Mastering the Margins—Listen to the Story Your Number are Telling

Use Accurate Data

In order to rely on your numbers and use the data to chart a path forward, the information first has to be accurate, Burns and Rogers agree.

“That’s the really important part is making sure that 100% the data is correct so (shop owners) can make decisions based off of it,” Burns explains. “Because whether it’s QuickBooks or they’re using their shop software, they all will give you the same thing.
But if somebody didn’t take the time to plug into their labor software what their actual cost of technician is, they’re not going to have data spit out that’s accurate.”

Rogers adds the information is only as good as the system you’re relying on to produce it. 
“It’s all about the information, how it’s captured, how it’s categorized, and how that information is presented,” he points out. “Is it presented in a way that I can go in and glance at it, and in a couple minutes know exactly what I need to do to fix the problem?”

And sometimes, he adds, you can’t rely on tools to produce reports. You simply have to do the legwork, particularly when it comes to setting your labor rate.

“You can’t set a labor rate based on a report. You need to survey your market. You need to see what the competition’s charging, and you set your rate as part of your brand strategy,” he recommends.

He continues: You can’t set a labor rate based on fear, emotion, or even a spreadsheet. Whether it’s $129 or $250, it has to come down to solid facts dictated by the market you’re in (see sidebar: Higher Labor Rates Don’t Guarantee Higher Margins).

Review Your Finances Regularly

All the data in the world is useless unless you take the time to review it, Rogers adds. And it may be too late to change course by the time the P&L comes out.

“If you try to manage by the P&L, you won’t see (the numbers) until the month is already over,” he points out. “By then, the murder has already happened, and the body’s been disposed of. I can’t go back and fix what happened in my shop a month or a quarter ago.”

He adds: “If you’re still going in and using a program or tools that are like a word processor that will make an invoice, you’re going to be forced to manage backwards, and you’re going to be one of those people that’s looking at the P&L trying to figure out where you’re going to squeeze the money from. You can’t squeeze the employee or squeeze the customer anymore; the squeezing doesn’t work,” Rogers asserts. “You strategize. You set up things where everybody can win.”

Instead, Rogers says, you must review numbers daily.

“I pay the most attention … to the things that I can control daily,” he says. “We control how many hours we’re billing by how thoroughly we inspect, write up, and advise. We control the parts margin through our pricing strategy. We control car count through marketing spend.”

Meanwhile, Burns says he gathers his entire management team monthly to review financial statements, including P&L, to determine the why behind every line.

“If we start to see things trending in a certain direction, we have to address them. Whether it’s small tool purchases, uniform costs, cell phone bills, if we start to see a trend of those costs increasing, we need to know why,” he notes. “It’s about having the ability to dissect it to the point of finding what your problems are so that you can affect change.”

Burns adds it’s important to remember that there are line items, such as uniforms and waste disposal, which can be renegotiated or lowered simply by asking or consulting an alternate vendor (see sidebar: Some Numbers are Negotiable). 

Know What’s Next

If you do recognize that one of the line items of your P&L is off, Burns says, a good owner will work to determine the next five steps it takes to change it.

“For a lot of people, the P&L is a two-dimensional report and it’s just a bunch of words and numbers in a list and when they see that their parts profit by X amount and that’s not OK, it stops there,” he explains. “But what are they going to do from there to affect the change? Are you just going into your shop and yelling at your employees to charge more? Because that’s not educating, that’s not teaching, that’s not solving the problem at the core. That’s treating the symptom.”

Burns adds teaching your managers to become analytical thinkers and encouraging them to take action before numbers get out of sync is a win-win. “That’s teaching them how to run the business instead of just doing what they’re told,” he explains. “And it builds curiosity to be analytical thinkers. And that’s the really important part.”

Know Your Net Profit

In short, profit is why you’re there, Burns says. Therefore, knowing your net profit is imperative in determining the health of your business.

“That’s your paycheck, that’s your cushion for whether you can send everybody to training, whether you can send your kids to private school. That’s your principal for all your loan payments,” he points out. “It doesn’t matter how good your P&L is if the bottom number isn’t where it needs to be. At the end of the day, none of the other numbers matter if your net’s not where it needs to be.”

Learn Your Narrative

Ultimately, Burns says it’s important to realize that your numbers tell a story and it’s important to not only listen to them but realize that you can control the narrative by paying attention.

“The big thing is just knowing (the P&L) tells a story. Using it as a road map to run your business is so important,” he says. “It’s something that is fluid, it’s something that’s constantly changing and using it as a tool is really, really important.”