you can do it. I have no idea how, but I know there are guys out there who can help you figure it out. Then you could potentially dedicate one bay to the lube dude, and run 6 techs. Then you'll have to get a bigger parking lot for all your car count. ;)

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18 hours ago, HarrytheCarGeek said:

AndersonAuto, please don't take this the wrong way. "I REALLY HATE THE CHEAP OIL CHANGE GIMICK."

In my opinion, giving out a cheap synthetic oil change like you are doing gives our industry a bad image. Why? Again, in my opinion, because it distorts the consumers' perception of what it cost to do business.

One of the reasons that fancy car manufacturers strive to have you use a machine to reset the maintenance interval is because it gives the impression that you need a qualified technician to reset the little light.

Think about the biggest industries that thrive in people's ignorance: lawyers, insurance, and finance.

Please do not take this personally, as I understand you have to do what is best for you. But in my opinion, you are hurting yourself and others by doing cheap oil changes.

 

Harry I'll be the devil's advocate here. As a primer I have always been against cheap oil change promotions. I never saw them work for me and I always thought they brought the wrong type of customers. 

Kind of what AndersonAuto was alluding to, you have to have the space for volume and the processes in place to handle it, it can actually be a great model. I've recently changed my tune after attending some sales training from Aspen Auto Clinic. They have grown to a 5 shop operation with a ARO of $400 while still offering a "cheap oil change" special. 

Essentially the idea is to drive high car count and use a specific process to upsell a paid inspection at reception. That is what it is in a nutshell, there are more steps to it but that's the key part. For those who don't purchase the paid inspection they still get a free inspection so you still have upsell opportunities. Another strategy is to sell them on a VIP card or a 5 pack oil change package at check out so you can see them again. The idea is to get as many "at bats" as possible.

Now when you have one of these folks that come in for oil change after oil change and get nothing done with you OR have the work done elsewhere you have to have a serious conversation with them. It would go something like this, "Mr. Customer we notice that you have come to us for several oil changes and have not acted on any of the recommendations we have made for service and maintenance of your vehicle. We love performing your oil service however these other items are rather important. The reason I am bringing this up is I want to make sure I am doing my job communicating properly about the severity of some of these items. Have I conveyed that information properly?"

If the customer tells you something negative or that he has his family shop that does his work then you have to drop them a serious line like, "Mr. Customer we offer our oil change special to give potential customers a low risk opportunity to experience our service and value. We literally lose money on every oil change at this price. What we really want is to become your shop/mechanic. Are we in the running at all? Do we have a chance?"

If the answer is no or I have a shop then its time to shut them down and tell them that you would really love to continue to service their oil change at your regular price.

 

I am summarizing the process tremendously and butchering parts of it along the way but that's the gist. This model definitely can work but it MUST be a whole process.

The biggest turning point for me to see this type of strategy work is the detailed process in upselling the PAID inspection (which effectively makes your oil change a regular priced oil change or better) and also explaining to the oil change customer that this a special promotion to give people a "low risk opportunity to experience our customer service and value". You need a specific sales process to turn those oil change customers into repair customers. 

Another trick is to not advertise the low oil change on a consistent basis. every quarter or 6 months with a big blast.   

 

I am going to pilot this strategy with my upcoming general repair shop. I'll report my findings :)

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Gentlemen,

The numbers don't lie. I don't have the time to go into detail, but from over 25 years experience, cheap oil changes were never good for my business.

If AndersonAuto is making a net 20%, that is a VERY impressive number with cheap LOFs as the main driving tool for new business. Except for me, in my experience it hasn't happened. Be it at the two bay shop or the 30 lift facility.

For example 900K at 37% growth yields $1.2 Million. That would be about 100K a month is sales. With 13 employess plus himself that would be $7,142 in sales revenue per employee on a monthly basis or about 85K on an annual basis. How does that compare to your numbers?

My worse perfoming shop is doing about 60K month and 145k per employee in an annual basis.

My aversion to cheap oil pricing is that it truly distorts the value of our industry.

Having said that, if he is indeed taking in 20% net, more power to him, since that is what owneship of the business is all about, how much you get to keep after all is said and done.

 

Edited by HarrytheCarGeek
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2 minutes ago, HarrytheCarGeek said:

Gentleman,

The numbers don't lie. I don't have the time to go into detail, but from over 25 years experience, cheap oil changes were never good for my business.

If AndersonAuto is making a net 20%, that is a VERY impressive number with cheap LOFs as the main driving tool for new business. Except for me, in my experience it hasn't happened. Be it at the two bay shop or the 30 lift facility.

For example 900K at 37% growth yields $1.2 Million. That would be about 100K a month is sales. With 13 employess plus himself that would be $7,142 in sales revenue per employee on a monthly basis or about 85K on an annual basis. How does that compare to your numbers?

My worse perfoming shop is doing about 60K month and 145k per employee in an annual basis.

My aversion to cheap oil pricing is that it truly distorts the value of our industry.

Having said that, if he is indeed taking in 20% net, more power to him, since that is what owneship of the business is all about, how much you get to keep after all is said and done.

 

since Anderson did volunteer some his numbers, I would like to see what his his true net is for his business, not his property included. At least then we could speak apples to apples. 

 

I totally get what you mean by what you are getting per employee. It does make a lot of sense as I am for a more lean model with less payroll which means maximizing on my staff's abilities. 

In the way it was explained to me which makes a lot of sense, you do everything you can to sift through oil change customers and build them into repair customers. I believe it can be done with the proper attitude and system. I'm excited to try it at least.

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14 minutes ago, mspecperformance said:

I believe it can be done with the proper attitude and system. I'm excited to try it at least.

Don't let me detract you from it, these things are like an itch, you will not be satisfied until you scratch it. Only after you are done, will you see if you are the wiser.

Edited by HarrytheCarGeek

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52 minutes ago, mspecperformance said:

since Anderson did volunteer some his numbers, I would like to see what his his true net is for his business, not his property included. At least then we could speak apples to apples. 

