Invest to Secure Your Future
In today’s turbulent political climate, “tax” is a dirty word. To avoid using the word, politicians often rename a tax or a fee as a “public investment.” The idea, of course, is that the public will enjoy a return on investment. In business, this is also an important question: Is a specific expenditure a cost or a real investment with a definite return?
Employees are one of the largest expenses in any body shop, but are those employees simply a cost of doing business, or are they an investment? If a shop owner views the profits he or she enjoys from the repairs his employees make on vehicles as a return on the investment in salaries or commissions, then they could be considered an investment. Equipment is obviously also an investment, with a measurable return in profits.
But there are many other costs that should be carefully considered to see if there is a measurable return on investment. A good example is space. Many shops have seen a decrease in business lately as people drive fewer miles, have fewer accidents, or simply take their insurance money and run. Most body shops occupy a fairly large space compared to mechanical and other automotive service shops. With business declining, might a shop owner look at excess space for a potential return on investment?
I’ve noticed that quite a few have found ways to turn that space into additional revenue. One shop owner set up a U-Haul business in his excess space. Another added an accessory shop. And another solidified an insurance relationship by allocating space for an insurance office at the shop. Still another shop rented space to an organization to use on Sundays when the shop is closed.
A more demanding question: Will an added employee just be an added cost or possibly generate a real return on investment? One shop located near a Chinese community weighed whether it would be worth it to add a Chinese-speaking employee to generate business from that community.
Adding that person would be a cost for a while until promotional efforts got the word out that Chinese-speaking customers were welcome at the shop. Then there would be the distinct possibility that additional business would outweigh the salary for the new employee. Taking a long-term view by calculating vehicle repairs lost over several years might easily show that the added employee would be a valuable investment.
Another enormous cost that shops bear is the fees for permits and licenses. OSHA, the EPA and various state and local regulations lay a heavy burden on shops for the privilege of operating a spray booth and using what are deemed “toxic materials.” Some shops have figured out how to capitalize on this expense and turn it into at least a small source of revenue. Local companies that manufacture, repair or refinish office equipment, furniture, appliances, small vehicles like bicycles and mopeds generally can’t afford the costs of maintaining their own spray booth and painting facility. I’ve visited more than one shop that has rented their painting facility to companies like this, generally in the evening or Sundays.
One expense that many shops have managed to reduce is the cost of operating company vehicles. They’re simply provided to customers as “loaner cars.” But given the high cost of operating a vehicle today, does it make sense to provide a shop vehicle rather than pay a car rental fee? This is where the return on investment question comes down to close monitoring of costs and tight financial calculations. A shop owner interested in even a small return on investment might choose to rent out time on some expensive tools and equipment, like compressors and welders. It’s just a matter of computing the value to see if it makes sense or is profitable enough to be bothered with it.
Probably the most difficult area to compute cost vs. return is in advertising, promotion and marketing. From what I’ve been able to see, few shops are meticulous when it comes to tracking the effectiveness of these expenditures. Many shops don’t even focus heavily on finding out exactly what brought in every customer vehicle that wasn’t referred by a DRP or dealership. But the fact is that the vehicles that come in from ads and promotional efforts are the only ones that can justify these costs.
A tight system of tracking the sources that bring in customers could show which costs are a real investment or an expense that should be eliminated. This evaluation might reveal that a more profitable use of funds might be to host events for DRP or dealership personnel that actually do refer vehicles that can be tracked.
In today’s tight economy, few shops can afford excess costs that don’t provide a return on investment.
Tom Franklin, author of Strategies for Greater Body Shop Growth, has been a sales and marketing consultant for more than 40 years.