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Profitability Bootcamp

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Profit is not a dirty word.

John Niechwiadowicz repeats this phrase a number of times over the course of the conversation, each time with a little extra emphasis. Hearing those words is your starting point. It’s a mantra of sorts. Sure, the vast majority of business owners claim to believe it, he says, but that’s hard to tell from the way they talk.

“It’s almost taboo to discuss how profitable you are or your goals for profitability,” says Niechwiadowicz, owner of industry consulting firm QLC Inc. “Whether you’re talking to other [shop operators] or to employees or whoever, people are afraid to talk about profit.

John Niechwiadowicz“It can’t be a dirty word to you, though. Maximizing your profitability needs to be at the core of what you do, because it allows you to accomplish all your other goals in business. This should be obvious, but it’s absolutely critical to be profitable.”

So, here’s the question: How does a shop maximize its profitability?

This is Niechwiadowicz’s specialty; it’s what he’s traveled across the country to present on and it’s one of the main focal points in his work with repair businesses nationwide. His message is clear: Whether you’re already a high-performing shop looking to reach its potential or you’re still trying to eke your way into the black, the path to profitability isn’t about business overhaul and widespread changes to overcome obstacles hindering your shop’s ability to thrive; rather, Niechwiadowicz says profitability comes from training yourself—and your business—to adhere to simple, practical strategies that keep those obstacles at bay. Profitability comes from dedication to a process, Niechwiadowicz says.

Becoming profitable is not an easy task, as the two shop operators profiled in this story can attest. But it starts with an admission: No, profit isn’t a dirty word; it’s the summation of the blood, sweat and tears you put into your business. Profit is what allows you to reinvest in your company, in your team, in yourself as an operator. And Niechwiadowicz says to start training now.


Phase 1:
The Foundation

STARTED FROM THE BOTTOM: Tom Bemiller was able to turn revive his business by taking a hard look at the numbers and keeping an open line of communication with his team.He had spreadsheets and documents, numbers and statistics. He had proof. And Tom Bemiller, just 28 at the time, needed all of it.

“I told everyone, ‘Look: This is where we are; this is our reality,’” Bemiller says, remembering a staff meeting from nearly six years ago, one of his first meetings as the new owner of Dave’s Auto Body in Zieglerville, Pa. “We were going to make some changes, and I needed everyone to understand exactly why.

” With 5,000 square feet of shop space and seven employees, the business had done less than $1 million in sales in 2012. It operated in the red—six figures in the red that year, although Bemiller says records weren’t kept well enough at the time to give an exact number.

But, spreadsheets in hand, Bemiller had a plan, which is why he bought the shop in the first place. Within one year, the shop added more than $300,000 in revenue (topping $1.3 million in 2013) and cutting roughly $100,000 in expenses. It was profitable (just barely), and has been increasingly so ever since. In 2016, Bemiller’s Aureus Group—a three-shop network, each operating under a different name [1]—will gross roughly $5 million. He’s expecting a large jump in 2017, when his third facility, which opened in the spring of 2016, is fully staffed and operational.

Let’s back up a bit, though. How did Bemiller turn around his first facility, now called Aureus Auto Body, so quickly? Well, it comes down to what Niechwiadowicz says are the three biggest hindrances of profit in body shops: awareness, communication and comfort level.

Creating Awareness

NAME GAME: Be careful of changing your business’s name—while Tom Bemiller built a brand and marketing plan around Dave’s Auto Body’s new name, Aureus Auto Body, it led some loyal customers to believe the shop had a new staffWhen Bemiller took over his first shop in December 2012, he wasn’t quite as green as his age may suggest. By then, he had a college degree, a master’s in business administration and had spent more than five years as an owner-in-training of sorts at another local shop, one that he first started working at in high school.

After college, I went back there and I really just saw the opportunity in this industry to run a shop like a true business and really thrive,” he says. “It obviously turned out to be a much more difficult task than I pictured at the time, but that’s what I wanted to do.”

At the core of every MBA program is a precise focus on financial management, and that’s where Bemiller started with his first shop. Those spreadsheets he took to those early meetings weren’t just numbers on a page. They were the vital signs of the business, each metric signifying the shop’s health and viability for the future.

