What’s the secret to running a profitable repair shop?
For years, I’ve stressed the importance of setting appropriate benchmarks, holding your team accountable for reaching them, and measuring daily to track your progress so you can train and adjust to hit your goals by month’s end.
The old way of running a shop, where you send your financials to an accountant and find out on the 15th of the following month whether you made or lost money, is long extinct. You can’t fix the month’s numbers if you don’t see them until it’s too late!
But in my shop, we’ve started to go a step further.
This doesn’t mean more frequent measurement, though that is certainly part of it. Real-time measurement of key numbers means your team can, for instance, adjust your parts markup this afternoon to compensate for the engine you sold this morning.
But what if the owner didn’t have to keep track of that information? What if you didn’t have to keep an eye on the weather, groom your customer lists, send reminder emails and adjust your parts markup?
You’ve probably seen the words Artificial Intelligence (AI) used in the media. Car manufacturers are using it to create self-driving vehicles. Hospitals are using it to identify tumors. Search engines use it to find the websites you’re looking for.
And you can use it to run your repair shop, like you’re doing right now.
The goal of this article is twofold. First, to cover the basics: if you’re ready to start measuring your shop and achieving regular, sustainable success, this article will help. But the other goal here is to focus on the advanced shop owner who has been measuring daily for years and is excited to take the next step.
Maximize Your Margins
If you’re ready to break the cycle of making changes and waiting up to 45 days to see if they fixed anything, then your first step is to understand your costs. Many shop owners operate on gut feel, never even looking at their gross profit margins. It’s impossible to improve something when you don’t even know where you’re starting.
The simple calculation for a gross profit percentage is: (Sales – Cost) ÷ Sales.
When you know where you stand, you can start to improve. If you measure your parts gross profit and find you’re 20 percentage points lower than you want to be, you can’t just set your target 20 points higher and increase your prices to hit that number. Your customers will see a huge price increase overnight with nothing to show for it, and you’ll destroy your customer base.
Instead, you need to increase prices slowly, and work to improve your customer service and production at the same time.
Once you start hitting your target, you need to adjust daily to keep hitting it. As I mentioned earlier, an engine job can cause a big drop in your parts gross profit, so you must adjust daily to hit your end-of-month target.
Of course, when you start to view the same goals through the lens of AI, everything changes. In our shop, a computer can examine hundreds and thousands of factors better than we can — what the forecast is for the next week, how the shop performed last year, what vehicles are currently in progress, and even adjust pricing before we know it needs to be adjusted.
Protect Your Margins
Once you know where you stand and begin to adjust daily to hit your targets, don’t undo your hard work with the wrong kind of marketing.
This is the danger of paying attention to the wrong numbers. Some advertising vendors are focused on the number of responses to their marketing, or even amount of revenue, both of which can give you the impression your shop is doing well.
But if you’re spending money to send an advertisement, spending money on the discount you give to get the customer in, and then spending money to inspect the vehicle of a customer who only wants the discounted service, you’re losing money at every phase of your marketing and undoing all of your hard work to hit your gross profit targets.
A better plan is to target loyal, trusting customers with a message that builds a relationship. These customers aren’t just chasing deals, and they’re much more likely to refer friends and family. Not only do these customers trust your recommendations and value great customer service, making it easier to protect your gross profit margins, but they also come back more often and help you maximize your marketing budget.
Just like managing your benchmarks, however, AI changes the whole game. A computer can look at your entire history and understand who makes the best customers, where they live, what type of marketing they respond to, and when you need to send it. In fact, in our shop we use it to plan the entire marketing budget to maximize our marketing dollars every minute of every day.
Measuring, training, tracking and adjusting the right numbers toward smart benchmarks is critical, but unless you build a culture of improvement, you’ll be stuck constantly micromanaging your team to do their part.
Which is why the final step in forecasting and setting goals for your shop is to make sure you have the right team in place to help you achieve those goals.
Part of this is hiring the right kind of employees, to be sure. But, more importantly, it’s about empowering your employees to make the changes needed to help the shop hit its goals. This means incentive-based pay plans, which reward employees for helping the shop win.
Creating incentives isn’t something to be done lightly, however. Providing an incentive for the wrong benchmark, or setting their benchmarks too high or too low, can hurt the business and ruin the employee, leaving you worse off than before the pay plan was in place.
However, when AI is micromanaging the business for you, the entire role of incentive-based pay plans changes. Instead of paying your team to handle day-to-day details, you can utilize incentives to get your team to grow your shop in entirely new ways.
This is a great time to be a shop owner! If you’re brand new to measurement, welcome to the first exciting step in managing your profits and reducing chaos.
Whether you’re just getting started measuring, or you’re an expert at making small daily tweaks to grow your shop, the exciting news is that AI can see and fix problems, and find opportunities for growth better than we could ever do on our own.
Interested in learning how our shop is using these new tools to run our business in brand new ways? Give us a call at 866-520-3030.
Article courtesy Shop Owner.