Assess Your Market
Market assessments are a critical component of business planning if you want to move into a new facility, expand to an additional shop location, or analyze performance in your existing area. You want to be profitable long-term, but you can go broke in a heartbeat by investing in the wrong places, says automotive industry consultant Dale Leigh, who has helped launch several auto repair shops.
Leigh offers advice on how you can assess your shop’s market to understand if it’s a beneficial area to invest in, or if you’re better off looking elsewhere.
There are several market components that shop operators should assess. Extensive market research is essential in order to understand whether a certain area will allow you to acquire the right types of customers, and reproduce and sustain your existing business model. Although success is never a guarantee, obtaining the following pieces of information will help you analyze the situation to make the best possible business decisions.
1. Assess the type of market. Identify whether the market you’re analyzing is urban, suburban or rural. That allows you to estimate the number of customers your business has access to based on population density.
When it comes to auto repair, people in urban areas tend to do business within a one-mile radius of home. People in suburban areas do business within a three-mile radius, while people in rural areas visit shops within a radius of five miles or more. Determine whether there are enough people within that radius who need and are currently underserved by the specific services you provide.
2. Assess the demographics. Identify the characteristics of people who live in the market. It’s tough to be successful if you can’t clearly describe who your customers are. Identify the types of vehicles most heavily driven by community members, as well as their age, gender, family size, education, lifestyle, income and occupation. You can obtain that information in several places such as U.S. government resources, U.S. census data, chambers of commerce, state municipalities and online demographic tools.That information will illustrate whether the right type of people who need your services live in that area. For example, if your business model is highly focused on hybrid repair, you need to know whether those types of vehicles—and the people who drive them—exist in the market.
3. Assess the competition. Find out who all of the players are in the local repair community. Identify where every shop is located (including dealerships, large chains and small operations), the total number that exist, the size of each one, and the services they offer.
Then consider how you compete with those locations. Determine whether you can provide the same services with higher quality and efficiency, or if you’re able to offer a certain service that those shops can’t. That information will allow you to estimate the market share you could acquire, and determine the best marketing strategy to achieve those goals.
4. Assess work volume. Identify the number of people who live within your target market to understand the number of auto repair jobs available. As a rule of thumb, consumers visit repair shops 1.5–3 times annually. If your target market has 25,000 people, for example, that amounts to about 37,500 to 75,000 jobs a year. Estimating the share of those available jobs that your shop could acquire helps determine the facility size and number of work bays you will need.
5. Assess sales capacity. Calculate the amount of revenue generated for auto repair services within your target market. There are two ways to do that. First, you can research the average repair order among shops in the area, and multiply that by the estimated number of annual jobs.
There is one other way that provides a more accurate estimate. Identify every shop within your target market and add up the total number of service bays between each location. Using a general industry standard, you can assume each of those bays generates roughly $250,000 in annual revenue. So if you have five competing shops with an average of 10 service bays—50 overall—there is about $12.5 million of sales capacity in the market.
6. Assess vehicle ages. Identify the average age of vehicles driven by members of the community. You want to ensure there are enough vehicles that require repairs.
7. Assess the property location. If you determine that a specific market area is a perfect fit, thoroughly assess every piece of available property if there is more than one option. It’s ideal to be located near a local destination point, be visible from the road, and have easy access into your parking lot to obtain organic growth.Knowing this information is essential for a prosperous business. It’s the best way to decide whether the area can support your customer, work volume and revenue needs so that you don’t gamble by investing in an unsustainable market.