The Net Result
Jeet Kune Do wasn’t just a martial art to Bruce Lee—it was a way of life, Adam Liu says.
“Bruce Lee was a philosopher more than anything else,” Liu says. “He saw that martial arts were, in and unto themselves, very guarded. Everyone picked their styles, and then they didn’t cross any lines.
“Lee believed in formlessness and no styles, meaning that he learned everything, and he kept what worked for him and his body type and discarded the rest.”
To boil that down: You need to learn the rules before you can break them. There are always more lessons and ideas and styles to understand, and they all have the potential to make you a better leader.
And it was that philosophy, that discipline gained from studying Jeet Kune Do himself that transformed Liu from a bumbling, rookie shop owner of M-Spec Performance in Middle Village, N.Y., to a full-time business leader that carried his team to a 22 percent net profit margin and $1.5 million in annual revenue in 2016.
“If you use that philosophy for whatever you’re trying to master in life, you’ll find success,” Liu says. “You have to gain as much knowledge as possible. And you, yourself, have to be the person that dictates what is going to work for you and your business.”
There’s no one way to be profitable, as evidenced by the three very different shop models featured in this article that reported top-tier net and gross profit margins in Ratchet+Wrench’s 2016 Shop Performance Survey. So when you take advice from other shop owners, Liu says to remember that it’s just a starting point. The first step of Jeet Kune Do is absorbing as much information as possible—then you develop your own style.
Joseph Strazzeri, Middle Country Automotive
SHOP STATS: Middle Country Automotive Location: Selden, N.Y. Size: 1,500 and 1,700 square feet (two facilities) Number of Lifts: 9 Staff: 13 (9 technicians, 2 lube and tire, 1 service advisor, 1 receptionist, 1 manager, 1 owner) Effective Labor Rate: $106.59 Average Monthly Car Count: 720 Average Repair Order: $325 Average Hours Per Repair Order: 1.6 Annual Revenue: $2.8 million Gross Profit on Parts: 61% Gross Profit on Labor: 55% Overall Gross Profit: 59% Net Profit: 22%
1. Make Budgeting a Priority.
After 40 years in the automotive industry—which includes previously serving as northeast manager for Pennzoil and currently owning Middle Country Automotive in Selden, N.Y.—Joseph Strazzeri says he can safely conclude: If you’re not budgeting, your business won’t reach its full potential.
“The No. 1 most important thing is coming up with a solid number for sales and planning everything predicated on that number,” he says.
Middle Country’s payroll each year is based on the previous year’s numbers, with goals set for ARO ($325) and average monthly car count (500) in mind. While many shop owners will base their payrolls on labor, Strazzeri says he plans payroll for everyone—his service writer, manager, receptionist, and nine technicians—at 28–30 percent of total sales. With his technicians working an average of 44 hours per week (any overtime comes with time-and-a-half pay), productivity comes in around 112 percent. He also budgets for the employees’ 401(k) plans.
Strazzeri budgets for equipment and tool upgrades (1 percent of budget), marketing (2.5 percent) and training (1.35 percent). He also plans for cost of goods sold to make up 28–29 percent of total sales.
2. Improve Vendor Relations.
With cost of goods sold making up a significant portion of his budget, Strazzeri makes vendor relations a key component of improving profitability year over year. A great key to his impressive gross profit on parts has been his ability to negotiate prices with Advance Auto Parts.
“When we look at their prices, we will challenge them to meet our warehouse prices, and we enjoy very high margins as a result,” he says.
Strazzeri says his ability to negotiate is predicated on healthy vendor relationships. He recommends having an active partnership with your vendor, regularly seeking out training opportunities and inviting vendors for on-site visits. Invite vendors to stop by and show off new products and evaluate your processes and offer suggestions.
3. Treat Staff Like Family.
A huge part of Middle Country’s high average monthly car count over the past 12 years has been its ability to retain customers over long periods of time. And while Strazzeri’s marketing campaigns and customer service plays a huge part in that, he says a lot of it actually traces back to the family unit he’s formed with employees.
“A lot of customers come in and say, ‘I want Charlie to work on my car,’” he says. “You start to build relationships with customers when you work there for that many years. It’s important for our customers to come in and see the same employees every time.”
