While many consumers opt to head to the dealership, more and more are taking advantage of better pricing and the friendly atmosphere of independent auto repair shops. Independent shops offer much more, including a personal touch, a community-oriented approach and competitive pricing. Independent shops have seen a significant increase in business in the past few years, and this trend continues each year. Shop owners are well-positioned to capitalize on the growing consumer interest in independent auto repair shops. Chris Cotton, a coach at AutoFix Auto Shop Coaching, shows how a shop can be profitable – even grossing over $1 million per year.
A shop owner should be able to take $68,000 per year plus have 25 percent of profits net ready cash for operating expenses. Minimum. Those numbers might sound like you’re ripping customers off, but you’re not. When you learn how to manage your business, including your employees, and market your business, you can easily do that with four techs or three techs and one or two service advisors – without ripping off customers.
Your overall profit should be 65 percent or better. Labor margin, including taxes and benefits, should be 71 percent. Keep labor the bulk of your profit, as people are very parts conscious.
Getting to the Shop Numbers
There are many ways to get to these numbers, including:
No Commingling Funds
Many people who open a business commingle funds. This is a bad habit that is set when a business first opens. The business is not making a large profit, so the owner takes out what he or she can and often claims personal items as deductions for the shop, such as a vehicle or cell phones for the family.
Keep a shop budget and a home budget. Don’t commingle funds. You can increase your standard of living as the shop does better – and it will!
If you have a problem with people writing bad checks, demand credit cards or cash only. Bad checks aren’t doing anything for you, and they can be a significant profit loss.
Make sure you know how to manage your labor rate, including setting the rate. You want to be competitive, but at the same time, you don’t want to undercut yourself. Whether your employees are hourly or work on a percentage of the labor rate for each job (commission), pick one and stick to it. For some, an hourly rate is easier to manage since the pay rate and taxes stay relatively the same every week. For others, using commission is easier.
Processes and Procedures
Set processes and procedures for the shop and stick to them. These include employee pay and benefits, profit margins on parts, and other factors. Different parts can have varying profit margins; in fact, it’s advisable that they shouldn’t. Less expensive parts can have a higher profit margin without complaints from customers, while more expensive parts may have a lower profit margin. Most shops have a 25 to 30 percent profit margin on parts, depending on whether they sell a lot of low-ticket items or big-ticket items.
Continue Growing Your Shop
Some of the factors you must also take into consideration when growing your shop include:
- Consumer Trust: Build strong relationships with your customers.
- Competitive Pricing: No matter how much you want to make, you’re not going to draw in customers if you are priced too high. You can make the above numbers with competitive pricing and a combination of other factors.
- Diversify: Hire a combination of techs who can work on various vehicles, including hybrid, electric and diesel vehicles, in addition to gas-powered vehicles. You might even consider a Euro car specialist.
- Faster Turnaround: People hate being without their vehicles. A fast turnaround – as long as you can do it without sacrificing quality – helps considerably with ROI.
- Communication: Not only should you have excellent communication with employees, but you must also have excellent communication with your customers. Many will find another shop if they don’t think you communicate well enough regarding the estimated time of completion and price.
- Overhead: It can be hard to keep overhead down, but there are costs you can cut or eliminate. Creating a budget for the shop is the best way to see where you can cut without losing employees and customers.
- Community Engagement: Be a part of the community. It doesn’t matter if you help by sponsoring an event or showing up to volunteer your time at an event. It shows goodwill toward the community and gets your name in the limelight.
- Marketing: Always market your shop professionally. Never give up on marketing. If you have a budget, you can market when times are tough. Many businesses – not just auto repair shops – cut marketing when business is slow. This is the biggest mistake any business owner can make.
Contact Chris Cotton at AutoFix Auto Shop Coaching
Whether you are just starting, at the stage when you really need to add another tech but are not sure you can, or you are flying up the success ladder, contact Chris Cotton at AutoFix Auto Shop Coaching to learn what you don’t know about growing your business.