 

I totally get what you mean by what you are getting per employee. It does make a lot of sense as I am for a more lean model with less payroll which means maximizing on my staff's abilities. 

In the way it was explained to me which makes a lot of sense, you do everything you can to sift through oil change customers and build them into repair customers. I believe it can be done with the proper attitude and system. I'm excited to try it at least.

Harry is mixing a bit of apples and oranges because he failed to note that I said I've been doing the cheap oil changes for almost 5 years, and the first year I did it I had 37% growth. Then I said that I currently have 13 employees. I increased my sales from 900K to 1.2M the first year doing the cheap LOF with 6 employees. I'm sure I added staff along the way that year, but the timing of exactly when is a little fuzzy and I don't feel like digging through employment records for this.

Last years sales were right at 2 Million. Bottom line net was 251K. For those of you playing along at home, that's 12.5%. Pretty soft. We actually found a software glitch in January that literally cost me 100K at the bottom line last year. Since correcting it my ELR improved by over $10 per billed hour. 

Current year profitability, my net ran just short of 16% through the end of February. January was a little soft, and we had extra high training expenses in February due to sending everyone to training for a weekend. The Net Profit % will bounce up a couple percent through the summer. Not sure I'll hit 20% this year, but we're working on it. YTD this year (as of yesterday) we're at $440,479 in sales @ 61.56% GP. We're about 6% ahead of last years sales, with a 5% improvement on GP% (due to the software fix). Gross profit dollars are up 10%, car count is up 9%.

We've got a little HPRO problem as it has slipped by 0.15 hours vs last year. It's always something.

If cheap oil changes weren't good for business, you either didn't have the facility to service them, or you were doing it wrong.

Listen to they guys at Aspen. Implement it. It will work, and you'll make a fortune.

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37 minutes ago, AndersonAuto said:

Harry is mixing a bit of apples and oranges because he failed to note that I said I've been doing the cheap oil changes for almost 5 years, and the first year I did it I had 37% growth. Then I said that I currently have 13 employees. I increased my sales from 900K to 1.2M the first year doing the cheap LOF with 6 employees. I'm sure I added staff along the way that year, but the timing of exactly when is a little fuzzy and I don't feel like digging through employment records for this.

Last years sales were right at 2 Million. Bottom line net was 251K. For those of you playing along at home, that's 12.5%. Pretty soft. We actually found a software glitch in January that literally cost me 100K at the bottom line last year. Since correcting it my ELR improved by over $10 per billed hour. 

Current year profitability, my net ran just short of 16% through the end of February. January was a little soft, and we had extra high training expenses in February due to sending everyone to training for a weekend. The Net Profit % will bounce up a couple percent through the summer. Not sure I'll hit 20% this year, but we're working on it. YTD this year (as of yesterday) we're at $440,479 in sales @ 61.56% GP. We're about 6% ahead of last years sales, with a 5% improvement on GP% (due to the software fix). Gross profit dollars are up 10%, car count is up 9%.

We've got a little HPRO problem as it has slipped by 0.15 hours vs last year. It's always something.

If cheap oil changes weren't good for business, you either didn't have the facility to service them, or you were doing it wrong.

Listen to they guys at Aspen. Implement it. It will work, and you'll make a fortune.

Thanks for sharing some of your numbers more in depth! It definitely helps give some perspective.

My current shop is a Euro only so our KPIs work a little differently. I admittedly have no experience with general repair and higher car count operations. I think the cheap oil change as a loss leader used with the correct sales system will work. I'm sure nothing else about your operation says "CHEAP" and you are selling value above all else. 

Off topic, what shop software are you using and what was the "glitch" you found? 

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2 minutes ago, mspecperformance said:

Off topic, what shop software are you using and what was the "glitch" you found? 

I'm using RO Writer. The glitch happened when we changed our labor rate. There's a table of various labor rates like most management systems have. Retail, wholesale, fleet, etc. If you change all of the rates at once, and we did, it sometimes has a problem keeping this setting. When adding labor to a job, the labor rate displayed matches the new rate that you put in, but then as you finalize the labor job the rate flips back to the old rate. Since we also use the linear labor matrix feature, the labor charge can be all over the board, so my guys didn't notice that it happened.

If you've ever played with relational databases you know they can get extremely complex. I'm sure the rate has to be written in more than one table on the database, or possibly on multiple databases. We just got unlucky enough for the rate to be updated where we could see it, but not where it counted. It took ROW support about 37 seconds to fix it. It took us 8 months to figure out what was happening. I had been pounding my guys about ELR all year, and we just couldn't figure it out. We figured it had to do with canned jobs as they are usually done at a lower rate to be competitive, but it was software all along.

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11 minutes ago, AndersonAuto said:

I'm using RO Writer. The glitch happened when we changed our labor rate. There's a table of various labor rates like most management systems have. Retail, wholesale, fleet, etc. If you change all of the rates at once, and we did, it sometimes has a problem keeping this setting. When adding labor to a job, the labor rate displayed matches the new rate that you put in, but then as you finalize the labor job the rate flips back to the old rate. Since we also use the linear labor matrix feature, the labor charge can be all over the board, so my guys didn't notice that it happened.

If you've ever played with relational databases you know they can get extremely complex. I'm sure the rate has to be written in more than one table on the database, or possibly on multiple databases. We just got unlucky enough for the rate to be updated where we could see it, but not where it counted. It took ROW support about 37 seconds to fix it. It took us 8 months to figure out what was happening. I had been pounding my guys about ELR all year, and we just couldn't figure it out. We figured it had to do with canned jobs as they are usually done at a lower rate to be competitive, but it was software all along.

Ouch! That really sucks. I havent played with a labor matrix as mitchell doesnt employ one but I can totally see what you are talking about. 

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Just now, mspecperformance said:

Ouch! That really sucks. I havent played with a labor matrix as mitchell doesnt employ one but I can totally see what you are talking about. 

