His family, his friends, even random acquaintances—it seemed everyone Adam Preusser knew had a story of lost opportunity, a story of regret about a risk they didn’t take.
What if. Those were words Preusser never wanted to utter.
Never mind that he was just 22 years old, or that he didn’t yet have two years of professional experience since graduating from technical school, when he heard that his employer was considering selling Augusta Motor Works in St. Augusta, Minn. Preusser went straight to his boss’s office and made him an offer.
“I didn’t really know what I wanted to do with my life,” he says, “and it was an opportunity. I didn’t want to regret passing on it. So, I bought the shop.”
And he bought all of the problems that came with it—the low car count, the poor sales, the shabby facility with a dirt parking lot and poor signage; it was all his.
The shop had done barely $300,000 in sales the prior year, and had lost money.
“I thought it would be easy,” Preusser says. “That obviously wasn’t the case.”
The Backstory
Preusser saw the dysfunction from the first day he was hired as a technician.
“The shop was just horribly managed,” he says. “We worked on boats, lawnmowers, cars and semis—whatever came in. Tooling was pretty poor. The shop layout was awful. There was junk everywhere. It wasn’t a great place to work.”
So, not even two years into his tenure at Augusta Motor Works, Preusser had considered jumping ship before he heard through a co-worker that the owner was looking for an out.
Preusser knew the shop was losing money, but he also knew that there was plenty of potential in the area. Just across Interstate 94, St. Cloud had a large population (today, roughly 65,000 people) and the surrounding area was growing. The sales the shop had done the year before seemed like just the tip of the iceberg to Preusser, and he assumed that more sales and better efficiency would straighten out the profitability issues.
It was enough for him to negotiate a deal for the business and all of its equipment. He took out a small business loan, used his parent’s house as collateral for the down payment and took over ownership on May 1, 2004.
The Problem
On the day Preusser took over, three employees quit, leaving just one technician and himself in the shop.
It was a blessing in disguise, he says, as he was able to then hire people who “actually wanted to work for” a young owner. It also gave him the chance to slowly take stock of the issues in the shop, and there were many.
He cleaned out the facility, discarding all the “junk that was always lying around,” and decided that he was going to run the shop the way he felt a shop should be run: with a focus on customer service.
This meant a switch to automotive-only repairs, and a new philosophy of finding a way to serve every customer that walked in the door.
Sales improved, based solely on the extra cars Preusser fit into each day’s workload. From May, when he took over, through the end of 2004, the shop did roughly $304,000 in total sales. In 2005, it did $628,000, and he negotiated to purchase the property, again using his parent’s house as collateral.
Confounding to Preusser, though, was that he wasn’t seeing any money going into his own bank account. The shop wasn’t profitable, and he was working long hours as a technician by day and as a novice bookkeeper by night.
He wanted to reinvest his money into the business—buying new equipment and improving the facility—but he couldn’t. The shop was still bleeding money, and he couldn’t figure out why.
“There were certain common-sense things I was doing well,” he says. “But there was a lot I didn’t know, and we were basically broke at the end of every month.”
The Options
At the time, Preusser started going to training sessions and seminars, and he joined a 20 Group. He quickly realized where his biggest problem was: gross profit margin.
“Honestly, I didn’t even know what it was at the time,” he says.
When he started looking at it, he realized his own shop’s gross profit was extremely low on each job, and nonexistent in some cases.
But Preusser couldn’t lower his costs. He was already operating at a pretty bare-bones level and hadn’t given his employees a raise since he took over.
Changing the prices, though, could mean extreme customer turnover, dispelling all of the growth he initiated in his first two years of ownership. It was a risk, but Preusser saw a lot of upside to it, and no other viable choice.
The Decision
In 2006, Preusser overhauled his shop’s pricing structure, and he did it in a very calculated way.
Originally, Preusser carried over the $65 labor rate set by the previous owner, which too often left him with an effective labor rate barely higher than his techs’ hourly pay. Through training, he learned that proper gross profit on labor should yield 70 percent. So, he changed his labor rate to just above $80 per hour. (He has since raised it to $109 to account for staff pay raises.)
He then created a parts-pricing matrix to create accurate markups. Having an overall average markup of 50 percent on parts was the goal, and the matrix helped balance heavier markups on smaller items with less significant markups on large items.
Overall, it raised prices considerably, he says, and it began to change his customer base. Those who were shopping by price started to take their vehicles elsewhere, leaving Augusta Motor Works with fewer, yet higher quality customers.
Car count was down but sales stayed roughly level for the next year or so, as the customer base fully transitioned.
Meanwhile, his shop’s gross profit margin rose dramatically, going above 50 percent for the first time.
Preusser was then able to start making investments into his facility. He knocked down a couple of walls and eliminated an old storage area to add shop floor space. He upgraded lifts and began purchasing better tools.
And to make up for the lost repair jobs, Preusser began focusing on marketing, utilizing direct mail to attract new customers that now fit his customer demographics.
The Aftermath
In the end, the process was pretty simple: Preusser focused heavily on quality before addressing quantity.
“I had to make it profitable, and make each job profitable and worthwhile before we could really grow,” he says.
“Then, once we started to build up our customer base again, things really started to take off.”
Sales rose from $542,000 in 2009 to $620,000 in 2010; then to $817,000 in 2011; and to $970,000 last year.
And this is true, organic growth, Preusser points out. His facility (8,000 square feet) and his staff (six) have stayed virtually the same size during most of his time as owner. Before his newfound focus on direct marketing, Preusser’s shop normally worked on roughly 2,000 vehicles each year. That number is now above 3,500 (291 per month).
The shop is more efficient today, serving more customers and making more profit on each job. In 2012, gross profit margins were just shy of 60 percent.
Preusser is now considering adding a second location.
The Takeaway
Thirty-one years old and much more experienced as an owner, Pruesser says it’s easy to see now that he was naïve when he first took over.
“The day-to-day operations wasn’t ever hard,” he says. “It’s the one aspect you already understand before becoming an owner, and it’s so fast-paced, you couldn’t really think about it.
“But managing the shop, managing employees—hiring, firing, dealing with employee problems, family issues they have to deal with at work—that’s really hard to figure out when you’re young and you have no experience.”
It comes down to finding the answers, Preusser says. Education and training are a big part of that, but at some point, he says you have to learn to trust what you’re doing and push to achieve your goals.
“It was a risk to buy the shop, but I don’t have any regrets,” he says. “Sometimes, you have to take that chance. I knew we could get it turned around. We just had to work really hard to get here.”
