High ARO or High Car Counts?
If you had a choice, what would it be; high car counts or high average repair order dollars (ARO)? Both are important, both need to be tracked. But is one number more important than the other? I think most would agree both numbers are equally important. However, determining what those numbers should be is a little more complex.
A few years ago, a client, during his first coaching session, brought in a huge stack of invoices and plopped them down on my desk. I said to him, “I only asked for one week’s worth of invoices for review.” He looked confused and replied, “This is a week’s worth.” Sitting on my desk were over 130 invoices. This may not sound like a lot to some, but this shop has only two bays! A closer look at the numbers revealed his ARO was around $80.00. This was far too low for his operation and the main reason why his business was suffering. Why were car counts so high? He couldn’t say “no” to anyone.
My client, as with many shop owners, sometimes equates high traffic through the bays to “doing well,” when in fact, this may not be the case. Knowing the right amount of cars with the right amount of dollars per car takes an understanding of your particular business model—how many bays you have, how many technicians, technicians’ payroll, what type of work you do, and lastly, your target customer.
Let’s look at a two-bay quick-lube model. Car counts can reach well over 50 per day, but with an ARO under $70.00. For a quick lube this is typical. In fact, a recent survey taken by National Oil & Lube News reported the national ARO for a quick lube was about $65.00. Even the average two-bay repair shop cannot survive with those numbers. But for a quick lube advertising 20-minute oil changes, high car counts are essential.
Mass marketers, such as quick lubes, need high daily car counts. However, technician skill level and pay scale is usually lower. There is no need for high-tech tools, training or constant equipment upgrading. Our costs of doing business are far greater, and operations are vastly more labor intensive. With all the associated costs of running a repair shop these days, it’s no wonder why shop owners are so concerned over the gross profit dollars produced per job.
There is another factor to consider: Who is your target profile customer? While national chains and quick lubes target the masses in order to maintain high car counts, most independent repair shops do not. Most shops offer a wide range of services, from oil changes to major engine repair, but tend to target a more select group of consumers. For the mass merchandiser, it’s a lot simpler. They target the masses and offer a limited number of services and it doesn’t matter, for the most part, what type of customers they bring in.
The best-run repair shops clearly define their businesses and type of customers they prefer. These shops know what type of customer and jobs bring in the greatest amount of return for their business model. And their marketing and advertising will target their profile customer.
I tell my coaching clients there is no magic formula or benchmark number I can give you. Every shop is different, with different needs. You must take into account the size of your shop, the type of work you are doing, your production capacity, and create a formula that fits your model. In other words, if you have a 10-bay operation with six techs, your needed car count is far greater than a two-bay operation. It all comes down to this: What is the number of cars needed per week multiplied by the average dollars per job that will earn enough gross profit dollars to exceed your break-even point and give you a nice profit? Sometimes, slowing down and concentrating on your key profile customers will yield a higher ARO, without the need to increase car counts.
For my client, as car counts declined, ARO increased. For his two-bay shop, the sweet spot is a car count under 80, with an ARO of around $300. With these numbers, he is more efficient and much more profitable. He learned what every successful shop learns—saying “yes” to everyone can often mean saying “no” to profits.
Joe Marconi has more than three decades of experience in the automotive repair industry. He is the owner of Osceola Garage in Baldwin Place, N.Y., a business development coach for Elite Worldwide and co-founder of autoshopowner.com. Reach him at firstname.lastname@example.org.