The Impossibly Profitable Shop

Feb. 1, 2014
How a former engineer designed his shop to churn out satisfied customers and staggering margins

SHOP STATS: EUROPEAN AUTOSPECIALISTS   Location: Tulsa, Okla.  Shop Size: 10,000 square feet  Staff Size: 5  Average Monthly Car Count: 175  Annual Revenue: $1.3 million

There are a few simple rules to running a successful automotive repair business, Kurt Krans says matter-of-factly. “The first,” he says, “is to keep it simple.”

And he gets it: The average day in the typical repair shop is anything but simple; chaos could be a more apt description at times. 

That’s where the other rules come in.

“You put things in place—processes, systems, what have you—to make potentially hectic days normal,” he says. “That’s all it is.”

Krans has built his business, European Autospecialist in Tulsa, Okla., on a series of simple principles—philosophies and procedures that have placed the shop among the country’s elite in terms of efficiency, productivity and profitability. Longtime industry consultant Cecil Bullard says Krans runs one of the best shops in the country. 

The numbers back that up. His five-person team (counting himself) pushes out 175 jobs per month at a nearly $800-per-ticket clip. His margin on parts is above industry benchmarks for high-end vehicles (50–55 percent), and his margins on loaded labor approach 75 percent.

But here’s the mind-numbing number: 37 percent. That’s Krans’ profit margin—his net profit margin. No, you read that right, and, yes, Bullard, who works with Krans, will verify that. 

It might sound like Krans runs an impossibly profitable business, but he insists that’s not the case. Although proud of what he’s built, he says his shop isn’t anything special; it’s just proof that religiously following a correct formula can lead to desired results.

It’s the theory that every industry consultant will preach, but few shops can pull it off.

Krans has, and he hopes his story—and secrets to success—can help others to do the same.

A Sudden Start

For Krans, it all started with a life-changing question.

He’d just overcome a scare with melanoma cancer, and returned to his job as an engineer for defense contractor and aerospace manufacturing giant McDonnell Douglas. Back at a desk, day in and day out, Krans felt he’d gained a new perspective on life—and work. 

“What am I doing here? I just thought it over and over,” he says. “You get to a point where you get out of bed every day, and you’re spending more time at work than at home. So, why aren’t you doing something that you really, really love? 

“I decided to take a bit of a leap of faith. And here I am, 33 years later.”

At that time in Tulsa in 1982, European specialty shops were few and far between. Krans did all the work on his own BMW himself, and had been working on friends’ imports for years. He loved it, and a career serving his local market appealed to him.

“Beyond enjoying it, it just serves a great purpose,” he says proudly. 

He jumped right in, using personal savings to open up shop in a 3,500-square-foot rented facility. He took his engineer’s mindset and put it to use, meticulously designing a business that would not only make money but, more importantly, do so long-term. And, he says, it comes down to five simple rules.

1. Fiscal Responsibility

Practice Unrelenting Patience

Two quick facts: Krans’ business has had 33 straight profitable years since opening, and every single expense the business has ever had has been 100 percent self-financed. 

And, no, Krans didn’t start out with an incredible personal bankroll.

“I’m what you might call ‘fiscally conservative,’” he says with a laugh.

In making any purchase for his business, he follows the same process: Thoroughly research it (including all options available, the shop’s desired purpose and outcome from it, and the purchase’s likely effects on the shop); then he saves until he has the cash to do it; and then he reevaluates, going through his same research process one more time. If it all checks out, he then pulls the trigger.

“It’s actually amazing how many times you get the money set, look back into it, and realize that you don’t need that,” he says.

“It’s really hard, but patience is the number-one key for me in running my business.”

Patient decisions are profitable decisions. 

Krans knew right when he opened his doors in 1982 that he wanted a bigger facility and one that he owned outright. But he waited until the time and situation was right—16 years later.

“We were profitable every year, and I kept putting money away for it,” he says. “I knew what I wanted in a facility and location, and I wasn’t going to compromise on that.”