I thought Mitchell did do a labor matrix. My daughter's shop uses Mitchell, I'll have to ask her. I know it doesn't do the linear labor matrix. If it does do it, it's a stepped affair where you can get an unusual looking jump in the labor charge for just a few ticks.

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This was definitely an interesting read.

I am the newest one here with only about 2 years of experience of owning a business and a lot of that was being mobile so I don't have a lot of wisdom to offer and I know I could be totally wrong...

I honestly think it can go both ways. I remember when I used to work at Merchant's Tire/NTB, they were putting out $9.99 oil changes.... what a nightmare. So many people coming JUST for that and it was so busy that we were getting angry customers and didn't even get to do a thorough inspection and even if we did, we couldn't do the work we were so slammed with oil changes. That is the extreme....

When I opened my second location, it was dead first 2 weeks so I did $19.99 oil changes. I figure with the cost of oil, filter, labor and disposal, it is my break even price. I could either not make money and have no chance of making money, or not make money with a CHANCE of making money. 

Now would I keep doing the cheap oil changes? I have decided not to.

In my honest opinion, cheap oil changes are worth it if you have a really strong service advisor, a really meticulous tech and it's not busy (or in Andersonauto's case, 1000000 bays, very impressed by the shop btw!)

If my car count wasn't already what it is in my Durham location, I would continue to advertise $25 oil changes. I advertised $25 synthetic blend with a courtesy 22 point inspection and up to a 5min consultation for FIRST TIME customers so that we can get to know them and their vehicles. This actually worked out well but wanted to spend my adwords budget on brakes instead.

You guys probably disagree with this too.... but I've built my business not on cheap oil changes but CHEAP BRAKES! When I first started out mobile, I advertised $25 pad install! Then when I had a shop, I advertised $60 brake job INCLUDING ceramic pads. Then it got bumped up to $75, now it is $95.

Believe it or not, I still got a couple $25 pad install customers that stuck with me.... did a heater core and intake manifold for him at our current shop price- it was over $1000. It's a hit or miss, but if they like you, they will stick with you. I got a wheel bearing job in my shop right now, another customer from my mobile days. $800 for both rear bearings on a Mountaineer. He told me straight up that he was impressed by the way I worked on his car in the parking lot of Advance Auto (he had broken studs while I did the $25 brakes and was impressed by my battery powered cutting wheel and sparks flying everywhere and using a ball joint press to press in the studs lol)

It's almost impossible to stay cheap tho, I just raised my shop rate to $80 yesterday from $75. 

Maybe we can use cheap oil changes to get NEW customers and new only and show them such great and awesome service that they will come back no matter what. That way they can't take advantage of you but also get a chance to experience your shop

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15 minutes ago, Jay Huh said:

This was definitely an interesting read.

I am the newest one here with only about 2 years of experience of owning a business and a lot of that was being mobile so I don't have a lot of wisdom to offer and I know I could be totally wrong...

I honestly think it can go both ways. I remember when I used to work at Merchant's Tire/NTB, they were putting out $9.99 oil changes.... what a nightmare. So many people coming JUST for that and it was so busy that we were getting angry customers and didn't even get to do a thorough inspection and even if we did, we couldn't do the work we were so slammed with oil changes. That is the extreme....

When I opened my second location, it was dead first 2 weeks so I did $19.99 oil changes. I figure with the cost of oil, filter, labor and disposal, it is my break even price. I could either not make money and have no chance of making money, or not make money with a CHANCE of making money. 

Now would I keep doing the cheap oil changes? I have decided not to.

In my honest opinion, cheap oil changes are worth it if you have a really strong service advisor, a really meticulous tech and it's not busy (or in Andersonauto's case, 1000000 bays, very impressed by the shop btw!)

If my car count wasn't already what it is in my Durham location, I would continue to advertise $25 oil changes. I advertised $25 synthetic blend with a courtesy 22 point inspection and up to a 5min consultation for FIRST TIME customers so that we can get to know them and their vehicles. This actually worked out well but wanted to spend my adwords budget on brakes instead.

You guys probably disagree with this too.... but I've built my business not on cheap oil changes but CHEAP BRAKES! When I first started out mobile, I advertised $25 pad install! Then when I had a shop, I advertised $60 brake job INCLUDING ceramic pads. Then it got bumped up to $75, now it is $95.

Believe it or not, I still got a couple $25 pad install customers that stuck with me.... did a heater core and intake manifold for him at our current shop price- it was over $1000. It's a hit or miss, but if they like you, they will stick with you. I got a wheel bearing job in my shop right now, another customer from my mobile days. $800 for both rear bearings on a Mountaineer. He told me straight up that he was impressed by the way I worked on his car in the parking lot of Advance Auto (he had broken studs while I did the $25 brakes and was impressed by my battery powered cutting wheel and sparks flying everywhere and using a ball joint press to press in the studs lol)

It's almost impossible to stay cheap tho, I just raised my shop rate to $80 yesterday from $75. 

Maybe we can use cheap oil changes to get NEW customers and new only and show them such great and awesome service that they will come back no matter what. That way they can't take advantage of you but also get a chance to experience your shop

Hi Jay, 

I mean completely no disrespect and I just wanted to lay that out there because text can be misconstrued... 

When you mention your break even point for an oil change is 19.99 it kind of gets alarm bells going off in my head. Are you calculating your costs correctly? What is the oil costing? What is the filter costing you? How about the technician? Are you calculating their labor cost properly? Are you giving them additional pay/time (if you pay flat) for the inspection portion? Do you have just a lube guy do all your oil changes? Even if I were to offer a 19.99 oil change, my costs including my tech even with the crappiest oil would probably somewhere around $30-40 I am assuming. 

I am just asking because it has been an absolute mystery to me how you are making enough money to open several locations in such a short period of time with such a low labor rate and charging such low prices on for instance: brakes. I have done the numbers several times and it is nearly impossible for me to figure out how you are profitable unless certain assumptions such as you are paying a low salary to your employees (low payroll) and you are keep an insanely high car count with a decent ARO. I want to know your secret lol. If its cool send me a PM with your gross sale and net profit. I am genuinely curious. 

