How to Increase Your Shop’s Gross Profit Without Raising Prices
Implement these simple tips and start seeing your shop’s productivity and profits grow.
Editor’s Note: This article contains an example of fictitious labor rates and in no way should be considered advice regarding the setting of labor rates for any business.
Gross profit (GP) is the money left over after you buy something and sell it. To increase GP, either bill more hours or buy parts for less.
Rather than yelling at people to work faster to produce more hours, let’s first look at this backwards. What is being done that reduces the number of hours billed?
A shop with a modest $90-an-hour labor rate and parts sales of $90 for every billed hour will be selling $180 per hour or 3 bucks a minute for each tech. 3 bucks a minute?!
This means every minute your techs are held up, you lose 3 bucks. When the tech has to wait five minutes for a service adviser to finish a phone call to get another job assigned, that just cost you 15 smackers. When an adviser has to spend a lot of time to make a sale, that slows up production, too.
So, let’s start with streamlining the operation. If the shop opens at 8 a.m., that means that everyone is present, cars pulled out, air compressor up and running, coffee drank and last night’s game discussed by 8 a.m. At that time, the techs should have cars in their bays and be turning wrenches.
1. Always have a goal of having work to do and parts pulled for each tech, everyday, the minute the shop opens for business. A half-hour lost each day in a three-tech shop results in 270 smackers a day in lost sales (3 techs x 30 minutes = 90 minutes, x 3 bucks a minute = $270.) If that doesn’t register, that comes to $1,350 per week or $70,000 every year. Would you take a job if all you had to do was make sure that there was work for three techs each day, for the first 30 minutes of business? After that, you could go home. The pay is 70 grand a year. I guess you could learn to fish to occupy the rest of your time.
2. As soon as the appointment is made, order the parts or pull them from inventory and put them in a box with a copy of the repair order clipped to it. This avoids techs waiting for parts or service advisers frantically trying to locate parts that suddenly became scarce. You can’t do this on every job, but there are many jobs where an appointment is made for specific parts – timing belts, scheduled maintenance, specially ordered parts or previously recommended repairs. Do it then.
3. Send someone on a road test with the customer on all noise complaints, to hear the noise. We all know how much time can be wasted trying to hear what isn’t there. If it doesn’t do it, reschedule it or reach an agreement on what you’ll do.
4. Make a list of things people ask you to do, put a price on it and sell it. I used to have people ask me to “check it over, I’m going on a trip.” I gladly did this for free. I finally woke up, printed a nice check sheet and called it a “Vacation Inspection.” It sells great and everybody is happy. Develop an “overheating checklist,” a “pre-purchase” inspection, an inspection for a student going away to school or a “keep it or trade it” inspection. Print them out, so they can be seen. Put reasonable prices on them. Suggest that people buy. The lists are nearly endless. See next item.
5. Reduce the number of “free” things you do. Far too many shops are tearing cars apart looking for things to sell to make up for the time lost tearing cars apart. Develop a schedule for maintenance, price it fairly and make it in harmony with the manufacturer’s intervals. When people pay you to find things, they’re more likely to buy your recommendations.
6. Reduce the time lost figuring stuff out on strange makes of cars with which you are not familiar. So what if one of your customers decided to buy the last old Jag XKE? Look at the time that’s lost. Focus on what you do best and concentrate on those cars. Gradually reduce the makes you no longer can afford to take in. Tell the Jag owner that they don’t want you anywhere near “that kind of car.”
7. Preassign all appointments to the techs who are best suited to that type of work. Techs can be far more efficient when they understand, ahead of time, all the things they need to do in a day. Do the diagnostics and inspections first, then work on the simple lists of things to be replaced later. This allows time to locate parts and prepare estimates, while the techs are working on other things. Put your best people on the things that they do best.
8. Keep an inventory of fast-moving parts. Run a job showing your 100 (or 50 or 20) fastest-moving parts. Do your best to stock them. Run weekly stock orders to eliminate the times you run out of something. This includes motor oil, valve stems and coolant. Don’t trust outside sales people to keep you stocked.
9. You really need an inventory of the little stuff that holds up a big job. Cam and crank seals are a few bucks and can hold up an expensive timing belt job. “But you work on too many different makes?” What did I tell you about that?
10. Get your techs and office staff involved. “It’s 3 bucks a minute!” Keep communication open and invite suggestions to make things easier.
11. Make job kits using your shop management software on everything you do. It saves time looking things up and helps you remember that little clip that’s needed to finish the job.
12. Concentrate parts purchases with one or a select few vendors. Keep a running purchase order each day and submit it at the end of the day. This gets you better pricing, less time spent calling all over for parts and the whole place is more organized.
13. Ask your vendors for a better price. Ask them for better terms or early-payment discounts.
14. Use quality parts. Cheap stuff takes too long to put on, since it doesn’t fit and causes too many comebacks. It’s 3 bucks a minute! Stop calling around to see who has the best deal.
15. Invite phone callers with emergencies or tow-ins to get the car to your shop right away. Tell them you’ll do your best to get it evaluated quickly. Even though you may be very busy, you may as well have the car at the shop in the event a tech does have an opportunity to look at it. Some shops put too much effort into finishing every car every day, and end up with unsold time at the end of the day. Don’t be afraid to hold jobs overnight. Unsold time costs you 3 bucks a minute, you know.
16. Create a standby system for these cars. Late afternoons pay as much as early mornings. Most shops lose a tremendous amount of gross profit by not keeping their techs working the whole time they are available for work. Busy hands are happy hands.
Just a few of these ideas, properly implemented, can produce like a gold mine. Start evaluating your own business and look for ways to make these work. All you have to lose is 3 bucks a minute.
Editor’s Note: This article is one in a series of management articles contributed to AutoInc. by Automotive Management Institute (AMI) instructors. To learn more about AMI, its courses and instructors, visit www.AMIonline.org. AMI administers the distinguished Accredited Automotive Manager (AAM) program.
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