Startup Feasibility

[ncsvoboda7]

Hey guys I had very good response to my last post so here is another one I need some help with.

 

I am currently in the planning stage of getting a shop going in Kansas. My question has a few parts to it.

 

1. How did you guys determine the feasibility or if the shop would make it in your area before starting? Also what resources helped you to come to this conclusion.

 

2. What types of strategies did you use to nudge your way into the market? Everyone is obviously already getting the work done on their car SOMEWHERE so how do you move into the market and start getting them into your shop? Any resources?

 

3. Lastly I would just like to hear peoples startup stories from a business perspective just to get an idea of what works and doesn't work in starting and growing an automotive shop.

 

 

Thanks guys love this forum!

[mccannable]

1. We saw a lot of opportunity for better quality customer relations with many of the shop in our town. Our internal motto has always been "we are the chic-fil-a of auto repair"(without any political/religious undertones) i.e. we will provide a consistent and positive experiences to every customer.

 

2. We open or doors officially later this month. We plan on heavy advertising(local papers, facebook (paid adverts), and mailers(cheap to do on rural routes) and branding. We have a high traffic location with plenty of road frontage.

 

3. I have wanted to step out of the corporate world for most of my short life but could not take a pay break from what I make now to starting a business. I finally found a partner I can say I trust. 2 years ago we starting the vision. We have been planning, working with our mentors, studying and trying to plan and learn for every possible scenario. This month it goes into action and we feel very well prepared.

 

From a business start up prospective: I went back to school to learn accounting and take small business classes. I read plenty of books including the famous "E-Myth". We worked with monthly action plans to keep us on target. We have a great mentor that runs a very successful(1.3mil) shop and if we succeed he will get most of the credit. And I saved like mad.

 

 

I may not be the best story because we haven't proven ourselves yet but failure is not an option for us.

[ATLAuto]

Great post. I would like to hear some startup stories myself.

 

I did the following analysis in our business plan to determine if our market area could support yet ANOTHER shop:

The average US household spends 1.5% of its income on vehicle maintenance¹. This includes scheduled and unscheduled service as well as parts purchased directly from suppliers. Based on the 3 mile demographic data in the following section, this allows for $77MM of available automotive repair business annually. A conservative estimate of 60% of this business will return to the factory dealership for service², leaving $31MM in available demand.

22 businesses are competing for this demand of $31MM. The average US repair facility annually generates $364M in gross revenue³. Assuming higher revenue of $1MM due to the higher income demographics, this shows a supply of $22MM, or a demand-supply deficit of $9MM.

Sources

1. ftp://ftp.bls.gov/pub/special.requests/ce/share/2004/age.txt

2. http://www.census.gov/compendia/statab/cats/wholesale_retail_trade/motor_vehicle_sales.html

3. http://www.underhoodservice.com/issue/article.aspx?contentid=39966

It was a bit tough to get the numbers, so I had to make a few assumptions. When making assumptions, I always made them in a way that made the scenario look worse. If the business plan still works even under the worst case scenario, you should be set.

 

Also, if you need a hand getting free demographic or traffic data for a corner, let me know.

[ncsvoboda7]

Great post. I would like to hear some startup stories myself.

 

I did the following analysis in our business plan to determine if our market area could support yet ANOTHER shop:

The average US household spends 1.5% of its income on vehicle maintenance¹. This includes scheduled and unscheduled service as well as parts purchased directly from suppliers. Based on the 3 mile demographic data in the following section, this allows for $77MM of available automotive repair business annually. A conservative estimate of 60% of this business will return to the factory dealership for service², leaving $31MM in available demand.

22 businesses are competing for this demand of $31MM. The average US repair facility annually generates $364M in gross revenue³. Assuming higher revenue of $1MM due to the higher income demographics, this shows a supply of $22MM, or a demand-supply deficit of $9MM.

Sources

1. ftp://ftp.bls.gov/pub/special.requests/ce/share/2004/age.txt

2. http://www.census.gov/compendia/statab/cats/wholesale_retail_trade/motor_vehicle_sales.html

3. http://www.underhoodservice.com/issue/article.aspx?contentid=39966

It was a bit tough to get the numbers, so I had to make a few assumptions. When making assumptions, I always made them in a way that made the scenario look worse. If the business plan still works even under the worst case scenario, you should be set.

 

Also, if you need a hand getting free demographic or traffic data for a corner, let me know.

So did you calculate all this out based on the exact area that you are planning to open your shop or did you do this on a country wide scale?

 

Also yes i would really like to get my hands on some more demographic information for the city that i will be opening my shop in please let me know thanks!

[mmotley]

you should be able to google traffic count maps for your area, also income level maps.

 

http://www.city-data.com/ is good for income maps

[ATLAuto]

So did you calculate all this out based on the exact area that you are planning to open your shop or did you do this on a country wide scale?

 

Also yes i would really like to get my hands on some more demographic information for the city that i will be opening my shop in please let me know thanks!

 

This data needs to be calculated for your exact area. In reality, we were looking at 6 different shop locations in our city (Atlanta is pretty big). So, I did this calculation 6 different times.

 

The data you need will be:

• How many people live within 1mi or 3mi from your shop (1mi for inner city, where folks travel less to get to shops, or 3mi out in the country)?
• What is the median household income for that area?

With these two numbers, you can calculate how much wealth is in the area, and then take 1.5% of that to determine how much that area is going to spend on auto repair a year total. 1.5% is a national average that each household spends on car maintenance. This number will be lower in poorer areas and higher in wealthier areas.

 

Then, you need to figure out how much of that total repair is going to independent shops vs. dealerships. This one was tough, as it can vary so heavily based on how new the vehicles area in your area. I stayed conservative and just said, "60% of the cars in our area are going back to the dealership." I have no idea if this is correct or not, but it's on the safe side for certain.

 

Now you have the "demand" for repair in your area calculated. Now, all you need to do is calculate the "supply." To do this, I simply added up all the other indy shops in a 1mi or 3mi radius and guessed at how much work they did a year. It can be tough to figure out how much revenue another shop generates, but a good rule of thumb is $250k in sales per bay (link to R+W on this).

 

With the demand and supply figured out, you should have a good understanding of whether or not the area can support another shop. Hopefully, the demand is much greater than the supply, and you can entire the scene. If not, I would stay away.

 

Finally, even if the demand is heavy, I would recommend starting on a busy street or lighted corner where people stop and stare at your shop while waiting for the traffic to turn. This is debatable, but my mindset is "every dollar saved on rent in a poor location, you will pay out again in marketing to get people to your location."

 

Hope this helps.

[ncsvoboda7]

Essentially I am wanting to follow a business model much like Quiktrip. When you think gas station you think grungy building with weird smells and bathrooms you wouldn't even want to see. But Quiktrip turned that idea on its head and has made a chain of gas stations that are clean modern upscale and that have a lot to offer.

 

I would like to do the same with a tire and auto shop, I want it to be a more upscale shop that yes will cost people maybe a little more to come to but a shop that people know that if they come to they will get more than quality service.

 

So how do I know that my area will support that specific business plan?

[Sean]

The local economic development center provided me with " automotive aftermarket" reports that break down what is spent on automotive items in my county. This allowed me to see that the market in my county was X dollars for auto repair. This in turn allowed me to formulate a plan.

[CARMandP]

You can also talk to companies like Mudlick Mail who specialize in mass marketing mailers. I got a great study from them for free of my local homes in the area. Pretty cool idea and it was free I will probably be going with them for my mass mailing as soon as I can get the money set aside.