The facility itself had to be just right in terms of size, appearance and layout. It had to be in the correct market demographic of Tulsa and it needed to be easily accessible. He eventually found it, when a friend of his was looking to sell his printing business. The building was formerly a repair shop, a unique, two-story facility with 10,000 square feet of what would be completely empty space that Krans could retrofit in any way he wanted. It is on a main thoroughfare near major roads, and it’s in the heart of Tulsa’s more affluent community. Because of the time he spent saving, he didn’t need a business loan for the purchase or the renovation. 

“Saving is difficult, but I factor it into my overhead,” he says. “Saving for the business’s future should be an expense of running the business, because it is absolutely essential. If you set an amount aside every month, and treat it as overhead, and factor that into all of your finances, you can maintain that.”

Another Thought: Number-Crunching

“You can’t be fiscally conservative without knowing your numbers—your costs, your margins, your productivity. If you aren’t tracking numbers, you have no way to know whether or not you’re actually saving—or making—any money. Crunch your numbers now, so you can plan for your future.”

-B.J. Lee, coach, Institute for Automotive Business Excellence

2. Specialized Service

Carve a Niche

When Krans opened his shop, he had a handful of friends that owned repair facilities in the area. When he told them about his business plan, which included a narrowly focused niche of European vehicles, they laughed at him.

“They said there’s no way I could make a living working only on those vehicles,” he says. “Those are the same type of people who said they’d never have to work on fuel injection. They’re also out of business now.”

Krans says that he saw the way the industry was heading, and he felt he had a pathway to longevity. 

“I remember sitting on my couch watching a Formula 1 race,” he says. “And the car pulls into the pit, and a guy runs out and hooks up this giant plug to it, runs back to a counsel and is sitting there checking things through a computer. I just said to myself, ‘That’s the future right there; that’s where we’re heading.’”

“Computers have become more and more prevalent in cars and diagnostics have become so much more advanced,” he adds. “I don’t know how you can keep up with it and invest in the right training, equipment and tooling without have some sort of specialization.”

Specialization allows a shop to become an expert on its particular focus. Krans isn’t saying to adopt a three-make approach like he has (BMW, Mercedes and Mini), but he says one thing is clear today: You can’t be everything to everybody.

“There are some shops that do that well, but I can’t,” he says. “I don’t know how to do it and be as profitable as I want to be.”

Krans was an early member in BIMRS, a worldwide network for BMW repairers, and his shop puts a priority on not only being prepared for any vehicle issue that enters the shop, but also on being prepared for what’s coming down the road.

Another Thought: Be Who You Are

“Every shop has to distinguish itself from competition, and the biggest thing is just being honest and true to yourself. Don’t be something you’re not. Find ways to connect your business with your customers in a personal way: volunteer or donate to charities that mean something to you, have promotions at the shop, provide certain amenities; just find something that fits.”

-B.J. Lee, coach, Institute for Automotive Business Excellence

3. Customer Relationships

Create Ties that Bind

Here’s another one of Krans’ core philosophies: Every business should be like a family, and included in that is the customer. 

“People want to do business with people who know them,” he says. “And by that, I mean, they want to come into a shop and have the staff understand them and understand their concerns.”

To this day, Krans still writes all the service for his shop—dealing with customers is what he loves about the industry. And, for 33 years, he’s always approached customers with the same mindset.

“I try to get one thing across: Auto repair is humans versus machines,” he says laughing. “It’s a team effort. Customers don’t know everything about their cars; we do. They come in with the feeling that it’s them against the car and against us; the shop and the car are a team out against them to take their money.

“I do everything I can to get across the idea that it’s us—our team and the customer—against the car to make it run well for as long as possible at the best price. It’s humans versus the machines.”

If that relationship can be established, Krans says the rest falls into place. 

“You do that and follow the Golden Rule, and treat each vehicle and customer as you would yourself, and you’ll have customers for life,” he says.

Krans’ shop does nearly no marketing. It’s almost entirely word of mouth, and his retention rates are above 90 percent.

