Monday, June 17, 2013

The Size of the Problem by Mike Lee Management Success!

Mike Lee
Management Success!
It is an interesting phenomenon to talk to a shop owner whose statistics are downtrending, whether it is a small shop without enough work or a big shop that is still doing a good volume of cars but isn’t making enough money.    Whatever the situation, the owner doesn’t seem to be able to fix it.

The manifestations of confusion are varied, depending on the problem.   Let’s start by first identifying the problem, which can usually be described as “they are not making what they need to be in order for them to be happy and winning in the business.”  (Translation: They are not making money!) 

It Is The Economy

When a shop is not doing well, there are many reasons that create the problem.  Normally, the shop owner picks out the one that seems to be the most obvious.  There is not enough work, or customers are not spending like they normally do.  

Whatever the shop owners have been doing to solve the problem has not worked and they go into apathy!   Oh! Talking to them about solutions is like talking to a stone wall.  They aren’t listening and they are sure there is nothing that can be done about it.

But, I never let that stop me!   So I start attacking the problem.   When I ask what the problem is, they start bringing up vague generalities in which there appears to be no possible solution.

1. “Its the economy”
2. “The customers are not spending money on their cars”
3. “Everyone is slow”

You can’t solve any of those problems, because they are a generality and it is not the real problem in terms of the business.   The first step of solving their problem is to move the owner out of apathy!  (Translation:  Moving him from “there is nothing that can be done about it” to “well maybe something might be able to be done about it.”)

The Size Of The Problem

We start by defining the size of the problem.   I first ask what their gross monthly sales have been on average.  Let’s say 40,000 a month.   Next, I ask how much their monthly breakeven is.   Let’s say that is about 43,000 a month.    Obviously, he is losing about 3,000 a month!   If he wants to make at least an additional $1000.00 that means about $4,000 more a month is really the size of the problem.

Ok!  We are at least recognizing the real problem (not enough money) and the size of the problem ($4,000 more a month).  First step in handling a problem is to clearly define what the real problem is.   If you do not identify the real problem, then every solution to the problem will not work.

There is no solution to the economy being bad other than to ignore it and concentrate on the problem the bad economy created for you and your shop.   The real problem that a bad economy created for you is the fact that you are not making enough money to break even or heaven forbid, make some money.   

So if you don’t find the size of your problem, then it is unlikely that you will come up with a solution that will fix the real problem.   Everything is dependent on identifying your real problem and then confronting and handling the real issue.

Next we want to break down the real problem (not enough money) to a size that can be confronted, and then come up with a real solution to handle it.   So in this case, I would ask the guy how many cars he does a month.   Let’s say 200 tickets a month.  If we divided the $4,000 more he needs to make, by the current amount of cars that he is doing, then it turns out that he needs to average $20.00 more per ticket on the work that he already has in order to go from total apathy to where there “might be something he can do about it.”

Or since he is averaging about $200.00 per ticket now, he would need just one more car a day.

Let’s look at a possible solution to getting the $20.00 more per car or getting one more car a day to come to his shop and buy the normal services he offers.

Look, I know about 7 or 8 ways to get $20.00 more per car and probably 3 to 4 ways to get one more car in the shop.  I know how to be more efficient and increase the production of his people.  This doesn’t even count the ways the average shop is just blowing money out the door and doesn’t know it.

1. Do Pre-Service inspections on each car.  This is generally good for $15.00 more per car.

2. Do complete inspections on every car.  Doing it right and selling it right, means easily $20.00 more per car.

3. Get your service writer trained so he does a better job of getting new customers in or handles the current customers properly.   Increasing the Service Writer’s closing rate is good for 2 to 5 more cars a week, which is worth about another $1,600 to $4,000 a month increase.

Body Shops:  Oh!!! Oh!!!  Please, getting your Estimator trained on handling the Insurance Companies if you are part of a DRP program, or increasing the capture rate on estimates if you are not, is good for $1000.00 a week more or the $4,000 a month alone.

Likewise, learning how to increase your shop efficiency in a Body Shop is good for at least one more car a week which is another $4,000 a month.

4. Increasing the production of your technicians 3 or 4 hours week is good for $200.00 per technician.

5. Putting in an effective referral program with your existing customer base is usually good for 2 to 5 cars more a week.

Well like I said, there are about 7 or 8 things you can do to make a change in the overall condition of your operation without costing a ton of dough and changing the bottom line from a negative to a positive.

But, then again, it requires that you want to change and you are willing to change, and that you know how to implement the changes.   

I highly recommend you read the article from Scott Bickley of Little Wolf Automotive in this brochure to see what can happen when you change your mind and start doing something different.

I wish you much success!
Mike Lee

Management Success! Automotive Shop Website Design