I’m sure you’ve all heard this one line thousands of times at fast food counters, and that’s because McDonald’s doesn’t make their money on the burgers.
See the burger at McDonald’s isn’t how they make their “profit margins”, just like the oil change in your shop isn’t how you’re going to improve your shops profit margins.
Just like McDonald’s your shop have services with small margins, so you need to be prepared to see the oil change as an opportunity to sell your customer additional high margin services.
The mix of services your shop delivers is a key to ensuring you achieve a minimum gross profit margin of 60% (recall labour expense is not part of cost of goods sold and it is at 100%, so if your labour expense sits in cost of goods sold your likely aiming closer to 40%).
In my previous article “if you treat customers special, they become special customers” I discussed the importance of oil change options, you may want to go back to read that article as well (Click Here)
I know many shops have a mandate to perform inspections on every vehicle, but they’re not telling customers about it first and I have a few issues with this.
- Some people may actually be upset they didn’t authorize the inspection
- Your shops misses an opportunity to demonstrate the added value and benefits of the service
- You do this sometimes (slow season), but when you’re slammed in October and November you don’t and your customer thinks that you did!
If you have expert skilled technicians and mechanics in your shop, when the oil and lube shop down the street doesn’t, now is your chance to tell the customer about that.
Informing customers about the expertise of your technician team demonstrates how professional your shop really is.
And explaining the benefits of preventive maintenance and how a 10-point inspection can catch a problem before it causes damage to the vehicle and ultimately protects your customer from the risk of having to schedule and “emergency” service and potentially being stranded with a vehicle they can’t drive.
Providing great service means educating the customer, ensuring they learn all the potential issues with their vehicle and have the opportunity to have it taken care of right away or scheduled later while waiting for appropriate parts before it breaks down.
Systemizing your process to ensure brakes are inspected on every tire change/rotation and that a 10pt inspection is performed for every oil change is crucial; but so is the service writers ability to sell the value of that additional work that your experts provide for them.
Really your service writers are your best marketers, they have opportunities everyday both on the phone and in person to deliver targeted marketing to the customer based on their needs.
Ensuring the front counter team consistently sells on value and promotes higher margin services will develop your team into a selling machine and prove to your customers that you’re a professional and knowledgeable shop that values the customer relationship and delivers high quality of service every time!
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Every service writer wants to do a great job and develop customer relationships, so they fear the question, “can you do a better price?”…
Let’s breakdown what this question really means, either:
- The customer can’t afford your solution
- The customer doesn’t see value for the money and want a better deal
- The customer has a psychological need to win by negotiating
Thinking about this on a deeper level
- The individual’s affordability is not YOUR responsibility. If what you offer is of value and you are asking a fair price, that others are prepared to pay, it is a moral issue if you sell to someone at a lower price just because they can’t afford it.
- If you’re offering a valuable service, you have a responsibility to stay in business and deliver that value – that means you must get the maximum fair price for what you do. Revenues keep your shop in business.
- The majority of your shops efforts and resources should be put towards the best clients who will make the greatest use of your value – these clients usually aren’t the ones asking you to do a better price, they’re more interest in value.
When a customer asks you if you can “do better on price”, what if you said “I know the value of our exceptional technicians and the price we are asking is really fair. Your question is also important, do you mind me asking, is this about affordability or is it that it doesn’t make sense to you yet from a return on investment perspective?”
This question isn’t something they’ll be expecting and they’ll have to think a little more to engage in further conversation with you.
The point is, many salespeople are fearful of losing the sale that they don’t ask any clarifying questions when customer challenge the price.
At least having the customer discuss the real issue gives the service writer the opportunity to find a solution:
- Such as offering available financing if cash is tight at the moment but they have to travel out of town in winter conditions next week or
- The price point is too high for their comfort level/affordability; this gives the service writer the option to investigate more affordable choices or recommendations
Ultimately your team must protect the shops profit margins, but they need the figurative “tools” to do this; and this is a matter of communication on a regular basis to share these approaches.