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13 minutes ago, mspecperformance said:

Hi Jay, 

I mean completely no disrespect and I just wanted to lay that out there because text can be misconstrued... 

When you mention your break even point for an oil change is 19.99 it kind of gets alarm bells going off in my head. Are you calculating your costs correctly? What is the oil costing? What is the filter costing you? How about the technician? Are you calculating their labor cost properly? Are you giving them additional pay/time (if you pay flat) for the inspection portion? Do you have just a lube guy do all your oil changes? Even if I were to offer a 19.99 oil change, my costs including my tech even with the crappiest oil would probably somewhere around $30-40 I am assuming. 

I am just asking because it has been an absolute mystery to me how you are making enough money to open several locations in such a short period of time with such a low labor rate and charging such low prices on for instance: brakes. I have done the numbers several times and it is nearly impossible for me to figure out how you are profitable unless certain assumptions such as you are paying a low salary to your employees (low payroll) and you are keep an insanely high car count with a decent ARO. I want to know your secret lol. If its cool send me a PM with your gross sale and net profit. I am genuinely curious. 

I get oil from Cambell Oil Co - $1.38/qt synthetic blend 5w30 in a 55gal drum. Wix filter from Napa $1.49 (for like 70% of the filters out there) - Toyota cartridge filters are like $2.79. All my techs except my master tech gets paid $20 flat rate. oil changes pay .3. So really my cost is only like $14.39 for MOST cars. Disposal cost is around $100 for 350 gallons.... minimal

I charge $50 for full synthetic and I get it for $2.68/qt (Cam2 full synthetic)

Brakes: pad slap pays 1 hour, my techs LOVE brakes. Most knock it out within 20min - we grease all the pins and clean bracket etc.

Labor cost: $20

Advance auto parts Gold Ceramic pads: $23.99 (no matter what car - European, Asian etc we get for $23.99.

We did this at $75 for a while and always sold a brake flush with it. If it needed rotors, .6 hr so we charge $45 labor plus cost or rotors.

I thought long and hard before we bumped it up to $95. I wanted to give my guys a raise because before when we were at $75 for pads, brakes paid .7 and they were at $17/hr. I made brakes $95, bumped my guys to $20/hr, and made brake 1hr.

Until recently, everyone I hired pretty much had little to no shop experience and worked under my direct supervision. I hired a 16 yr old kid as help for $8/hr. My second tech he was $9/hr. Then I hired a guy with really good experience and he wanted flat rate so we changed over to flag system like a year ago and never looked back. How I made it this far I have no idea..... I had NO TECH experience when I quit my job as a service advisor at Carmax. I stayed up endless nights learning on YouTube and only did brakes. Bought a CTS with blown engine for $1200 and replaced the engine 3 months after I started working on brakes in my home garage. 

My master tech now makes $25/hr with a promise of bumping him up to $28 (happening soon) with $50 bonus at 40 hours. He hit mid 50's this past week with a $1450 paycheck. He does oil changes but I leave oil changes to my other 3 guys at that shop, but whenever this guy does one, he does the most amazing inspections. He has highlighters with 4 different colors and highlights them for my advisors. He had a $3000 ticket last week and customer came in for a 120,000 tune up (toyota Tundra)- and that was after he declined $1000 of the work to come back next time.

I am opening multiple locations because this formula works. I advertise cheap brakes and people come and they buy. When it was just me and that kid, we had the most outstanding customer service. We got people out quick and we both worked on their cars. Full brakes pads and rotors we got people out in like 45min from check in to check out. It's definitely not like that anymore. I had 129 perfect 5 star reviews before I got a bad one. Anyway I am getting off topic lol
 

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4 minutes ago, Jay Huh said:

I get oil from Cambell Oil Co - $1.38/qt synthetic blend 5w30 in a 55gal drum. Wix filter from Napa $1.49 (for like 70% of the filters out there) - Toyota cartridge filters are like $2.79. All my techs except my master tech gets paid $20 flat rate. oil changes pay .3. So really my cost is only like $14.39 for MOST cars. Disposal cost is around $100 for 350 gallons.... minimal

I charge $50 for full synthetic and I get it for $2.68/qt (Cam2 full synthetic)

Brakes: pad slap pays 1 hour, my techs LOVE brakes. Most knock it out within 20min - we grease all the pins and clean bracket etc.

Labor cost: $20

Advance auto parts Gold Ceramic pads: $23.99 (no matter what car - European, Asian etc we get for $23.99.

We did this at $75 for a while and always sold a brake flush with it. If it needed rotors, .6 hr so we charge $45 labor plus cost or rotors.

I thought long and hard before we bumped it up to $95. I wanted to give my guys a raise because before when we were at $75 for pads, brakes paid .7 and they were at $17/hr. I made brakes $95, bumped my guys to $20/hr, and made brake 1hr.

Until recently, everyone I hired pretty much had little to no shop experience and worked under my direct supervision. I hired a 16 yr old kid as help for $8/hr. My second tech he was $9/hr. Then I hired a guy with really good experience and he wanted flat rate so we changed over to flag system like a year ago and never looked back. How I made it this far I have no idea..... I had NO TECH experience when I quit my job as a service advisor at Carmax. I stayed up endless nights learning on YouTube and only did brakes. Bought a CTS with blown engine for $1200 and replaced the engine 3 months after I started working on brakes in my home garage. 

My master tech now makes $25/hr with a promise of bumping him up to $28 (happening soon) with $50 bonus at 40 hours. He hit mid 50's this past week with a $1450 paycheck. He does oil changes but I leave oil changes to my other 3 guys at that shop, but whenever this guy does one, he does the most amazing inspections. He has highlighters with 4 different colors and highlights them for my advisors. He had a $3000 ticket last week and customer came in for a 120,000 tune up (toyota Tundra)- and that was after he declined $1000 of the work to come back next time.