“You hear it all over, but it can’t be stressed enough: You have to know your numbers, and you have to know what to do with them,” he says. A firm understanding of key performance indicators (KPIs), Niechwiadowicz says, is the first step to gaining a true awareness of your business [2]. Without that, profitability is just luck, he says. With it, profitability can come from a purposeful process.

Open Communication

Let’s circle back to Bemiller’s initial staff meeting one more time, because his shop’s entire turnaround—or at least the incredible speed of it—might’ve just come down to one sentence he uttered that day.

“The message to employees was, ‘I will probably do things a lot differently than they had done, but, that said, there are things you are doing that I can learn from and that can make us better. We need to work together to find solutions,’” he says.

“I don’t believe in just telling people what to do,” he adds. “I don’t just allow them to make decisions, but I also expect them to.”

It might sound cliché, Bemiller says, but bringing his staff in on decisions and opening up those lines of free communication (not to mention sharing all of the shop’s KPIs), created a buy-in with his team. It was all of them, together, who were going to fix things. All of them were focused on creating a profitable, thriving business.

Create Comfort in the Process

So, now you know your KPIs. Your employees know, too, and there is an overall understanding of the business’s current state. There’s a comfort level that comes from that, Niechwiadowicz says, and that comfort level provides a foundation for future decisions and changes to the shop’s processes, systems and structure. Decisions become easier when everyone is open, comfortable and understands the reasoning. And from that building block, a business has the opportunity to maximize its profitability.

 

[1] What’s in a Name?

When Tom Bemiller first took over Dave’s Auto Body, he wasted little time in changing its name to Aureus Auto Body, a reference to a gold coin in ancient Rome. But he quickly realized that was a mistake.

“We got feedback that people in the area didn’t like the name change and that they thought everyone on staff must’ve changed,” he says, noting that he kept all seven employees at the time and still has five of them on staff today. “We lost some customers and jobs because of it. When we opened the second and third locations, we didn’t make that mistake again.”

Bemiller’s marketing and branding efforts were too far along to go back on the initial name change, but his other two facilities operate under the names Mercer Auto Body (Kennett Square, Pa.) and Ed’s Auto Body (Brookhaven, Pa.).

 

[2] The KPI Master List

As an industry consultant and 20 Group facilitator, John Niechwiadowicz often works with shops on the performance metrics that lead a shop to sustained profitability and success. Here’s Niechwiadowicz’s breakdown of the most critical KPIs for every business and their corresponding benchmarks:

Financial KPIs,

  • Total Sales: No benchmark (varies depending on size/scale)
  • Total Gross Profit Percentage: 42% (minimum); 45% or higher (top performers)
  • Overhead Expenses as a Percentage of Sales: 35% (minimum); 28–32% (top performers)
  • Marketing as a Percentage of Sales: 2–3% (minimum); 4% or higher (top performers)
  • Operating Income as a Percentage of Sales: 5–8% (minimum); 15–25% (top performers)
  • Past-Due Accounts Receivable as a Percentage of Sales: 3–5% (minimum and top performers)

Sales and Estimating KPIs

  • Average Severity: $2,500–$2,699 (minimum); $2,700 or higher (top performers)*
  • Paint Hours per RO: 8–9 hours (minimum); 10 or more (top performers)
  • Job Costing for Each RO: 42% (minimum); 45% or higher (top performers)

*Reflects shop with a “standard mix” of domestic and foreign vehicles

Operational KPIs

  • Touch Time: 2–2.2 hours per day (minimum); 5 or more hours per day (top performers)
  • Technician productivity: 125–150% (minimum); approaching 200% (top performers)
  • Customer Satisfaction: All shops should be near 100%

 


Phase 2:
Process Improvement

SCALING SUCCESSFULLY: Bob Waldron’s successful four-shop network comes down to a philosophy that prioritizes people, systems and KPIs.By his own admission, Bob Waldron likes to use “corny sayings.” He explains this through his cell phone while driving down a Massachusetts freeway.

“Everything today is about people,” he then says, right on cue.

This is one of his sayings, and for his part, Waldron does have people—about 55 of them, actually, spread across his four Boston-area CARSTAR facilities. His people, he says, are his greatest asset. That’s why he’s on the freeway, in between two of his locations, rather than stuck behind a service counter or fumbling through financials in a back office. He can take his commute nice and slow, as he knows his business is plowing forward at full speed, on a $9 million-plus pace for 2016 with each facility generating a double-digit net profit.

