The other day, I was speaking with an owner who runs a highly profitable shop. I drilled them on how they do it, and got pretty much the same answer I always get: they just do the basics, and they do them really well.
The Hail Mary Pass
In football, you don’t win games by chucking a Hail Mary pass on every play; you win them by blocking and tackling. In other words, by doing the basics. Sure, with a Hail Mary you might complete a pass every once in a while. But in the meantime you’ll turn the ball over like crazy and totally exhaust your players.
For a shop, the Hail Mary might be charging a walk-in customer an exorbitant rate when they have nowhere else to go. Or breaching the trust of a customer by doing unauthorized work and then holding their truck until they pay. You might make extra money on these one-off transactions, but you’ll ultimately pay the price.
Blocking and Tackling
So what is the equivalent of blocking and tackling in a commercial repair shop? Here are some examples of “the basics” that ethical, highly-profitable shops perform with every transaction:
- Mark up parts correctly
- Charge for everything technicians do
- Charge a shop supplies rate
- Believe that techs can bill above 100% efficiency, then help them make it happen
- Create a cadence of accountability
1. Mark up parts correctly
We see many shops that mark up their parts at a flat percentage when they first sign up for Fullbay. It’s really satisfying when we introduce them to the concept of a graduated markup scale. With graduated scales, you charge a higher markup or margin for lower-cost parts, and the markup goes down as the cost goes up.
These shops see an instantaneous lift in their revenue that goes directly to profit. There is a limit to this, and you should still only charge what is fair. But a fair exchange of value is the bedrock of good business practice, so if you are selling yourself short on parts markup, it’s an easy thing to fix.
2. Charge for everything technicians do
Good technicians are hard to find. They are the lifeblood of any shop, because they ultimately produce the revenue. Just like with parts markup, some shop owners feel bad charging for a fair exchange of value.
For example, when a truck rolls in, most shops will do a basic inspection of the truck to make sure nothing else is wrong with it. This takes time for the technician to do, and it provides value to the customer.
How does it provide value? The customer makes money with that truck, so any unscheduled downtime equals lost revenue. If the tech finds something in that inspection that, if fixed, will prevent unscheduled downtime, the customer will make more money with the truck than they otherwise would have.
Trading the technician’s time for value to the customer should always be charged for. Always. It is a fair exchange of value. This is why we always recommend that shops charge for that initial inspection and diagnosis. Whether the customer authorizes any recommended repairs or not, you have provided value with that inspection and should charge separately for it.
The owner I spoke with named charging for everything technicians do as one of the keys to his shop’s success.
3. Charge a shop supplies rate
We often see shops that have never charged a shop supplies fee. It’s a necessary charge to cover what is often a hidden cost: shop towels, cleaning supplies, and other consumables that can’t necessarily be billed directly for a job. The most common rate we see is 8% of labor.
Again, if you are not charging this, it is an instantaneous lift to revenue and goes straight to profit.
4. Believe that techs can bill above 100% efficiency
Efficiency is the ultimate differentiator between an average shop and a highly-profitable shop. As an owner, you have to believe that your techs can bill above 100% efficiency. And once you believe it’s possible, you have to work to make it a reality.
Make sure enough business is coming in the door. Take non-wrench-turning tasks away from the techs (every time a tech leaves the bay, you lose about 0.25 hours of productivity). Keep your techs trained (there are a lot of online courses now available; these cost some money but will make you much more in return). And hold everyone – technicians, service writers, parts managers, and even the back office – accountable.
5. Create a cadence of accountability
Hold weekly meetings to review how the shop did the week before. Tuesday usually works really well for this, because it gives the office staff Monday to basically “close the books” on the previous week. Review the key stats like labor vs. parts revenue; labor vs. parts profit; efficiency (invoiced hours divided by clocked hours); and so forth.
This “cadence of accountability” gets the whole shop on a rhythm, and helps the goal of high profitability feel like a winnable game. And it is.
Blocking and tackling is not as exciting as a Hail Mary pass. But if you focus on doing the basics in your shop, and doing them well, six months from now you could be in an entirely different place financially.