I am opening multiple locations because this formula works. I advertise cheap brakes and people come and they buy. When it was just me and that kid, we had the most outstanding customer service. We got people out quick and we both worked on their cars. Full brakes pads and rotors we got people out in like 45min from check in to check out. It's definitely not like that anymore. I had 129 perfect 5 star reviews before I got a bad one. Anyway I am getting off topic lol
 

O yea, I forgot to answer the question of paying my guys extra for inspections. I don't but they do it anyway. We used to not do inspections until recently. They only really pointed out safety concerns if they saw it.

It's after I joined this forum that I highly "encouraged" this process. But really, I am thankful for the master tech I hired because he sees the big picture and leads by example. Other guys sees the thorough job he is doing and the return he is getting so they follow suit

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1 hour ago, Jay Huh said:

O yea, I forgot to answer the question of paying my guys extra for inspections. I don't but they do it anyway. We used to not do inspections until recently. They only really pointed out safety concerns if they saw it.

It's after I joined this forum that I highly "encouraged" this process. But really, I am thankful for the master tech I hired because he sees the big picture and leads by example. Other guys sees the thorough job ieh the return he is getting so they follow suit

Jay, you're a badass. Balls of steel and put your head down and get it done. Failure is never an option. Love it. 

Don't encourage the inspection process, require it. And require them to do the same level of inspection that your ace tech does. They'll be amazed that suddenly they're ALWAYS busy. And don't forget to have the advisor always prep the customer mentally for the inspection result. It starts when the customer hands him the keys. Say these exact words: "While your car is in the shop, I'll have my guys look it over and make sure everything is okay for you." You'll get a much higher closing ratio, and higher ARO for it.

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On 3/27/2017 at 6:51 PM, totalautocare said:

If you advertise "low prices" you're asking for those who are loyal to "low prices" and not loyal to you.

He did you a favor giving you this wake up call.

Sent from my SM-N900P using Tapatalk
 

Good read and something I need to remind myself of, saving the PDF, thanks 

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16 minutes ago, HarrytheCarGeek said:

Jay, what are your insurance cost over all? You know, workers comp., liability, garage keepers, etc.? And how do you price those costs into your jobs?

Hey Harry, how do you price those items per job? Do I just divide it by the number of RO's for the month?

Right now, I am taking the total amount per RO, minus tax, minus part cost, minus labor cost for tech to get GP. I guess if I am pricing insurance, SA pay, rent, and ads, my GP will be much much much lower.

But I feel like getting people in and doing more cars will make that number better as it is watering down my rent, insurance and SA pay per RO. Currently my car count for this month so far is 244- another record for me. I was consistently around 170ish - 200 last few months

Last March my gross sales were $18k. Right now I am at $54k with $9.9k WIP so hopefully doing $63k if all books out by Friday.

Sharing that because it's been constantly changing, my expenses and such bc I am growing at such exponential rate right now. I have been doing all the books myself but besides the one accounting course and tax evasion course I took in college, I have no experience. But yea any helpful advice I can get to get a more realistic GP per RO, I am all ears and here to learn :) 

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1 hour ago, Jay Huh said:

Hey Harry, how do you price those items per job? Do I just divide it by the number of RO's for the month?

Right now, I am taking the total amount per RO, minus tax, minus part cost, minus labor cost for tech to get GP. I guess if I am pricing insurance, SA pay, rent, and ads, my GP will be much much much lower.

But I feel like getting people in and doing more cars will make that number better as it is watering down my rent, insurance and SA pay per RO. Currently my car count for this month so far is 244- another record for me. I was consistently around 170ish - 200 last few months

Last March my gross sales were $18k. Right now I am at $54k with $9.9k WIP so hopefully doing $63k if all books out by Friday.

Sharing that because it's been constantly changing, my expenses and such bc I am growing at such exponential rate right now. I have been doing all the books myself but besides the one accounting course and tax evasion course I took in college, I have no experience. But yea any helpful advice I can get to get a more realistic GP per RO, I am all ears and here to learn :) 

You're calculating the GP correctly. GP = sales - direct cost (parts cost, labor cost, sublet cost). You never include tax in this equation because it's neither a profit center or an expense. It's a pass through.

Your rent, insurance, utilities, SA cost, advertising, etc. etc. are all expenses. Your net profit is your GP dollars minus your expenses.

When analyzing your business, you have two sides to look at. First, did you make enough money on the sale? Are the percentages that you're marking up your parts and your labor enough to cover your expenses plus give you a little in your pocket?

Second, how much are your expenses as a percentage of your sales? Quickbooks will actually do this for you in your P&L report if you select "customize". Then you can look through your expenses as a percentage of sales, and see where you can trim and were you can't. For instance, most of us can't do anything about our rent expense. The only way to reduce your rent factor is to increase your sales. Other things like uniforms are usually up for negotiation.

There are also two types of expenses. Fixed expenses and variable expenses. Fixed expenses never change, or change very little, based on sales. If you sell $10 or $10,000, your rent is your rent. Others are variable. For instance my advisors are on a commission pay plan. The more they sell the more they make, so my SA cost is a variable expense. 

There are ways to increase your GP without getting out of line on your sale price, like negotiating a better price structure with your parts suppliers. You can also get cheaper techs, but that usually comes with a significant quality cost.

With this info in hand you can design a nice spreadsheet with your break even points and profitability in a nice graph to look at. One line on the graph will be expenses and the other will be GP. At zero sales your expense line will equal your fixed expenses, and your GP will be at zero. As sales increase, your expense line will increase by the variable expenses as a percentage of the sale, and the GP$ line will increase at a rate equal to your GP%. Where the lines cross, that's your break even sales. Any sales above that nets you the spread between expenses and GP.

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4 hours ago, AndersonAuto said:

You're calculating the GP correctly. GP = sales - direct cost (parts cost, labor cost, sublet cost). You never include tax in this equation because it's neither a profit center or an expense. It's a pass through.

Your rent, insurance, utilities, SA cost, advertising, etc. etc. are all expenses. Your net profit is your GP dollars minus your expenses.