“I’ve been at this a long time—35 years—and it’s a lot of hard work; nothing comes easy,” he explains (through the use of another one of his sayings, of course). “But there are ways to make it easier on yourself, and your team. There are ways to make it easier on your business to produce.”

It comes down to three things, Waldron says, and he has a saying for each. The first, we covered already in Phase 1: “You can’t manage it unless you measure it,” which addresses the need for a strict focus on KPIs. Then, there’s the next two:

“Focus on Systems, and everything else follows.”

In principle, there are two ways to improve profitability. One is to cut costs [3]; the other is to increase revenue [4]. Do one—or both—and your business takes in more money. And it really can be as simple as that, Waldron says, if you allow it to be; or, rather, if you implement systems in your business that allow it to be.

Waldron has been obsessed with a systemized approach to operations since the early days of ARMS in the 1980s. It’s how he’s always been able to maximize his rather small facilities (his original location is just 5,000 square feet). Repeatable, efficient systems cut costs by eliminating waste—not just materials, but also excess time spent on jobs. And, in turn, that increased efficiency improves revenue: Quicker cycle time and increased touch time [5] push more vehicles through a facility, allowing more jobs to come in.

Don’t overthink it, Waldron implores. Find the best way to perform an action in your shop, and create a system that allows it to be repeated in that way every time.

“Everything Today is About People.”

OK, so we’ve heard this already, but it merits repeating. Nothing, Waldron says, is more important than your people. [6]

“Bottom line is that you need the right people to carry out the correct systems,” he says.

It’s taken him years to cultivate his hiring strategy, but he says it was worth the effort. Today, he has a general manager at each location that he trusts to run completely autonomously. Each location is staffed with roughly 10 team members, each with Waldron’s complete trust to carry out the company’s processes.

 

[3] A Case Study in Cutting Costs: Trimming the Low-Hanging Fruit

When Tom Bemiller took over Dave’s Auto Body, he quickly looked at ways to trim expenses.

“In most shops, especially ones that are operating at a loss, there is usually a lot of ‘low-hanging fruit,’ as they say,” he explains. “We had some obvious areas to cut back on spending.”

First, there was a redundancy in a front office staff position of which he would fill the role. Then there were more minor aspects, such as a ridiculous abundance of office supplies.

“I think we had about 10 backup ink cartridges for each computer in the shop,” he says. “Then there were some contracts that we were able to renegotiate with vendors, like for our compressed gas cylinders. We were renting them month-by-month and paying a very large amount. I switched it to a yearly lease, and we started paying a fifth of the amount.”

He also cleared out old inventory in the shop and sold old, unused equipment. In all, Bemiller quickly shaved $100,000 off the shop’s annual operating costs.

“You need to look for every opportunity to cut an expense that is unneeded,” he says. “Never cut anything that would hinder your ability to produce, but keep an eye out for excess items and things like that.”

 

[4] A Case Study in Increasing Revenue: Focus on the Process

With Dave’s Auto Body operating at a heavy loss when he took over, Tom Bemiller looked for simple ways to increase revenue. After reaching out to local insurance representatives and making connections that led to a quick influx in insurance work, Bemiller focused on simple efficiency gains to push more work through the shop.

“We were a classic, in-on-Monday-out-on-Friday shop,” he says. “And we had a lot of scheduling inefficiencies.” Customers would wait far too long for repairs to even start, and with a backlog of work, many would simply opt for a different shop rather than wait. Bemiller implemented three core aspects of his production model right away, foundational principles he learned from his time managing another local Pennsylvania shop:

  • Take work in every day. Bemiller schedules vehicle dropoffs Monday through Friday, based on the amount of hours his team can complete in a day. (Today, the number varies depending on his facility.) Vehicles are not dropped off until they are ready to be worked on, which brings in his second point …
  • Write complete estimates the first time. Bemiller’s rule: A complete estimate must be written the very first time his team puts its hands on a car. Supplements are an efficiency—and profitability—killer in the shop.
  • Mirror-match all parts upon arrival. Too many times, Bemiller says, shops will wait until a part is ready to go on a vehicle to double-check that it’s correct. In Bemiller’s shops, his parts staff and estimators mirror-match each part when it is delivered to the shop. Then, if there are any issues, there is still time to get the correct part to the shop when it’s needed.