Another Thought: Find Time for Customers

“People confuse a numbers- or systems-focused approach with being impersonal to customers. It’s just the opposite. Having everything else in order—procedures and systems in the shop—help you and your team spend more time focusing on the customer and his or her needs, rather than paperwork or putting out fires.” 

-B.J. Lee, coach, Institute for Automotive Business Excellence

4. Staff Management

Build a True Team

Every shop owner has an outline for their ideal technician—the key attributes, skill sets, personality traits and work habits that not only make the tech efficient but also help create a company culture that allows everyone to succeed. 

“It’s so difficult to find experienced techs that meet your ideals, though,” he admits. 

That’s why Krans doesn’t even look for them. He creates his own.

Krans is heavily involved with both the Tulsa Technology Center and serves on the steering committee for Oklahoma State University Institute of Technology. At OSU, he helped create a “real-world” experience program for students in which they alternate semesters in the classroom and applying that knowledge in full-time shop roles. He nearly always has one student-tech working in his shop, and he trains them on the European Autospeclialist systems and processes.

Of his three current, full-time technicians, one was from that OSU program, another was from the Tulsa Technology Center program, and the third was a former machinist that Krans helped train. That third tech is now the shop foreman.

“We really, truly grow our own technicians,” he says. “I’m a blank check to training and education opportunities. And we’d rather train the right people to learn the skills than to try to turn these experienced people with the skills to be the right people.”

The training and tooling expenses can be steep, but, as Krans points out, “If you think a qualified technician costs a lot, imagine how much an unqualified tech costs your business.”

Another Thought: Get Paid for Your Techs

“In owning two shops of my own and working with a bunch of others, I learned a long time ago that customers don’t care about what your hourly rate is, unless it’s ridiculous. Most people won’t ask, and they won’t understand it if they do. That’s why I encourage people to use a sliding scale for paying technicians based on profit margins on the particular job. You want to make 70-75 percent on loaded labor costs; never pay more than 30 percent of the job to labor.”

-B.J. Lee, coach, Institute for Automotive Business Excellence

5. Workflow Management

Put Productivity First

There are three factors that lead to technician productivity in a shop: properly trained and equipped technicians, a properly scheduled work mix, and a work environment that is conducive to productivity (processes and systems). 

Just as he’s a “blank check” to training opportunities, Krans says he follows the same philosophy for tooling. The shop pays for all but the smaller hand tools. And, as long as that purchase meets the requirements of Krans’ aforementioned purchasing process, he pulls the trigger. 

He also calculates ROI much differently than most do. 

“It’s based on the productivity the tech has on the fifth or so job he completes with that piece of equipment,” he says. “There’s always a learning curve with a new tool, so those first few jobs will be a little unproductive, but we’ve found that, by the fifth or sixth one, the tech usually has it down. So, on that fifth job, how much has productivity and efficiency improved?”

Productivity is paramount for profitability, he says. As a team, European Autospecialist averages 109 percent productivity. Krans says he doesn’t worry about efficiency, because if his staff is well tooled and properly trained, that takes care of itself if they’re very productive. When pressed for a number, he guesses his three techs average between 150 and 200 percent efficiency.

Scheduling, though, might be one of the shop’s biggest keys, in that every job is scheduled. European Autospecialist is an appointment-only shop. It allows Krans to truly control the work mix. It often allows them to order parts in advance, and helps the team have full production meetings at the end of each day, planning out the next day’s work mix for ultimate efficiency.

“Communication is the key,” he says. “We’re all on the same page, we’re all focused on the same things, and we’re all just going on these very simple rules.

“It doesn’t need to be complex. Running a business can be as simple as you make it.” 

Another Thought: Effective Labor Rate

“One of the best productivity and efficiency metrics is effective labor rate. This tells you how much that technician is actually costing your business: (Actual hours worked X loaded hourly pay)/hours billed. This number balances a technician's efficiency against his or her loaded pay. A tech should be making you money, not losing it.”

-B.J. Lee, coach, Institute for Automotive Business Excellence

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