When analyzing your business, you have two sides to look at. First, did you make enough money on the sale? Are the percentages that you're marking up your parts and your labor enough to cover your expenses plus give you a little in your pocket?

Second, how much are your expenses as a percentage of your sales? Quickbooks will actually do this for you in your P&L report if you select "customize". Then you can look through your expenses as a percentage of sales, and see where you can trim and were you can't. For instance, most of us can't do anything about our rent expense. The only way to reduce your rent factor is to increase your sales. Other things like uniforms are usually up for negotiation.

There are also two types of expenses. Fixed expenses and variable expenses. Fixed expenses never change, or change very little, based on sales. If you sell $10 or $10,000, your rent is your rent. Others are variable. For instance my advisors are on a commission pay plan. The more they sell the more they make, so my SA cost is a variable expense. 

There are ways to increase your GP without getting out of line on your sale price, like negotiating a better price structure with your parts suppliers. You can also get cheaper techs, but that usually comes with a significant quality cost.

With this info in hand you can design a nice spreadsheet with your break even points and profitability in a nice graph to look at. One line on the graph will be expenses and the other will be GP. At zero sales your expense line will equal your fixed expenses, and your GP will be at zero. As sales increase, your expense line will increase by the variable expenses as a percentage of the sale, and the GP$ line will increase at a rate equal to your GP%. Where the lines cross, that's your break even sales. Any sales above that nets you the spread between expenses and GP.

Thanks, very helpful. I keep all my information on a spreadsheet by month. One thing I never thought of was a graph! Thanks for the idea

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21 hours ago, AndersonAuto said:

You're calculating the GP correctly. GP = sales - direct cost (parts cost, labor cost, sublet cost). You never include tax in this equation because it's neither a profit center or an expense. It's a pass through.

Your rent, insurance, utilities, SA cost, advertising, etc. etc. are all expenses. Your net profit is your GP dollars minus your expenses.

When analyzing your business, you have two sides to look at. First, did you make enough money on the sale? Are the percentages that you're marking up your parts and your labor enough to cover your expenses plus give you a little in your pocket?

Second, how much are your expenses as a percentage of your sales? Quickbooks will actually do this for you in your P&L report if you select "customize". Then you can look through your expenses as a percentage of sales, and see where you can trim and were you can't. For instance, most of us can't do anything about our rent expense. The only way to reduce your rent factor is to increase your sales. Other things like uniforms are usually up for negotiation.

There are also two types of expenses. Fixed expenses and variable expenses. Fixed expenses never change, or change very little, based on sales. If you sell $10 or $10,000, your rent is your rent. Others are variable. For instance my advisors are on a commission pay plan. The more they sell the more they make, so my SA cost is a variable expense. 

There are ways to increase your GP without getting out of line on your sale price, like negotiating a better price structure with your parts suppliers. You can also get cheaper techs, but that usually comes with a significant quality cost.

With this info in hand you can design a nice spreadsheet with your break even points and profitability in a nice graph to look at. One line on the graph will be expenses and the other will be GP. At zero sales your expense line will equal your fixed expenses, and your GP will be at zero. As sales increase, your expense line will increase by the variable expenses as a percentage of the sale, and the GP$ line will increase at a rate equal to your GP%. Where the lines cross, that's your break even sales. Any sales above that nets you the spread between expenses and GP.

Traditional accounting practices would define GP as total sales [less tax] minus COGS [what your parts, tires cost]. Wages would be deducted as expenses. I've seen it done both ways. I personally have always used the traditional accounting method.

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3 hours ago, tyrguy said:

Traditional accounting practices would define GP as total sales [less tax] minus COGS [what your parts, tires cost]. Wages would be deducted as expenses. I've seen it done both ways. I personally have always used the traditional accounting method.

You're correct, this is the traditional method, and it's the reason I tell people not to allow their accountant to set up your chart of accounts. Most accountants don't know how an auto shop works, and their main goal is to make it easy to do your taxes, not make it easy to manage your business.

Automotive shops charge for labor based on billable hours. If you're paying your technicians on flat rate, which I am, then they are a COGS. Even if they're hourly, you make assumptions about their average productivity and your expected margin per labor hour, so you can still make them COGS. For each billable hour you have a cost that represents a percentage of your charged labor. If you calculate your technician labor as a COGS, then it's very easy to see if your labor rate is correct. Just in the same way that you calculate what your part charge should be based on your desired parts margin, you can calculate what your labor rate should be based on your desired labor margin. If you have the tech labor lumped in with your SA and your lube dude under "Salaries" like an accountant would want, you can't manage properly from your P&L.

I can pull a P&L and use my calculator for about 30 seconds to see if my labor being billed to the customer is consistent with my desired labor margin.

I see that you're a tire dealer, so you probably don't bill out a lot of your tech wages on a billable hour basis, so expensing them would be appropriate. 

Edited by AndersonAuto

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19 hours ago, AndersonAuto said:

You're correct, this is the traditional method, and it's the reason I tell people not to allow their accountant to set up your chart of accounts. Most accountants don't know how an auto shop works, and their main goal is to make it easy to do your taxes, not make it easy to manage your business.

Automotive shops charge for labor based on billable hours. If you're paying your technicians on flat rate, which I am, then they are a COGS. Even if they're hourly, you make assumptions about their average productivity and your expected margin per labor hour, so you can still make them COGS. For each billable hour you have a cost that represents a percentage of your charged labor. If you calculate your technician labor as a COGS, then it's very easy to see if your labor rate is correct. Just in the same way that you calculate what your part charge should be based on your desired parts margin, you can calculate what your labor rate should be based on your desired labor margin. If you have the tech labor lumped in with your SA and your lube dude under "Salaries" like an accountant would want, you can't manage properly from your P&L.

I can pull a P&L and use my calculator for about 30 seconds to see if my labor being billed to the customer is consistent with my desired labor margin.

I see that you're a tire dealer, so you probably don't bill out a lot of your tech wages on a billable hour basis, so expensing them would be appropriate. 

