How to Measure ROI on Your Next Equipment Purchase
Return on investment has different meanings to different shop owners.
By its definition, return on investment (ROI) is a way to evaluate or measure the efficiency of an investment. Whether you are a longtime shop owner, one who is getting started or fall somewhere in the middle, when it comes to equipment purchasing, it is all about assessing your needs as a shop and investing in equipment to meet those needs. Here’s what ASA members say about what return on investment means for their shops:
Randy Pickering has been in business for 38 years, 16 of them in his current location in Lakewood, Colo. When he built his current shop, Pickering’s Auto Service Center, he wanted a state-of-the-art facility that was fully equipped. He wrote a business plan to get a loan and included money to buy all of the equipment he thought a fully equipped shop would need. He says his approach to equipment purchasing is more about need and less about strategy.
For example, several months ago, he purchased a piece of diagnostic equipment that one of his techs said would be beneficial to his job. Because Pickering placed value on his technician’s efficiency (and opinion), he trusted his tech to guide him. He purchased the equipment, and the tech informed him that his diagnosis time has improved. The return is less time spent, which results in more money made for Pickering’s shop.
In addition to equipment creating more efficiency in how your shop functions, another benefit is that it creates confidence on the part of your customers when they see that your shop has the equipment to service cars properly.
Ron Haugen, president of Westside Auto Pros, Des Moines, Iowa, sees investment in shop technology as smart business. “To not be continually buying or upgrading equipment is falling behind and on the road to going out of business,” says Haugen.
Return on investment can mean different things to business owners. For example, a shop may choose to invest in an expensive alignment machine because it sees it as a growth opportunity since tires/alignment are some of the few things not covered under warranties by the dealership.
Other owners will not purchase tools or equipment unless they make money. If it’s a vehicle make/model that they don’t service, they will not invest in the tools.
Sometimes equipment purchases aren’t always clear-cut and it may take a while to get the return on investment. That is what Donny Seyfer, AAM, of Seyfer Automotive, Wheat Ridge, Colo., and ASA chairman-elect, has experienced.
“A tool that gathers dust is of no value so I look really closely at whether we are ready to use a new technology. I am not always right. We bought the Chrysler Wi-Tech last year after a bunch of late-model CAN Chrysler and Jeep diagnostic work came into the shop,” says Seyfer. “We wound up only using it about once a month over the last year. ROI has not been very good on that one yet. Some tools like alignment machines, which are often the most expensive machines you own, perform an inexpensive operation and can only be measured by other work that they allow you to do and complete because you own them.”
Terry Wynter, AAM, of Terry Wynter Auto Service, Fort Myers, Fla., offers this advice when it comes to ROI: “It’s all about striking the right balance between the cost of equipment and how much gross income it can generate. Our purchases are for the makes we see the most, such as domestics and Asian imports. For brands that we cannot justify investing in the OEM equipment, such as high-end imports, we subcontract diagnostics to specialty shops.”
Vernon Menke Jr. of Menke’s Auto Repair, Newburgh, Ind., sees ROI as seizing opportunities to serve his customers. “If we don’t have a certain scan tool, how much money will we lose out on? How many vehicles will we have to pass on?” he says. “If you’re not ‘service ready,’ you’ll lose out on those customers. You have to have the right equipment for your staff so the workflow can be completed in a timely manner. Once we get that piece of equipment, we market for that brand of car to increase our car count so the equipment can pay for itself.”
Financing options for purchasing equipment
Financing options can widely vary from traditional loans to special interest payment plans and other nontraditional routes. For example, Pickering has an arrangement with his local NAPA parts store around equipment purchases. NAPA will bill him over several months with no interest since he purchases parts in high volume. Recently he wanted to purchase some diagnostic equipment and he called NAPA officials to ask if they could sell it to him. They agreed but informed him that they were not a distributor for that company.
So Pickering called the manufacturer directly and asked if it could sell NAPA the equipment and he could turn around and purchase it from NAPA. It agreed and drop shipped the tool directly to him and he received 120 days of no-interest financing on the purchase from NAPA. “So, the long and short of it is I needed the tool and got free financing. No bank will offer that kind of financing arrangement.”
Seyfer has also used NAPA financing for his shop’s purchases and also benefits from the ASA Federal Credit Union.
“We use the ASA Federal Credit Union for big purchases. For the smaller ones we either pay cash or do a 90-day deal with NAPA,” he says. “We don’t have a budget for purchases. Generally we save up for bigger purchases or buy them during highest cash flow times. Sometimes we sell old equipment but many times we are adding a tool, and the old one will still continue to be used.”
Ron Haugen, president of Westside Auto Pros, Des Moines, Iowa, prefers to pay for his equipment purchases with cash. He purchases equipment annually, and it’s typically based on a need such as a scan tool to better service a specific type of car or system or tire/alignment equipment to service later model vehicles and systems.
Haugen finances his equipment sales by saving 5 percent on his gross sales each week and deposits that amount into a savings account. He then uses
the savings account to pay property taxes, buy equipment or fund other capital expenditures. “Most shops will not notice 5 percent moved,” he says. Westside Auto Pros does sell its old equipment but only after the new equipment is in place for a while, and the shop is satisfied with its performance.
Haugen believes owners certainly have to look at ROI but he also thinks that you have to be able to say yes to a purchase. “In today’s market, people expect you to have the training and resources to repair their car. If you don’t, then they may not think of you the next time they need something. Not all equipment is going to have a, ROI, but in many cases you still need it.” As a rule of thumb, Haugen looks at the make of vehicle, and if it’s in the top 10 of vehicle repair by makes in their shop management system, they proceed with the purchase.
When it comes to equipment purchases, ROI can best be measured by the value that shops place on purchases. Each shop may assign different values to different equipment. In the end, if a shop is more efficient, productive, profitable and happier, then ROI will be well worth it.
Credit Union Offers Affordable Options for Purchasing Equipment
ASA members have an ASA Federal Credit Union available to them. Member-shop owners as well as their employees may become members of the credit union. A credit union is a nonprofit, cooperative financial institution owned and run by its members. Credit unions provide their members with a safe place to save and borrow at reasonable rates. Members pool their funds to make loans to one another.
ASA’s Federal Credit Union offers loans to ASA members for a variety of purchases, including equipment. Please contact LouAnne Demonstrati for more information by calling (800) 272-2220 or visit its website at www.asafcu.org.
New Associate Member Serves as Broker for Purchasing Equipment
One of ASA’s newest associate member companies, EquipmentStreet.com, offers members a new avenue for purchasing equipment. The company seeks to match shops looking for equipment with sellers of equipment. Boasting a more streamlined approach to finding, purchasing and even shipping equipment that your shop requires, EquipmentStreet.com hopes that its website will be a “go-to” resource for shop owners/managers when they need to purchase equipment. The company also offers a variety of financing options. If you want to save time, money and precious resources when it comes to shopping for equipment, check out www.EquipmentStreet.com to see if it’s a match for your business.