Full Bays, No Cash?
Have you noticed that you consistently have full bays, but you don't seem to make any money on the work? Have you ever really stopped to think about why that might be? It could be caused by too high overhead costs, poor efficiency, too low of costs on parts and labor, or too many customer comebacks. But one thing that can help you identify and solve these problems is making sure you have the proper systems in place.
Earlier in the series we talked about general ways to make your shop more profitable. This post will dive into a specific issue—what to do when your bays are full but you're not seeing the profits. As a shop owner, this is one way you can grow your business, you just need to know where to start. Like so many other repair shop problems, you should begin with a goal, to help give yourself a plan of action. Then, work through the systems you have in place (or need to develop!) to find areas for improvement. This, overall, will help you to be a more effective leader for your business—and help to increase profits.
Check out our infographic for a summary of the information in this post:
Set a Goal
So what should your goal be? This depends on the individual shop and how you think your shop should be performing. Take a look at how you're doing now, profit-wise, and decide what kind of profit margin you want to be making on each job that comes into your shop. That will help you figure out your goal. It might look something like this:
To make X% profit on each job that comes through my shop.
Who is Responsible?
Like many things in your diesel repair shop, the ultimate responsibility lies with you. This does not mean, however, that it is your job to look over the shoulder of each of your employees all the time to make sure things are being done correctly and efficiently. It is the job of your management team to ensure that sort of thing. Plus, not only does it waste your time, but it also might cause some ill will toward you from your employees. Having them think you don't believe that they're capable of doing their job can cause them to second guess themselves and work less efficiently.
Instead, rely on reports to help you judge how things are going in the shop. If you notice work taking a lot longer than it should, see if you can identify why. Or, talk to whomever you have in charge on the shop floor to see what they feel is going wrong. Then, you can address the broken system to help things get back on track.
It should be part of your technicians' jobs to be accountable for their own efficiency. They shouldn't require your micromanagement, leaving you free to look at how the shop is operating as whole and making larger scale decisions. If, for some reason, you find that systems are not being followed, you can address that as well. It should be an expectation that shop procedures are being followed to the letter at all times.
How Do You Plan to Measure?
Once you have those decisions made, you need to figure out how you want to measure profit growth in your shop. Fullbay wrote an article that lays out one way you might think about how profits should be made in your shop.
Two things you might want to measure as you work towards making a greater profit on the work you already have in the shop are efficiency and productivity. We recently wrote posts on both repair shop efficiency and productivity and how you might go about measuring them. Efficiency will tell you how long it actually takes a technician to complete a job vs. how long it was supposed to take them. If they have a less than 100% efficiency rate, you're losing money on the job. Productivity, on the other hand, divides the number of billable hours of your technicians by the actual number of hours billed. These will help you get a better handle on what is actually happening in your shop and which areas need to be improved.
Something else you might want to keep a close eye on are your overhead costs. If they get too high, it will take a serious bite out of your profits. Some things you can't control, like the rent or mortgage of your space, but there are other ways to keep your overhead costs down. Take a look at each line item and see if there is a way to bring it down. Even small adjustments can have a large impact on your profits.
Putting Systems in Place
The overall effectiveness of your goal depends on having the proper systems in place. Without systems, you won't be able to track improvements, hold employees accountable, or ensure that work is being completed effectively. It might seem like a lot of work to get all these processes in place, but it's one of the best ways to help increase your profits overall. To that end, you could consider adding or revising the following systems to help you increase the profit on the work you already have in the shop:
- Efficiency and Productivity: To effectively track these, it's important to have general expectations and processes in place. This helps you see where things are falling short, and it also helps your technicians better understand what is expected of them.
- Job Procedures: There should be set processes for each job type that comes through your shop to ensure accuracy and consistency. Doing so can help reduce the amount of errors, and therefore customer comebacks, which will save you money.
- Shop Organization: Having processes for absolutely everything in your shop can really save you time in the long run. This includes having a system for where everything goes. It can save technicians time if they know exactly where a part or tool is, rather than running all over the shop looking for it.
- Customer Quotes: Having a set way of writing up estimates for customers can help cut down on errors, leading to increased profits for you.
- Parts Ordering: Looking into different solutions for how you order parts can help save you money, especially if you work with vendors on discounts for frequent customers or buying in bulk. Similarly, don't order extra parts if they're just going to sit on your shelves for months. Keeping an inventory of frequently used parts makes sense, but you'll lose money if you never actually end up selling the parts.
- Profit Margins on Parts and Labor: It's important that you're making enough money on the parts and labor you sell. Take a look at your markups—are they within market range for your area? Don't be afraid to charge a fair price to ensure you aren't losing money. Just be careful not to go so high in order to make money that you drive your customers away.
Reviewing Your Metrics
Reviewing is the only way for you to be able to see what's actually working so that you can revise as needed. Tracking your efficiency reports in particular can help with this. If you notice lower percentages on certain job types, it's probably a good indication that something is wrong with the process that is slowing your technicians down. Or, something might be off with the way the job is being quoted to customers, setting an unrealistic timeframe that your technicians can't meet. Identifying and fixing these issues will help the efficiency rate move closer to 100% or more, bringing in additional profits for your shop.
It's good to be busy, but you want to make sure you're the right kind of busy—the kind that makes you money. Having a profit goal and setting up measurable systems to help achieve that goal will help you take concrete steps to fix whatever issues in your shop are keeping you from making the money on jobs that you need.
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