With those basic improvements, Dave’s Auto Body improved its technician efficiency by more than 25 percent (it had been in the low 90s) and gave the shop a $300,000 boost in revenue in Year 1.

 


Phase 3:
Goal Setting and Re-Evaluation

There’s a clear personality similarity between the most successful (see: profitable) shop operators, Niechwiadowicz says.

“To me, it seems the top performers are not the ones that sit back and say, ‘OK, we’ve made it now,’” he explains. “The most successful people you find in business are the ones who look at their success and say, ‘Gosh, there’s a real opportunity to improve here.’

“Once you start tracking performance, making tweaks and process adjustments and seeing success, momentum starts to build. Your team gets excited. They get confident. You get confidence. You need to keep striving to improve and keep that momentum going.”

It’s not a coincidence that Bemiller and Waldron both have expanded their businesses drastically over the years—all while maintaining high margins. Even with the operating losses and expenses of a brand-new facility, Bemiller says his three-shop network is on pace for an 8 percent net profit in 2016. Waldron will open his fifth location before the start of 2017.

Proper goal-setting is critical to sustaining success [7], Niechwiadowicz says. Profitability is the result of a cycle: evaluate, make adjustments, re-evaluate, make adjustments, re-evaluate, and so on. Train yourself. Allow your business to succeed. Profit isn’t taboo. It’s attainable.

“There’s no silver bullet to fix everything in one shot,” Waldron says. “It takes work, hard work, and doing things the right way. There’s nothing wrong or dirty about making a profit. I’ve been here 35 years, and that’s why I’m still going.”

 

[5] Why Touch Time is More Important than Cycle Time

Consultant John Niechwiadowicz says it’s really simple: Cycle time is too dependent on vehicle mix, job type and job time; touch time is a true reflection of how productive your team is. When looking at it from a profitability standpoint, Niechwiadowicz says to focus on improving touch time to ensure that you’re not wasting valuable labor resources in your facility.

 

[6] A Rule to Hiring ‘Extraordinary’ People

Bob Waldron has a thorough hiring process for each of his four Massachusetts CARSTAR facilities. It includes an in-depth job description, a focus on year-round interviewing, and candidate screening based on personality. Really, it’s not too different than many of the top-performing shops out there. But, Waldron says there is a simple rule for identifying “extraordinary” people to bring into his business:

“Always choose people who can bring something to the business that you can’t,” he says. “If it’s a manager, they should bring something to the table that you don’t know. Any position, make sure they bring something that you didn’t have before and that will improve your business. If they don’t have that, there’s nothing extraordinary about them.”

Read more about the employee recognition program at fenderbender.com/recognition.

 

[7] How to Set Proper Goals

Goal setting is crucial to business success, but many shop operators fall short when it comes to setting proper goals for improvement. Too often, the objectives are too vague, intangible and unmeasurable. Niechwiadowicz offers his seven-step process for setting better goals that will set your shop on the path to profitability:

  • Gather historical data. If you feel there is an area that needs improvement in your business, the first place to look is in your management system by giving a thorough review of your KPIs.
  • Compare to benchmarks. Look to benchmarks like the ones laid out in this story for an indicator of whether or not your shop meets industry standards. Identify a specific problem. Look for target areas where the numbers indicate a lack of performance.
  • Get involvement. Bring in members of your team who have an impact on that problem area previously identified. Communicate the issues you see and gather information from them about possible reasons for the problem and solutions to fixing it.
  • Set an objective. Define a realistic, tangible and incremental adjustment (or goal) for your team based on the data you have and the discussions that took place. Set out a specific timeline for how and when this improvement will be made.
  • Have regular check-ins. Don’t simply assign the project to your team and ignore it until the due date. Monitor it regularly, and schedule check-ins with those involved to keep tabs on whether the plan put in place is effective. Make adjustments as needed.
  • Final review. At the end of the specified timeline, review the results and the efforts made to achieve them. Do a full re-evaluation of the issue and see if more work is needed.

 

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