“What possible use could I have for that?”
That was the question poised by a young, promising technician leaving Casey’s Independent Auto. This employee, who accepted a job at a competing facility, did not see the need to punch the clock on each and every job—something the shop’s owner, Casey McGowan, required of his eight technicians.
And after thinking about it, McGowan realized the disconnect: The technician saw clock-punching as needless and inconvenient; the shop owner saw it as essential for calculating his ROI on equipment, training and the technician himself.
To prove the importance of tracking a return on his employees’ time, McGowan painted a picture for the technician: Say, on the first day of your new job, you have three repair orders totaling three hours each. But the next day, you have three jobs totaling two hours each, earning you significantly less money. Maybe it was a slow day at the shop—or maybe, just maybe, you didn’t have right scan tool for the job; or the shop’s equipment was out of order; or you didn’t have proper training.
But if ROI is not being tracked for that scan tool, or that equipment, or that training, how would you ever know?
McGowan realized he had failed to explain why he tracks hours so closely; why service advisors receive a weekly CRM audit; why KPIs and profit margins are recorded diligently in spreadsheets. McGowan tracks productivity, efficiency and gross profit margins on labor not because he’s a micromanager—it’s because there’s a return on every investment at his $2.5 million Vancouver, Wash., shop.
McGowan says you can trace the ROI on every single business expense; you just need a lateral system in place that tracks both your relationship with customers and the performance of your employees. Here’s how you can do just that.
An Efficient Pricing Model
People are constantly asking Dave Mulcahy: What is the most profitable business to be in?
“The one that has the most efficient pricing model,” he responds. “If you have a good pricing model that makes sense to you and your customer, the ROI for any purchase will show up in the cash register.”
As the director of the Small Business Development Center (SBDC, a branch of the Small Business Administration) at Lamar University in Beaumont, Texas, Mulcahy is used to business owners looking for the silver bullet that maximizes profitability. But, really, no matter what industry you’re in, achieving the ultimate ROI for any business venture comes down to customer relationship management.
Chris Matson would have to agree. As a fellow “finance guy by training,” Matson similarly views the auto repair industry from a different vantage point than most technicians-turned-shop-owners.
“Being profitable is what I’m responsible for,” he says.
That’s the mark many shop owners miss, Matson says. It’s why many shops achieving $2 million in annual revenue are secretly struggling to achieve the tiniest of net profit margins.
“They’re not charging for the level of work they’re doing,” he says, “whether that’s not getting paid for diagnostics, or whether that’s having a labor rate that’s too low.”
In short: If you know what your customers value, you’ll know what to invest in.
For example, take this men’s clothing store for which Mulcahy once consulted: The employees kept track of each and every customer that came through the shop, and asked, “What do our customers want? What will they spend more money on? What products are in demand?” The store discovered that, in particular, size 42 blazers were a hot commodity.
So, once the shop ordered dozens of size 42 blazers in a new color, “they called all 42-long customers up and said, ‘Hey, we have this blue blazer in your size. Why don’t you come in and look at it?’ And they got a huge return,” Mulcahy says.
Matson says the marketplace for auto repair is no different than any other business—everyone has a hard time finding and holding onto customers. But the better the relationship and the more you know about your customers and how much they’re willing to pay for a service, the easier the sale will be. In return, it will be easier to justify an expense.
Whether it’s diagnostic equipment for technicians or sales training for your service advisors, if you know what your customers want, you can justify the investment—as long as your company is financially stable. Luckily, Mulcahy has provided Ratchet+Wrench readers with a spreadsheet for tracking said stability.
“Profit can be attached to parts, labor, lots of different things,” Mulcahy says. “When it comes to tracking ROI, it can’t be horizontal. It has to be lateral, linear. You have to look at the spreadsheet and ask: Are you consistent with your pricing model? What is my labor cost with this particular sales ticket?”
And once you’ve nailed down what your customer wants, and you’ve ensured your business is financially durable in a number of categories, it’s time to outline employee expectations.
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.”
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.