Was this helpful? Do you discuss sales techniques and handling objections with your service writers?
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If you treat customers special, they become special customers.
For every small service, such as oil changes or changing from summers to winters, you have an opportunity to develop a new long term customer relationship.
Ensure that your team and management speak highly of every customer opportunity, don’t speak negatively about a type of job or customer as “oh that’s just an oil change”, ensure you’re highlighting the opportunity of every individual who walks through the door.
With each customer interaction your team has a chance to be a friendly face who eagerly takes care of the customer’s needs, and demonstrate that your shop is a valuable resource of information about the proper maintenance and present needs of their vehicle.
Let’s look at the basic oil change as a series of opportunities:
- Provide 3 or more levels of oil change options
- Have posters and counter cards that display the various types of oil changes and their pricing
- Ensure service writers speak to the upgraded benefits of the premium options such
- as high grade oil, for a driver with a high-mileage vehicle:
- discuss the benefits of the additives and conditions that help shore up seals, which deteriorate over time.
- The fact that a. above reduces oil consumption and leaks
- Reduction in engine wear
- Better performance, synthetic oil
- Provides better engine lubrication, especially in temperature extremes
- Improves fuel economy and reduced engine wear
Taking the time to sell the value of the up-graded options may be all it takes for them to upgrade to your premium service, they won’t mind paying more because they understand the value they’re getting for the increased spend.
Just as your service writers position the shop as a tire professional able to explain the features and benefits of particular tires, they should be just as dedicated to becoming an oil service professional.
When customers recognize your knowledge in this area, they’ll develop trust in your business and your shops ability to service their needs.
Recognizing the professionalism in your team, combined with a positive experience, will pave the way to a loyalty this customer will develop with your shop.
You want your shop to be the first place they call when they have an issue with their vehicle, so be memorable.
Next time a customer reaches out to your shop about an oil change, make sure you have a team of service writers eager to great them and inform them about the options and services you offer.
I just finished a Profit Maximizing webinar with a group of shop owners.
Some great questions came up and I want to share one of my recommendations with you.
The question was “how do I determine what to set my labour rate at?”.
A profitable shop typically pay their technicians 25 – 30% of their shop labour rate; the other 75% to 70% belongs to the shop.
Here’s how to reverse that into a labour hour rate.
Calculate what you pay your technicians on average, loaded (that means including payroll taxes).
Let’s say it’s $35/hour
Take the Hourly Rate of $35 and divide by 25% = $35/25% = you’d get a rate of $140.
Repeat this process but try the 30% end of the range = $35/30% = $117
Now you have a range to work within that relates to “industry” approximations.
This is a great rule of thumb, but because shops might have very different fixed expenses, I like to do this using a shops actual financial data.
Method 2 (caution you should ensure your financials are accurate)
Taking into consideration your shops actual expenses and your individual expectations for net profitability (lets use my target 20% from champion level aftermarket shops).
Using the following figures from my benchmarks document (recommending 1/3 of each tires to labour to parts sales):
|Total expenses (including shop labour)||$676,250|
|Total net profit (after owner wage)||$248,750|
|Add back dividends (if you withdrew dividends)||$Dividends|
|Total expenses & net profit & dividends||$925,000|
|Divide by portion of fixed expenses that are covered by labour sales (in my case it’s 1/3)||/3|
|Divide by estimated weeks open per year||/48|
|Divided by estimated labour hours per week (9hrs x 6 days per week = 54 hrs/week)||/54|
|Minimum required effective hourly rate =||$119|
I like method 2 because it is based on the real effective rate required for the shop to attain the “Maximum Profit” benchmarks I promise to my shop owners.
Was this helpful? Do you use one of these methods to calculate your shop rates?
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Now that shop owners have come up for air, I am finding many are asking me for recommendations on point of sale (POS) systems and bookkeeping software.
It only makes sense for me to write down my thoughts on this and share it widely.
There are a few key considerations to get you to the best software for your needs.
- Do you have an in-house bookkeeper?
