Manage Your Way to a Profitable Shop
If you're like most repair shop owners, you've got your eye on your bottom line, and you always want it to be a little higher. In our last post, Will Your Repair Shop be Here in 5 Years?, we talked about how you can work towards your goal of being able to retire comfortably from your shop. In this post, we'll focus more on what you can do if you just aren't making the profits you want, so that you can get your shop on the right track, whether it's because you want make more money or if you're behind where you want to be for the year.
If you feel like you're not making enough money, you're not alone. In fact, in a nationwide survey we conducted, we found that most shop owners listed profitability as their biggest concern for 2018. And yet, many don't know where to start when it comes to boosting profits. So just how do you go about making your wish for increased profitability a reality? The answer lies in your own vision for the business and the steps you take to realize it.
Take a look at the infographic below. It lays out some of the steps you should think about:
What is your goal?
This first step is always to have a plan—and you as the business owner are the only one who can make that plan. You should lay out in writing what you think your shop should be making, or what you want it to be making, and work backwards from there. Can you currently identify places where your shop is losing money? If you don't have systems already in place, this might be hard to tell. If that's the case, you'll probably want to implement systems to see where your shop issues really are—and one of them is likely that your lack of systemization is costing your shop money.
Your financial goal will probably look something like the following (with your numbers filled in for the X's): I plan to have my repair shop earn $x,xxx,xxx annually by the year 20xx by increasing profit each year by x%.
This may seem like a simple thing to do, but it will give you something tangible to work toward. And having it written out makes it all the more likely you'll work hard to achieve it. There's something about having a goal down on paper that makes people hold themselves more accountable.
Who is responsible?
Once you have your goal in place, you need to determine who is responsible for helping you achieve it. As the shop owner, you can't be everything to everyone, so you'll need to delegate some of the responsibility to others. With this goal, it will likely be everyone in your shop who needs to help you achieve it. To increase profits, you'll need everyone to work together as a team.
It's not enough just to decide who will be helping you. You need to make them aware of it as well, making their duties and expectations explicit for them, otherwise they won't be able to properly help you. David Rogers wrote an article that discusses the importance of communicating a shop's organizational structure to your employees. He finds that it's less important how you set it up—that's up to you and your business's needs. What's important is that everyone knows who they should go to with questions or problems and that they follow that procedure. And believe it or not, that includes you. This can help save you money in the long run, helping your goal of increased profits.
Rogers goes on to say that as the owner, you shouldn't be directly addressing each and every problem an employee brings to you. In fact, most employees shouldn't be bringing their problems to you at all. That undermines the authority of the managers you've put in place, doesn't keep them in the loop with the problems, and takes up your valuable time with small issues that can be handled by someone else. Instead, those employees should go to their direct supervisor, and if the problem is large enough, the supervisor should then bring it to you. If an employee comes to you directly, let your manager know, and allow them the space to correct the break in the chain. The same goes for you—if you notice an issue with a tech, you don't necessarily have to address it to them directly. Instead, bring it up with whoever their manager is and allow them to handle it. You put a management structure in place for a reason—don't be afraid to use it.
How are you going to measure?
Deciding on what metrics to measure can be difficult, but in this case it should be guided by places where you think your shop is losing money. You could track efficiency and productivity if work is taking longer than your estimates to customers say. This would be costing you time and money, so it's important to know what's going wrong. Similarly, you could closely monitor your gross profit margin on parts if it looks like your parts markups are costing you money. This is by no means an exhaustive list, just some starting points. We recommend taking a look at other posts in our Profit Boosting Boot Camp series to learn about other metrics you could track to increase your profits.
It would be good to look at other metrics for your shop, but by really focusing in on the problem areas, you can better create systems designed to improve overall shop functionality and increase profits.
What systems need to be in place?
As we've discussed in other posts, systems are what truly keep your shop organized and moving forward. They can also give you peace of mind as the business owner, knowing that each task should be repeatable with the same results each time. Here are some examples of systems you might want in place to help achieve this goal (the exact system design depends on your shop, and once you begin creating processes, you'll likely find others you want to add):
- Estimates: It's important that each estimate given to a customer is as accurate as possible, otherwise you'll find yourself footing the bill for some of the repair. You don't want that. Having a definite process service writers should follow as they prepare quotes can help decrease the amount of errors or differences between quotes, saving you money in the end.
- Repair Types: It would be helpful for each repair type to have its own set of processes for how you want it done. That way you know each technician should be completing the job the same way, cutting down on errors and customer comebacks. It also will help you troubleshoot any future issues.
- Shop Organization: Literally, how should your shop be set up? Having a place for each piece of equipment, down to the garbage bins can help speed up repairs, as technicians won't lose time searching for something. This applies to how work benches should be kept as well. A clean bench inspires customer confidence and helps the technician to work faster.
- Who is Responsible for What Tasks: It doesn't make sense to have your most experience techs performing oil changes, when their time would be better spent handling the more complicated jobs, which they could complete more quickly than a less experienced tech. Make sure everyone knows how work should be assigned to minimize confusion, and ultimately save you money.
What kind of review process should be in place?
Having a review process of some kind set up is important, as it allows you to identify problems and come up with solutions for them. In some cases, looking at the reports could lead you to notice areas that you didn't even know were a problem in the first place. It's likely that you'll want your employees to report to their direct supervisor, who can then deliver the reports to you for review. Weekly shop meetings are also a good way to touch base with everyone and keep yourself present in the daily operations of the shop. You'll be able to discuss shop wide issues and how you plan on addressing them in the future.
Beginning to plan your business in this way can set you on the road for more profits. As I'm sure you know, nothing in business is certain, but having systems in place for you to oversee can help you prepare for anything.
There is always more than one way to increase your shop profits. Take a look at our Repair Shop Value Program to learn more about how HHP can improve your bottom line!