Strazzeri’s newest employee has been working at Middle Country for three years, while his oldest employee has worked there for 27 years (before Strazzeri bought the shop). He has done that by offering perks many of his competitors overlook, such as 401(k) plans, overtime pay, health insurance and paid time off.
“It helps with margins to have people trust us. We’re selling quality work, and they want to invest in that,” he says. “It’s so important to build relationships with customers and to have integrity and honesty, and our team proves we have just that during every visit.”
Greg Skolnik, Motor Works Inc.
SHOP STATS: Motor Works Inc. Location: Rockville, Md. Size: 3,066 square feet Number of Lifts: 7 Staff: 7 (2 master technicians, 1 apprentice technician, 1 operations manager, 1 service advisor, 1 client care coordinator, 1 owner) Effective Labor Rate: $100 Average Monthly Car Count: 175 Average Repair Order: $623 Average Hours Per Repair Order: 2.8 Annual Revenue: $1.31 million Gross Profit on Parts: 55% Gross Profit on Labor: 71% Overall Gross Profit: 63% Net Profit: 21%
4. Join a 20 Group.
Greg Skolnik thought he had everything under control at Motor Works Inc. The shop was running smoothly, employees were happy, and sales were—seemingly—steady.
Then he was asked to explain the numbers.
At his very first 20 Group meeting, confronted with the task of breaking down his Rockville, Md., shop’s gross profit on parts and labor, its effective labor rate, and how he’s driving a higher net profit, Skolnik was at a loss.
Which is exactly why he’d recommend you joining one if you haven’t already.
“A 20 Group is helpful. It gets other people looking at your numbers,” he says. “And then you have to know how your numbers fit into your system so you can be explaining real numbers to everyone. It forces you to understand your business on a deeper level.”
5. Understand Your Numbers.
Learning how to understand those numbers will take some work, though. Skolnik says a great place to start is hiring an accountant, who can explain the key metrics you should use to measure shop performance each day and teach you how to properly read your profit-and-loss statement through QuickBooks.
Through that understanding of his numbers, Skolnik has delved deep into QuickBooks to develop his own sales plan tool that breaks down his sales by year, month, week and day.
“It’s a way for us to track the data of what we plan to do and actually see how to to adjust as necessary,” he says. “It's not so much a budget, but a day-by-day tool. It's one thing to put a number down, but it's another thing to be able to manage what you actually spent.”
Because Skolnik’s shop operates on a four-day workweek—that’s 200 working days per year—every car counts, he says. With a staff of 2.5 technicians (two full-time, one apprentice) and goal of repairing 175 cars per month, Skolnik determined he needs to get 10.5 cars through his shop each day, 42 each week. With his service advisor selling a minimum of 2.5 hours per repair order (HRPO) and the effective labor rate being $100, that allows his technicians to hit between 130 and 150 percent efficiency and drive a higher gross profit on labor.
He tracks all of these numbers through a spreadsheet template he uploaded into his management system software.
“You need to know exactly where the money is going, and you have to pay yourself first,” he says.
6. Don’t Focus on Price.
Of course, steady price adjustments will allow your shop to be profitable year over year. But when communicating with customers, Skolnik says price isn’t what wins over customers.
“My whole focus has never been on price. It’s always about service,” he says. “It’s not so much how much a timing belt replacement here costs compared to a dealership. When I talk about what we offer our clientele, it’s all about their perceived value.”
That value is unmatched service and repairs, delivered by a select, small group of employees dedicated to providing the best experience possible every visit. With more focus on customer interactions (Skolnik hired a customer care coordinator to assist the service advisor), Motor Works is able to sell prices on parts and labor that rival area dealerships.
The result is a core database of customers that entrust their vehicles to Skolnik and his staff—65 percent of the shop’s daily workload is planned 4–6 months ahead of time.