- Does your bookkeeper work from home?
- Does your bookkeeper have training and experience bookkeeping?
- Are you operating in a multi-shop environment?
I find these are the factors that determine what I recommend to an owner.
You have an in-house bookkeeper
Usually if you have an in-house bookkeeper who comes into the shop office to do their work then you have the flexibility to use any software easily.
In my experience the most robust reporting software, for evaluating business performance from the Key Performance Indicators (KPI’s) and the benchmarks perspective is Costar.
Costar is easily implemented in a single store environment with an in-house bookkeeper.
If your bookkeeper does not work in the office regularly, then you might be using 2 software’s that can really (and should be) performed by one. (keep reading I will talk about this point in detail)
Bookkeeper works from home
If you use a part-time or outsourced bookkeeper and they don’t come into your shop to do their work, then a cloud-based solution is the best-case scenario for your business.
A cloud-based shop management software such as Protractor allows anyone anywhere to login to your POS/bookkeeping.
All that is required is an internet connection!
Many shops are in the unfortunate position where they have an in-house solution such as Costar, but the bookkeeper insists on performing their bookkeeping in a separate bookkeeping software such as Quickbooks, Quickbooks Online, Sage (among others) so they can work remotely from home.
This is my least favorite arrangement, as soon as you start exporting data from shop management software into a second software for bookkeeping you create 2 sets of books and this gets messy.
Half of the “bookkeeping” is automatically performed via the POS and the service writers when they order or receive inventory and when they make RO’s and sales.
The other half of the bookkeeping is performed in a separate software to reconcile, record expenses and then all this work is “imported” back into Costar.
There is now additional opportunity for errors and omissions on both export and import of information.
Which software at any given point is accurate? Neither! They will only ever be accurate for a single moment when the work is imported back into the shop management software and only as long as nothing is being done. As soon as bookkeeper and service writers start working in a software they’re immediately “not matching”.
This is more work and trouble than is necessary and if this is a situation you are in then I recommend you find a way out of it.
Does your bookkeeper have appropriate training and experience?
When I say that Costar is robust, that means it is also complex and requires excellent technology skills as well as excellent bookkeeping skills.
Often when I am asked to evaluate the performance of the bookkeeper it is most often the lack of expertise with the software (usually they weren’t trained to use it in the first place).
The good news here is that Costar has an excellent technical support team who can remote onto your bookkeepers computer and help them identify any issues they’re having.
Many times there are some minor tweaks to “set-up” issues that can rectify the situation.
Carefully evaluate the issue at hand before you make any big decisions; such as looking for a new bookkeeper, adopting a new POS/Shop management software or both.
Professional accountants are equipped to determine whether it is a people issue or a software issue.
Have someone help you with this, preferably an accountant with previous experience with your software.
If you have multiple shops then you should have a sophisticated solution.
Either using cloud based software such as Protractor so your bookkeeper can access all of the shops data from their computer or using a remote server login option and Costar or Gemcar.
If you are un-happy with the timeliness or accuracy of your financial data, then you need to investigate the issue further to determine the root cause of the problem
The basis of financial control and evaluation of your shop performance is the ability to see every angle of its financial results; for example:
- Margins by service writer for parts, tires, and jobs overall
- Technician productivity
- Technician efficiency
- Service code and product price matrix efficacy
If your software isn’t set-up correctly then you can’t accurately measure anything and it is extremely difficult to create meaningful targets and evaluate performance/achievement.
BUT and this is a big but.
Making a change to either the bookkeeper or the software is a massive undertaking and will possibly leave you “driving blind” for up to 6 months if implementation isn’t handled expertly.
I highly recommend seeking professional support from an experienced accountant who has performed implementation, set-up and worked with the particular software’s you’re using now or considering.
Evaluate carefully if anything needs to change.
Many times, people or software is cheaper and easier to repair than replace.
Just like maintaining a vehicle for optimal performance and longevity, you have to maintain your people and your software regularly to ensure smooth financial operations.
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