The Cost of Saying ‘No’
OK, we’re going to have to start this one off by getting right to the point: What you’ve been told is a lie. That message about who your customer is and who he or she isn’t; that whole thing about, “Well, not every customer is right for you”; it’s a lie.
If I could change one thing about this industry, it would be our perpetual arrogance in saying or being told, “That’s not your customer.” That single mother of four who balked at your $1,400 ticket to fix her eight-year-old minivan? That’s not your customer. The 22-year-old fresh out of school who will likely choose paying his rent over taking you up on the estimate you just handed him? That’s not your customer. Think of yourself when you weren’t at the level of success you are now. Think of a point in your own life when you barely had the money to scrape by. Think of how you’d react to paying for a $1,700 job.
You wouldn’t have been your customer either, huh?
This attitude worries me about our industry—and from my experiences, it seems to be gaining steam. We need to remove that from our sales mentality and our culture. We need to eliminate that mindset.
Why should we change this? Why would we want to spend time bartering with low-paying customers, rather than letting them walk and saving the bay for our true, bottom-line feeding customers?
Well, there are two very simple, clear and important reasons.
The first: Last time I checked, we were in this business to help people. You’re not helping that single mother of four by telling her to take her business to a cheaper competitor. This might be a little touchy-feely for some of you, but I hope that deep down, every single one of you is in this business for the right reasons. Granted, we need our businesses to be sustainable, to provide for our own families and those of our employees, and we need to grow, expand and thrive.
That’s where the second point comes in: Every time you send a customer away you lose money. This is where the arrogance of our decades-long lie comes in. Let me make this as clear as I possibly can: You are not helping your bottom line by saying “no” to a customer who won’t pay his or her entire repair order. It’s just not the case. Every vehicle that arrives on your lot costs you money, whether you get that person to pay for repairs or not.
Somewhere along the way, most of us were taught this incorrectly. We are taught to price the job the way it should be priced, and if the customer won’t pay it, let them walk. We don’t want to do jobs that hurt our gross profit, right? Wrong.
Let’s say you’re a shop with $100,000 per month in sales, meaning your overhead should come in at $40,000, right? That’d give you your 40 percent gross profit. Let’s give an average ticket of $400, which puts your monthly car count right at 250 vehicles. It means that every vehicle that comes to your shop costs you $160 in overhead.
That all makes sense, right? So, here’s our mistake as an industry: If we send that car away, it’s not counted in that overhead. That’s completely false. And this is often the hidden leak of profit in a lot of shops. I get a lot of calls from people who tell me that their gross profit margins are right on—right where we want them. But they have no net profit. Where’d all the money go?
This is the first place to look.
Every time a customer comes to your shop—whether they pay for repairs or not—costs you that $160 in overhead. We pay a portion of that to our service advisor taking the time to talk to them, our general service tech in bringing the car around, and our techs inspecting it, plus our electric bill, rent, insurance. There are marketing costs, too; if it’s a brand-new customer, throw an extra $50 on there for the cost of acquiring new business.
Those are general estimates, clearly, but stop thinking that you’re saving money by sending a customer away. You’re not. You automatically put yourself in a position of playing catch-up the moment you do it.
So, what are you supposed to do? The goal is to get a sale in a way that helps the customer where they are today. Maybe it’s a portion of the total job; maybe it’s doing it at lower rates to help them out. Remember that you might have $210 to get back right off the bat. Doing a job for a lower gross profit percentage isn’t what will kill you. Getting no money out of that job will.
It is your fiduciary responsibility to win that customer and save your shop money, and you need to set up your service advisors to succeed in doing their jobs. Letting them cherrypick which customers fit our model is dangerous. Not giving them the power to say, “What can we do to earn your business today?” is even more dangerous.
And here’s another little secret: You can’t fixate on gross profit percentage. What you should focus on is gross profit dollars, and closely measure and monitor your gross profit dollars per hour. Don’t chase percentages. Percentages don’t write paychecks. Dollars do. If you’re focused on earning the right amount of gross profit dollars every hour you’re open, the percentages will take care of themselves.
If this is shocking to you, or you’re shaking your head, please do me a favor: Look through your numbers. Add it up. Check how much money you’re leaking. I guarantee you’ll see the truth.