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The ROI Guide

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How to Measure ROI for any Business Expense
From training to marketing to equipment purchases, develop a system where ROI is always top-of-mind.

An ROI-Focused Team

Once Casey McGowan’s technician walked out the door, he knew that, from that point forward, he needed to make it clear why everybody’s performance was tracked and measured.

“Sometimes, even the most profitable guy is not getting paid properly and it is a huge problem,” he says. “And I couldn’t even begin to fix that problem if I didn’t know why we weren’t getting paid for it.

“When the tech is documenting his jobs, at the end of the week, he can come up to me and say, ‘I was only able to produce this much work and here’s why.’”

That team-wide focus on tracking each and every job is what’s allowed the shop to grow each and every year (even through the Great Recession) since it opened in 2000, achieving an annual revenue of $2.5 million in 2017 with 16 employees. The attentiveness to the customers’ needs has allowed the service advisors’ ARO to cap at $520, and has allowed the technicians’ productivity and efficiency to hit 110 percent and 130 percent, respectively.

That same mentality also allows Matson’s two Utah shops—Alex’s Autohaus and Matson Point S—to hit a nearly 70 percent gross profit margin on labor and a 22 percent net profit margin.

Throughout the growth at both shops, McGowan and Matson have actively measured the return their shops achieve on any investment made for either technicians or service advisors. Here’s how they did it.

 

Tracking ROI: Repair Floor

Most shop owners understand that an electronic time management system must be in place for technicians.

What shop owners often miss, however, is the most crucial number in that equation, McGowan says.

“You need to track how much time they spent not working on cars,” he says. “How much time at the end of the day was available. How much production wasn’t being done.”

When you discover your technicians aren’t being as productive as possible, you can sit down and figure out what’s wrong. And once you gain control over the technicians’ time management—and productivity and efficiency are maxed out—you can properly determine what training and equipment will best serve them.

When determining, for example, whether an alignment machine is worth the investment, you can trace it back to these productivity and efficiency numbers, Matson says. If you’re going to spend $50,000 on the alignment machine, to justify the cost, you’ll need to determine the number of alignments your technicians must perform per month, how much you’ll charge for those jobs, and any ancillary sales that come with alignments.

And before you can even begin to determine those numbers, you need to know how much work your technicians can handle.

“How do I get a 25 percent return? What cash flows do I need for that to make sense? These are questions you must ask yourself,” Matson says.

You can draw up a similar tracking model for training as well. Recently, McGowan’s top technician sat down for three hours of training to understand an update to Chrysler’s scan tool. And McGowan needed to ask: What are the real costs for this training? And can those costs be made up?

First, the costs. Of course, the technician will lose three hours of productivity for everyday jobs. Beyond the training, the technician will need to evaluate his notes, test the equipment, and get used to the update before he’s ready for vehicles. From there, the shop will have to pay $3,000 for the new program, and the technician will eventually have to train every other technician on the update (more productivity lost).

Once all that lost time and money spent adds up, you’ll need to determine how much Chrysler work is needed to justify those costs, and what productivity and efficiency numbers are required to achieve a return.

“That’s how you find ROI,” McGowan says. “That’s also where most shops lose money. They buy very expensive equipment … and then if you have a tech that doesn’t know how to run it, your return is not there.”

 

A Spreadsheet for Determining ROI

Here is the spreadsheet Chris Matson, owner of Alex’s Autohaus and Matson Point S, used to forecast a positive ROI for an alignment machine purchase.

You can find a copy of this chart on Google Drive. If you'd like a copy for yourself, make a copy and then save it.

Here’s a quick, basic tutorial for how to fill out this spreadsheet:

  1. In Row 1, list out several years over which you’ll track an ROI.
  2. In Cell 8B, under “Year 0,” record the equipment costs.
  3. To justify the purchase, you’ll need to increase the annual income (Row 6) produced from the alignment machine each year.
  4. That requires you to forecast how many alignments you’ll need per month (Row 2), the price of those alignments (Row 3), any ancillary sales from alignments (Row 4).
  5. That will produce a monthly income (Row 5), which you will multiply by 12 for the annual income.
  6. In Row 9, you’ll forecast any ongoing costs for the equipment, such as maintenance, updates, bank loans, leases or necessary training (make sure to record a negative figure). All of those costs added up contribute to the total cash outflow (Row 10).
  7. Ultimately, you’re looking to maximize the net cash flow (row 12), which is the alignment machine’s annual income minus any ongoing costs. As you can see, from this chart, Matson recovered the cost of the alignment machine within three years.

 

Tracking ROI: Front Office

At Alex’s Autohaus, Matson has two employees in his front office, but only one is a service advisor. The other is an office manager, which strikes most shop owners as a curious hire, Matson says.

But when he considers the work required to efficiently complete front office duties, it’s not curious at all. In fact, it makes more fiscal sense than hiring another service advisor.

There’s a bigger return on that hire, if you will.

“It’s a formula that works for my shop,” Matson says. “Each service advisor gets one support person—an assistant for handling extra tasks outside selling work, like getting the driver to return parts, sending postcards to customers, reminding customers about appointments.

“It’s more cost effective to pay an assistant. If I ask the service advisor to do admin stuff, his job would not be fully utilized.”

Similarly, McGowan employs an administrative staff to monitor his service advisors’ performance. After observing every sales ticket that came through the shop, the admin staff’s weekly CRM report is then discussed each Thursday at a meeting, where McGowan measures and discusses his service advisors’ metrics—just like he does with his technicians.

“Thursday is accountability day,” he says. “They get a score on a sheet of paper, which is part of their pay plans. It keeps them accountable of what the most important aspects of their world is.”

That top-down communication—from McGowan outlining service advisor duties, to the admin staff tracking CRM, to the service advisors receiving feedback—is what, ultimately, allows McGowan to monitor service advisor performance in the same way he tracks technician productivity and efficiency.

If service advisors are trying to sell all items found on the shop’s courtesy inspection, if they’re recommending future big-ticket repairs, and if they’re capturing emails and addresses for marketing purposes, then they’re laying the seeds for any future purchases McGowan might make, from sales training to computer upgrades to direct mail marketing.

As long as you’re setting expectations and benchmarks for your employees (for example, the service advisors are expected to achieve an email capture rate of 80 percent), then they will understand the level at which they must be operating at all times. And if those expectations become the norm, then you have a consistent model to draw from when planning out business expenses.

“You’ll have control over your business,” McGowan concludes.

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