Although I'm a tire dealer, we are 70% service/ 30% tires so I really consider myself a repair shop that sells a good deal of tires. Yes I pay my service techs flat rate with a safety net hourly minimum. The tire service guys are strictly hourly. I keep track of the same metrics you do just in a different way. You make it sound like lumping some of the wages in COGS is THE industry standard. I assure you it is not. There are plenty of shops that do it either way. And plenty of the industry publications print articles about metric percentages with wages not included in COGS. 

Edited by tyrguy

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1 minute ago, tyrguy said:

Although I'm a tire dealer, we are 70% service/ 30% tires so I really consider myself a repair shop that sells a good deal of tires. Yes I pay my service techs flat rate with a safety net hourly minimum. The tire service guys are strictly hourly. I keep track of the same metrics you do just in a different way. You make it sound like lumping some of the wages in COGS

Do you have one line item in your books for salaries, or is it broken down into sub-accounts for each type employee? If you break each one out, then it's easier to manage by comparing labor cost to labor sales. This is of course assuming that you break out tire sales from your service work.

If you're selling tires at an "installed" price, then expensing the tire guys is the best way because there's no direct correlation between the tire sale and the employee pay. Because service techs are billed to the customer per hour, there is a direct correlation between tech pay can the charge to the customer. In this case, COGS makes sense.

This is not to say that you're doing it wrong. Either way you do it, the bottom line is exactly the same. It's just that I'm super lazy and would rather not have to do any digging to see whether my advisors are cutting labor charges to get the sale. Your management system will likely give you this info as well, but I've found that very often the management system doesn't agree 100% with my P&L. In the end, the P&L is the one that matters, so I want to make it as easy as I can.

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11 minutes ago, AndersonAuto said:

Do you have one line item in your books for salaries, or is it broken down into sub-accounts for each type employee? If you break each one out, then it's easier to manage by comparing labor cost to labor sales. This is of course assuming that you break out tire sales from your service work.

If you're selling tires at an "installed" price, then expensing the tire guys is the best way because there's no direct correlation between the tire sale and the employee pay. Because service techs are billed to the customer per hour, there is a direct correlation between tech pay can the charge to the customer. In this case, COGS makes sense.

This is not to say that you're doing it wrong. Either way you do it, the bottom line is exactly the same. It's just that I'm super lazy and would rather not have to do any digging to see whether my advisors are cutting labor charges to get the sale. Your management system will likely give you this info as well, but I've found that very often the management system doesn't agree 100% with my P&L. In the end, the P&L is the one that matters, so I want to make it as easy as I can.

The only wage separate on my P&L is my own salary. But if I look at QBs payroll summary report I know how much I'm paying each employee at a glance. Yes I keep my tire dept and my sales dept separate. At the end of the day I know how many hours each tech booked versus worked, GP [my way] per hour, tire units, GP per tire, etc. My POS software plus other records I keep tell me all the other metrics you mention. I keep a lot of spreadsheets by hand in pencil. Been doing it this way too long.... old dog doesn't want to learn new accounting trick.

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On 3/28/2017 at 3:38 PM, AndersonAuto said:

If cheap oil changes weren't good for business, you either didn't have the facility to service them, or you were doing it wrong.

Anderson, I have read this entire thread and it appears like you've been a very good student. Unfortunately I feel you are also quite arrogant in thinking you are the authority in auto repair management.

I realize the written word can sometimes be misconstrued but sometimes the things you write allow no other plans to be successful. Your way or the highway. You have a lot of reason to be proud and strut your stuff but when you do it I wish you would recognize there are other as successful if not more successful business models out there. You are also not the first person to be part of a 20 group, they have existed much longer then your business.

I realize I am new to this board (as far as participation) and maybe I am out of line but all I see is preaching from you that the way you do things is the ONLY way, and I am here to say it's not.

The statement above is what I am referencing, I have a similar sized shop, smaller staff, more sales and better net profits than what you've shared. I do no discounting of any sort, I have no menu based pricing (not even an oil change) and our business continues to grow without the headaches associated with discounting.

As far as accounting while I agree with your statement, I went to a seminar by Bosch a couple of weeks ago and the trainer was begging people to expense the cost of labor and not include it in COGS. So there are some out there teaching the opposite of RLO.

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It's possible that I can be a bit opinionated. 😀  At the same time, it's exasperating to see so many shop owners say that you can't possibly make any money with cheap oil changes, and that you'll only attract the "wrong" customers. I've turned cheap oil changes into a thriving business with a great bottom line. The last 5 years have been fantastic compared to the previous 15 years of working much harder for much less. Since I've seen a lot of data from other shops, I know that my customers are as loyal and spend as much as shops that refuse to use cheap oil changes as a marketing tool. Cheap oil changes are nothing but a tool to get people to notice you. I think it's a mistake to see it as anything other than that.

I'd love to see the Bosch trainer's reasoning for taking technician labor out of COGS. If you're not paying on flat rate, I can see it, but it makes way more sense to me to include flat rate techs in COGS. Every management system I've seen also calculates labor as COGS by default when looking at sales summaries.
 

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49 minutes ago, Wheelingauto said:

Anderson, I have read this entire thread and it appears like you've been a very good student. Unfortunately I feel you are also quite arrogant in thinking you are the authority in auto repair management.

I realize the written word can sometimes be misconstrued but sometimes the things you write allow no other plans to be successful. Your way or the highway. You have a lot of reason to be proud and strut your stuff but when you do it I wish you would recognize there are other as successful if not more successful business models out there. You are also not the first person to be part of a 20 group, they have existed much longer then your business.

I realize I am new to this board (as far as participation) and maybe I am out of line but all I see is preaching from you that the way you do things is the ONLY way, and I am here to say it's not.

The statement above is what I am referencing, I have a similar sized shop, smaller staff, more sales and better net profits than what you've shared. I do no discounting of any sort, I have no menu based pricing (not even an oil change) and our business continues to grow without the headaches associated with discounting.

