The Size of the Problem by Mike Lee Management Success!

Mike Lee
Co-founder
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.

Solutions:
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

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It's The Economy! By Mike Lee Management Success!

Mike Lee
President
Management Success!

Ah! Over the years, we have heard this complaint on numerous occasions. Shop owners complaining about things getting tight and that there is not enough business and "I can't pay my bills, etc."

Let's go over some basics about business and handling the "tight economy." A shop goes through cycles or periods of where business is good followed by a period where business is bad. This has been going on since the beginning of time. So we can conclude that it is going to happen again. It appears we are in one of those times when things are a little tough.

Now, if you have been through this before, hopefully, you have learned some things. Some businesses survive and a lot don't. Why? Most of the time, the shops that survive know how to handle the tough economy!

They do the right actions which helps them through the difficult period. Such as:

Work Harder

Successful shops know when the economy gets tough, they have to work harder. What I really mean is they have to work smarter. Just working an extra 3 hours day will not solve the car count problem. It will not solve a shop that has gotten lazy and dropped out successful actions they were doing when they were small.

The most common of these successful actions is they used to be "hungry". When they first started in business, they were very aggressive. They did whatever it took to get business in the door. Many times, new shops will pass flyers out door-to-door or in malls promoting that they were a new business that was opening. They passed out business cards to everyone they knew.

But as soon as they got busy, they stopped these actions, even though they contributed to the shop getting busy. So part of the working harder is go back to being hungry and aggressive.

Promote!

They promote! This doesn't mean they spend a million dollars on advertising or promotion, but they do actively increase their efforts with their customers. They are able to effectively get results without having to spend lots of money doing it.

When things slow down, shops tend to stop promoting. This is not the right thing to do.

I love people who spend lots of money to learn how to create tricky, expensive promotional campaigns. When in reality, the key to promotion is word of mouth. So instead of spending tons of money on promotion, you can increase your car count by having a plan to spend more time with your existing customers.

Personal contact with your existing customer costs you additional time, but is more effective than any promotional piece ever created. Explaining the bill and what you are doing and why is very effective promotion. There is no promotional piece that will replace having a high care factor and good communication skills in dealing with your customers.

Fix The Cars!

The other day I got an e-mail about a problem a potential customer was having. He was complaining about bad checks, business slowing down and then proceeded to give a full picture of all the promotional actions that he was doing. He was spending a ton of money and he indicated that 50% of his business was new customers. He asked a ton of questions that did not make any sense.

I asked a couple quick questions like what his average repair order was and what was his cost of parts and labor. It was very obvious that he had other problems than promotion problems. The number one problem was the quality of work going out the door.

When 50% of your weekly business is new customers, wow!! Something is definitely wrong in the quality of work. A growing and expanding shop is built on repeat business and word of mouth. The part of the industry that has heavy repeat business needs to have about 90% of their business be from existing customers or you are starting to have problems.

If you are in the part of the business that doesn't operate on repeat business, then word of mouth is everything to you. Every time you finish a car, you put a referral out in the world. This referral is either good or bad and generally it is up to you to make it a good referral.

First Rule of Promotion: Fix the Car

Second Rule of Promotion: Treat the customer fairly with a high care factor.

I know of shops that do no promotion or are not even listed in the yellow pages, but they do terrific business, because of the way they fix the cars and handle their customers. They have a good number of new customers coming to their shop because of referrals from their existing customers.

A New Level of Expense

In good times, shops tend to get very lax on the control of the money. They start buying things and expanding without looking at the long term effects of this. They take on heavy debt and commitments due to the fact that they are making lots of money and it appears to be no problem.

But when the economy slows down, they begin to get into real trouble because their monthly overhead is now out of sight. While smaller and the overhead was low, they could handle a drop in business and survive rough times.

I find that the most successful operations go back to the basics when business slows down. They work smarter. They get more aggressive on making sure that they are doing everything that they know helps create good customer referrals and repeat business. They tighten the financial belt, make sure that they don't spend money on things that don't work and do spend money on those that do!

I hope this helps.
Mike Lee

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