Adam Liu, M-Spec Performance
SHOP STATS: M-Spec Performance Location: Middle Village, N.Y. Size: 3,200 square feet Number of Lifts: 6 Staff: 7 (3 technicians, 2 service advisors, 1 shop foreman, 1 owner) Effective Labor Rate: $110 Average Monthly Car Count: 110 Average Repair Order: $1,150 Average Hours Per Repair Order: 4.5 Annual Revenue: $1.5 million Gross Profit on Parts: 46% Gross Profit on Labor: 74% Overall Gross Profit: 60% Net Profit: 22%
7. Never Stop Learning.
Nine years ago, when Adam Liu opened M-Spec Performance at the age of 21, he says he couldn’t have been more green. Yet, for the first seven years, he never read a book, never attended a seminar or business class, never consulted another shop owner or business coach.
“Then I learned an area shop was doing more in a week than I was doing in a month,” Liu says. “And that lit a fire under me: ‘If they can do it, so can I. I just have to go seek out what will help me realize my potential.’”
Contrast those first seven years with the last two years? Not two weeks have gone by without Liu reading a new book. Rarely will he miss a new episode of one of his favorite podcasts. He wouldn’t dare nix business and leadership training from his annual budget. And it’s all coincided with the rapid growth of his sales and widening of his margins—in the last two years, annual revenue went from $545,000 to $1.5 million.
“The most powerful person in your business is you,” he says. “You’re the person that drives the business. Therefore, every opportunity you have to invest in yourself to grow and to expand your mind, that’s really where you’re going to see the biggest changes.”
8. Don’t Spread Yourself Thin.
Liu wants to compare two different types of shops:
Shop A: Thirteen employees, $2 million in revenue, low efficiency, low net profit.
Shop B: Seven employees, $1.5 million in revenue, high efficiency, high net profit.
For years, Liu worked extremely hard just to be Shop A—then he discovered how much simpler and more efficient it is to be Shop B.
“The real difference is having the most efficient systems and processes for your business so you don’t have to spread yourself so thin and have to hire a lot of people on payroll,” Liu says. “Develop a system for a smaller group, and extract as much efficiency as you can from those people before you consider expanding.”
“You have to check your numbers every day. If you're not ... you cannot be profitable.”
Adam Liu, Owner, M-Spec Performance
“My goal is to have three highly efficient technicians and two service advisors for a shop of my size, instead of loading up with a larger staff,” he adds.
Liu suggests a two-bays-per-technician ratio. Determine the size of your ideal bay, and determine how many will fit on your shop floor. With just 3,200 square feet of space, M-Spec has the space for six bays, which means two lifts apiece for each of Liu’s three technicians. From those restrictions, Liu has worked on extracting as much efficiency as possible.
Then, to achieve his target of 4.5 (HPRO) and 110 cars per month, he determined he’d need to hire on two service advisors.
9. Focus on ARO and HPRO.
Because M-Spec is a specialty shop, its ARO is higher than most—resting at $1,150, to be exact.
But to achieve his target ARO, Liu placed a huge emphasis on increasing his HPRO. To replicate, he say to shift focus from more cars and more hours to less cars and more hours.
For Liu, increasing HRPO from 2.5 to 4.5 meant improving inspections from his technicians and investing in sales training for his service advisors.
“There’s a big difference between getting one car in the door that you get six hours on, as opposed to three cars that you get a total of six hours on,” he says. “You’re going to lose efficiency by moving three cars. Your service advisors will have to speak to three different people, and your technician has rack three cars.
“If you view every client as an opportunity, and focus on improving the experience for a smaller number of clients, they’ll invest in you.”
10. Measure Everything.
If you’re a business owner, Liu views consistent and proper measuring as a prerequisite—in fact, he has no idea how he avoided it for seven years.
“You have to check your numbers every day,” he says. “If you’re not doing it every day, or at least a couple times a week, you cannot be profitable. You can for a little while. But if you don’t know where you are, if you don’t have a target, you’re never going to hit anything. You have to measure everything.”
Liu says a management system revolutionizes your ability to track efforts, from training to marketing to increasing your HPRO.
“If it’s working, I can continue to do more of it,” he says. “If it’s not working, I can go back to the drawing board and tweak things. And if it’s not working at all, then I discard it.
“This is the way you can become more efficient. Find what works for you, what’s unique to you and your business, and continue to build upon that.”