As far as accounting while I agree with your statement, I went to a seminar by Bosch a couple of weeks ago and the trainer was begging people to expense the cost of labor and not include it in COGS. So there are some out there teaching the opposite of RLO.

 

7 minutes ago, AndersonAuto said:

It's possible that I can be a bit opinionated. 1f600.png  At the same time, it's exasperating to see so many shop owners say that you can't possibly make any money with cheap oil changes, and that you'll only attract the "wrong" customers. I've turned cheap oil changes into a thriving business with a great bottom line. The last 5 years have been fantastic compared to the previous 15 years of working much harder for much less. Since I've seen a lot of data from other shops, I know that my customers are as loyal and spend as much as shops that refuse to use cheap oil changes as a marketing tool. Cheap oil changes are nothing but a tool to get people to notice you. I think it's a mistake to see it as anything other than that.

I'd love to see the Bosch trainer's reasoning for taking technician labor out of COGS. If you're not paying on flat rate, I can see it, but it makes way more sense to me to include flat rate techs in COGS. Every management system I've seen also calculates labor as COGS by default when looking at sales summaries.
 

 

It all depends on how you analyze your financials. For tax purposes we have to all file our figures accordingly so nothing is different when it comes down to filling out IRS paperwork. 

 

With that being said there is nothing inherently wrong with setting up your P&L to show labor costs as an expense and not apart of COGS. You would just have to come up with a system and key metrics to track your numbers differently. I think most of the aftermarket indy industry at large is used to calculating labor as COGS so it's much easier to relate financials and also get great ideas from different sources. It still doesn't take a genius to figure out your own calculations. Bottomline is the bottomline. If you are making money consistently and have a repeatable and explainable system then who cares.

 

In regards to "cheap" oil change. I believe that the biggest gripe is not with the business practice itself not working but rather the perception that it devalues the industry as a whole with discounting and the "cheap" mentality. I have to admit I have definitely struggled with this concept mightily over the years. I think part of the problem I have is that virtually 100% of the shops around me that have a culture of discounting and using price tactics are horrible operations and are a black eye to the industry at large. The strategy works. There is no denying that. Look at Greg Sands and the 100's of shops he has operated. 

 

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4 hours ago, mspecperformance said:

 

 

It all depends on how you analyze your financials. For tax purposes we have to all file our figures accordingly so nothing is different when it comes down to filling out IRS paperwork. 

 

With that being said there is nothing inherently wrong with setting up your P&L to show labor costs as an expense and not apart of COGS. You would just have to come up with a system and key metrics to track your numbers differently. I think most of the aftermarket indy industry at large is used to calculating labor as COGS so it's much easier to relate financials and also get great ideas from different sources. It still doesn't take a genius to figure out your own calculations. Bottomline is the bottomline. If you are making money consistently and have a repeatable and explainable system then who cares.

 

In regards to "cheap" oil change. I believe that the biggest gripe is not with the business practice itself not working but rather the perception that it devalues the industry as a whole with discounting and the "cheap" mentality. I have to admit I have definitely struggled with this concept mightily over the years. I think part of the problem I have is that virtually 100% of the shops around me that have a culture of discounting and using price tactics are horrible operations and are a black eye to the industry at large. The strategy works. There is no denying that. Look at Greg Sands and the 100's of shops he has operated. 

 

You're absolutely right, the bottom line is the bottom line no matter if your labor is COGS or an expense. For that matter, you can expense your parts purchases too, the bottom line won't change. I just have a hard time imagining how doing so makes management of the business easier. Maybe it's just a matter of no one explaining it to me in a way that makes more sense to expense than COGS.

I used to struggle with discounts as well. I listened to all the management experts who told me I'd get nothing but the wrong customer who will leave you at the drop of a hat. I've found that I get the same great customers I've always had, and no more bottom feeders than I've always had.

The shops that are a black eye to the industry will always be a black eye. We have a chain in KC that was started by a guy who was some sort of management for Midas. He's all about discounts, all the time. People hate his shops mostly for doing crappy work, but also because of what he advertises for a discount. If I advertise a $29.95 oil change, there's an excellent chance that you're getting out of here for $29.95 plus tax. But if I advertise a $59.95 brake job like he does, there's an almost 0% chance of getting out of there for $60. Good customers know that $60 is an unrealistically low price for a quality brake job and won't go to his shop. Bottom feeders salivate at the sight of such an ad, then are pissed when they're hit with an estimate for $700 brake job.

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I am on the same page we are looking to do full synthetic Dexos  / We are coming to a crossroads that most cars today are taking  full synthetic oils and or specialized European oils , how many do you try to stock , change your bulk tanks to and or drum goods to full syn dexos and fits everything. Inventory cost monies to . to satisfy only a few cheaper clients.

I priced it is an average of $3,00 per oil change to provide Dexos . The trouble also is most beginning  filters people are quoting on the subject ,  does not meet the OEM recommendation of a 7,500 mile Synthetic oil change.  

So bump the clients to a 5,000 mile interval with full synthetic .   Most Shops special's in are area our $16.95 to $19.95   - We do a $20.17 Special so if I take it to $29.95  with a cost $3.00 more I actually make more money . The clients that understand and want what is right for their car is my client any ways is a $29.95 Full synthetic oil change cheap [ Yes] What will it make the shops charging $49.95 look like Well Up to Them and most Shops Charging $39-$49 have a coupon  out their for $10.00- $15.00 off all the time , I do not want the coupon shopper  .

Quite honestly no one hear even mentioned what they spent on marketing /  advertising to stay busy [ Divide some of this monies spent with in giving your client base a cheap oil change how much can you save on marketing. ]

You need to lock you clients in not looking around period if that is a consistent oil change price so be it / for the grocery store it is pop , chips what ever .

 

 

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I do a 5000 mile interval on my full synthetic, and yes, I make more money doing $29.95 coupon synthetic oil changes than I did on $19.95 coupon for a blend.

I spend a boatload on marketing, to include the cheap oil change. ROI on that cheap oil change marketing is 680%, so to me it's just money in the bank.

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