busy not profitable

[ssauto]

Guy I need help. We just celebrated 1 year of being in business and I am not happy with the shop profit. I feel like we are busy. We pay the bills and salaries but nothing extra to go to bank.

Our spec:

$65 pre hour

average 35% on parts

15% on tires plus $2.00 dispsal per tire and $12.99 mount/ balance per tire

brake specials at $109.99

2 bay shop. 2 techs, 1 office manager

Any ideas that could help the bottom line or % on parts that may help?

[xrac]

Guy I need help. We just celebrated 1 year of being in business and I am not happy with the shop profit. I feel like we are busy. We pay the bills and salaries but nothing extra to go to bank.

Our spec:

$65 pre hour

average 35% on parts

15% on tires plus $2.00 dispsal per tire and $12.99 mount/ balance per tire

brake specials at $109.99

2 bay shop. 2 techs, 1 office manager

Any ideas that could help the bottom line or % on parts that may help?

 

Here are my thoughts.

 

Are you using book labor time? Amazingly some shops do not and most short change themselves.

 

Can you nudge your labor time up in your market and what would be the impact. Maybe you need to go to $67 or $68? We are in a small Midwest town and our rate is $78. We are about as high as anyone here except the dealer. However, we have not gotten any negative feedback about it.

 

Your markup on parts is too low. 35% is about what we get on dealer parts and that is as low as we go.

 

You mark up on tires is too low. On tires I try to make at least $20 per tire plus mounting and balancing. Our installation package with disposal is $16. However, it is hard to be competitive with tires if you don't buy right.

 

What is you shop overhead: rent/mortgage, taxes, insurance, and utilities?

[TheTrustedMechanic]

Guy I need help. We just celebrated 1 year of being in business and I am not happy with the shop profit. I feel like we are busy. We pay the bills and salaries but nothing extra to go to bank.

Our spec:

$65 pre hour

average 35% on parts

15% on tires plus $2.00 dispsal per tire and $12.99 mount/ balance per tire

brake specials at $109.99

2 bay shop. 2 techs, 1 office manager

Any ideas that could help the bottom line or % on parts that may help?

 

First off, this is a VERY touchy topic due to anti-trust laws. But I will put in my $.02. Your labor rate and parts mark-up must be competitive to your market, not mine or other members, your market. With that said, I agree about maybe moving your labor up, but you will have to survey your competition.

 

I don't know about the mark up on tires since I do not sell tires.

 

You say you are busy, how busy? What is your efficiency rate? That means how many hours are you selling for the number of hours you are open? Here's where it gets tricky, if you are open 9 hours a day but only average 6 hours of available work, you will never reach 80-90% efficiency that most consider a highly efficient shop. But if you are scheduling only 6 hours because that is all you can finish in a day then you are losing money due to inefficiencies. These can be your parts ordering method, your technicians are simply too slow and need an incentive or replacement, or maybe your shop layout? Believe it or not I talked to one shop owner who, by simply putting up two additional identically stocked supply cabinets (you know brake clean, penetrating oil, silicone spray. etc.) and taking the doors off the cabinets he gained 2% efficiency. Doesn't seem like much, but some management gurus will tell you just a 5% shift in efficiency will yield thousands in additional profit. Think about it, you are paying the bills and making a living. Assuming you are running 100K (parts & labor, just an example) per tech, that 2% translates into an additional $4000.00 per year, just for two more cabinets and taking the doors off. Easy money. Now some shops are just not set up to meet maximum technician efficiency. Assuming yours is and you are busy every minute of every day, are you booked out a week or two in advance? If so your prices are too low. I suspect being a two tech, two bay shop that you are not highly efficient. You need at least one more bay for two techs. Think about, you've got a brake inspection done and waiting for the office manager to finish the quote and sell the job, what does that tech do? Put tires back on and move on only to rack it back up and pull the tires to do the job later, or wait for approval? Or how about the u-joint job where your tech has pulled the driveshaft only to find out there are four different u-joints available and you got the wrong one and have to wait 1/2 hour for the parts delivery of the right one? Wasted time and highly inefficient. He should be able to move on and utilize a second hoist for the next car, unless you always have flat bay work four seasons.

 

And how are you selling brake specials for $110.00? Again here, please be careful of anti-trust laws if you reply. But a decent set of pads will run you half of that. If you compete on price guess what you will get? Price shoppers and you will never make any money on them. All they want is cheap. I am currently trying to break that trend at my shop. I still offer specials and coupons, but I am trying to move them upscale to the point where I will make money and they have broad appeal, not just a cheap price. But back to the brakes, if you are just slapping in another set of pads and scratching the rotors sure 45 minutes may be enough. I checked book time on every brake job my first year and do you know what I found? Some really scalped you on pad replacement at .6-.7 but most were 1.0 plus .2-.3 each for machining the rotors. So that is an average of 1.5 hours, at your labor rate you are only charging 12.49 for pads and brake clean, no wonder you aren't making money. And what about the brake complaints from a poorly done job? Again, survey your competition, not from your shop phone, and get a feel for their pricing. You will never be able to compete on price because someone will always be advertising a cheaper deal to get them in the door only to upsell the devil out of them. Sure you will feel like you're losing a lot of work, but if you aren't making any money on it, what's the point? You will provide your customer clients much better value if you use a quality part and do a thorough job than if you do it cheap. Or maybe that's the reputation you want.

 

And the last item I can quickly think of is do you need all of this staff? If your efficiency is not there then maybe you need to reevaluate your staffing needs. For two bays you really need top efficiency to support that many paychecks. I suspect you are simply overstaffed for the shop you have. Moving a business sucks but unless there is additional space available to you, I'd be looking at a bigger shop, nearby. That extra bay probably won't cost you as much per year as the lost efficiency of your techs standing around. It won't take an extra 15 minutes a day of productivity per tech to make you able to afford $500 a month higher rent. If you have mortgage then maybe look into adding a bay. Of course you will have to evaluate your specific situation but I'll bet having that extra bay will increase your per tech productivity greatly.

 

And yes this was easier to write than it is to implement, but you asked for advice.

 

And if you want, I have a system for more efficient communications between the techs and the front office. Make it as non-verbal as possible. It really works and saves time. Contact me for more details.

[Joe Marconi]

Excellent analysis! The balance between being profitable and competitive can be tricky at times, but being profitable is job 1. Let me add a few thoughts: Every business needs to do cost analysis to find what their breakeven is. Not that shops should settle for breakeven, that’s just surviving. But understanding what it actually costs to put the key in the door everyday will show you what you need to make a profit and how important it is to be profitable on every job.

 

Also, identify your customer and market to your customer. Don’t worry too much about those that want the cheapest job. Competing on price alone is a recipe for disaster.

 

I have to agree that shop efficiency is probably where many shops loose the most money.