Running a Shop Finance

Diversifying Your Business the Right Way

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Having a customer that remains loyal to his shop is the name of the game for Paul Sgro, owner of Lee’s Garage in West Long Branch, N.J.

“We’re in the business of servicing our clients every way we can,” he says. “It’s about owning the customer and them staying with us.”

The problem, he says, is that it was becoming impossible to own that customer when work was sent away or subletted out to another company.

“Every time you sublet a vehicle, you lose control over it,” says Dave Dewalt, manager of business consulting services at Sherwin-Williams. “In today’s world, with cycle time, many shops are trying to keep everything in house.”

That’s why Sgro decided to add on a number of ancillary products and services to his shop. He now performs detailing, glass work, paintless dent repair (PDR), restoration, and express repairs at his shop, which has increased his sales volume by 10 percent.

Although diversifying your shop—by adding services such as mechanical, detailing, glass work, PDR, or tires—can help bring customers in more often, simply adding a service at random can backfire. Sgro says adding the right kind of ancillary product comes down to knowing your numbers, your market and your business.

“You have to understand this information because if you don’t, you could make an off-the-hip decision,” he says. “You’ll have no way of knowing if you’re making money with it or not. There are simple tools out there that enable the shop to have the right information in front of them to make a good decision.”

Sgro and Dewalt detail the steps any shop owner looking to diversify their own repair business should take before proceeding.

1. Know Your Numbers.

Sgro says the biggest key to diversifying your offerings is simple: Know your numbers.

“If you don’t know your numbers and what you’re doing, you won’t be able to monitor if it’s adding any value to you,” he says.

Shop owners need to know if they’re at capacity, and, if not, where an additional service might be helpful. Sgro says to start by establishing the gross profit in your business so you can understand how another service will affect your bottom line. You can pull your gross profit margin from your profit and loss statement, Dewalt says. 

Next, you will need to calculate your shop’s capacity.

“If you’re already at full capacity, it would be hard to add an additional service,” Dewalt says. “If you’re not at full capacity, and most shops have more capacity than demand, you can look to dedicate an area.”

Dewalt says you need to account for both the physical capacity of the building and the manpower. 

Although there are ranges because of differences in markets, labor rates and unique facilities, he says he uses the following calculations to determine a shop’s physical capacity (dollar amounts are based on standard benchmarks Dewalt uses for evaluating all shops): 

Number of stalls in use x $24,000–$26,000 = Monthly sales per stall

Number of employees x $16,000 = Monthly sales per employee

Number of production employees x $25,000 = Monthly sales per production employee         

Square feet x $23–$30 = Monthly sales per total square feet

Productive square footage x $20– $27 per month = Monthly sales per productive square foot 

Dewalt says to use those capacity numbers to compare against your shop’s current averages to see where gaps may occur.  

Sgro notes that, even superficially, there is often dead space in every shop.

“There’s probably a spot they’re not utilizing,” he says. “There’s an old car that’s been sitting over there. Move that car out and put in a detail bay. It’s that thought process you have to get into and understand what your square footage costs you, what you administration costs you, an average repair order.”

2. Understand Your Market.

Sgro says that the next step is to gain a better understanding of your customers’ needs. 

“We were able to look at our customer’s cars and see there was a need,” he says. “You get the phone calls, who’s a glass guy you use? It started to dawn on us that we should be doing it ourselves.”

Dewalt says to start to observe the cars that come into your shop and notice any demand in your market area. He says that detail, vinyl films and quick cosmetic repair are relatively simple services most shops can add, but not to overlook more unique or uncommon services, as well.

“I know a shop that has developed their own process for retrofitting some of the sprinter vans for refrigeration for small companies that deliver perishable items,” he says. “They’ve cornered the market and they’ve figured out how to do this quickly and efficiently at the best price point.”

Dewalt says that you should also keep track of the items and the amount you’re subletting out to other companies. For example, Dewalt says a general rule for adding mechanical work is that you should have roughly $10,000 per month in collision-related mechanical work coming in to make hiring a mechanical technician worthwhile.

“It has to fit the needs of the market,” he says. “Demand generally drives the additional services. You first need to recognize if there’s a demand in your market area and then research it.”

Dewalt says to thoroughly research the product and consider products that match up with your current offerings or could supplement your regular business flow. He says to consider how adding a service could improve cycle time or process a car faster. The goal with adding an ancillary product, he says, should be to increase efficiency, not to add an additional bottleneck.

3. Look Inside Your Shop.

Even if there is a market demand for a service, adding a product or service won’t work if you don’t have the space, staff, training and capital to invest.

Sgro says that with many products, such as glass, detail, paintless dent repair or accessories, the company representatives are able to provide ample information regarding the staffing, training and cost needed to add the service.

Dewalt says to start by looking at the skillsets your employees already possess that may allow your shop to perform certain services.

“If they have those skillsets in-house and don’t have to go out and hire someone to do it, then it becomes very simple to develop a plan and a process to start those functions,” he says.

Sgro says that he already had a meticulous technician who showed an interest in paintless dent repair and an A-class restoration technician. He started each service by training one technician, and as demand grew, trained more staff members. In his restoration department, he’s now up to three full-time technicians and one prepper.

When it comes to space, Sgro generally looked for services that he could easily integrate into his shop without needing extra space. PDR, glass, detail and mechanical all require only one bay, he says, and many of them can be performed mobily. In particular, he says that when the mechanical bay is not in use, he will use that for other jobs or services. 

In fact, the only service he added that required additional space was restoration, which he completes in an existing separate building off-site.

“You cannot run a restoration shop within a body shop,” he says. “I think all body shops in general have done some type of restoration work. You need to make more of a commitment to it.”

Finally, the cost of training and equipment should also be factored in, says Sgro. He says that at the beginning, he purposely chose to add services that required little investment, included training and would see a return fairly quickly if the staff was properly equipped to upsell. 

“The investment for doing glass work is you need to purchase some glass tools,” he says. “The return is almost automatic.”

Including tools and training, Sgro estimates the initial investment for PDR was around $10,000. He says that an additional benefit of training is that they often train the front-office staff on the product and how to identify upsell opportunities.

“When we have a car that comes into our facility, we’re adding to our bottom line,” he says. “It’s automatically coming to us without us going out there and getting it. Very rarely do we see customers decline upsell opportunities for detailing, paint work and glass work.” 

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