Predictability Can be Found in Sales Forecasts

Dec. 16, 2020
Projecting your shop’s sales can not only help you know what to expect, but provide you with a map toward growth.

Shop Name: Isherwood Body & Fender Ltd. Owner: Ryan Isherwood Location: Duncan, British Columbia Size: 7,000 square feet Staff size: 11 Average Monthly Car Count: 80 ARO: $3,000 CAD Annual Revenue: $2.8 million CAD

What can it mean to your business to set goals through sales forecasting and projections?

Ryan Isherwood knows—he started in the collision repair business at 16, volunteering to sweep floors and maybe cut a bumper at the local body shop. Right out of high school he became a trained body tech and in September 2009 he struck out on his own, opening Isherwood Body & Fender Ltd. in Duncan, British Columbia, a town of 5,000 on the southern end of Canada’s Vancouver Island.

From his solo beginning in Duncan—“I was the only employee, I would fix cars, write estimates, order parts”—Isherwood now operates three shops, two that do collision repair as CARSTAR franchises, and a third that does mechanical work.

The Backstory

Early on, Isherwood says, his business plan, essentially, was to fix as many cars as he could and hope there was enough money left over at the end of the month. Now, Isherwood Body & Fender alone brings in the equivalent of $2.2 million USD per year.

Isherwood says his expansion and success was helped by working with CARSTAR, though, moreover, it was achieved through working with a financial professional who helped him map out sales projections and forecasts, helping him see clear paths to attaining his goals.

“All I knew how to do was keep working, keep working,” he says. “Now it’s a little more manageable.”

The Problem

Isherwood says that from the get-go he always kept an eye on his numbers, even if he didn’t know what they meant. The shop generated $120,000 CAD in sales that first year, and Isherwood says he doubled his sales each of the next two years.

That original shop became a CARSTAR franchise in 2013—he says he was seeking some institutional support.

“Just because I was a small, independent guy, had no real business background, I needed some help and structure, and that’s why I was looking at the franchise model,” Isherwood says. Around the time he was about to close on the mechanical shop and was bringing in about $800,000 CAD in sales, he still felt he could use more one-on-one consulting, a type of “mentoring” that CARSTAR didn’t offer. Enter Brad Mewes.

Sales forecasting 101

Alex Woodie, president and CEO of Ledge, a company that works with auto shops, says sales forecasting is like having a playbook for your business.

He says shop owners should make three sets of forecasts that account for three scenarios: disaster years, steady years, and big growth years.

The starting point, Woodie says, is the previous year’s profit and loss statement—take your real sales and expense numbers and adjust them to match the three scenarios.

Factors to take into account include fixed expenses—is rent going up, what about health insurance?—and potential one-time expenses, like buying a new phone system, he says.

Once there, you have your forecasts. Woodie says the next step is to take your goal and break it into your KPIs. How many cars will it take per year, per month, per week, to hit $1 million in sales? Turn the numbers you’re trying to hit into goals everyone can grasp.

“You break it down into small bites that everyone can feed off of,” he says.

The Solution

Mewes, principal at Supplemental Advisory, says his father ran a collision repair shop and he “fell into it by accident,” finding himself in his early 20s running a multi-million dollar business. He went on to get an MBA with a focus on finance and special equity work and now consults both with shop owners and investors.

Mewes and Isherwood together created sales projections based on his shop’s historical sales data. Mewes says he often breaks sales down into more categories, including sales by customer and referral source (direct repair program or non-DRP, fleet, dealer), number of jobs by customer, and average repair order, so that he can get a more complete picture of how money comes into the shop. Creating sales projections is effectively goal-setting, and that leads to accountability—once the projections are made and written down, they become more concrete.

“Brad and I can set goals and he holds me accountable,” says Isherwood, who speaks to Mewes a minimum of once per week. “I know my phone is going to ring on Wednesday morning.”

Projections not only set goals but also provide answers on how to achieve them.

“Putting together those projections forces us to look at what is realistic here and what would [a shop’s] employees have to do to meet those projections,” Mewes says.

The Aftermath

For Isherwood Body and Fender, Mewes and Isherwood made projections and then honed in on a KPI that made the most sense for the shop.

“We focus on hours sold,” says Isherwood. “If we can focus on hours … it just becomes very predictable.”

He pays his techs an hourly rate of $27.50, and charges a door rate of $73.41 (all cash figures here are in Canadian dollars). From there, the goal is always to have a 50/50 or better repair to replace ratio, since he says the margin for labor is twice as much as it is for parts, 62.5 percent vs. 30 percent.

“If we hit 1,800 labor hours in the month … we will likely wind up at around $264,000 in gross sales for the month,” Isherwood says, noting that assumes the 50/50 or better ratio. “Do that every month and we’ll be at $3.1 million in annual sales.”

That number—$3.1 million—was what Isherwood says he was on pace to bring in at his Duncan shop in 2020 before COVID-19 hit. His expected sales for 2020 were scaled back to $2.8 million, which is still more than 20 times what he brought in his first year at the shop.

Isherwood says he doesn’t expect his technicians and other employees to be businessmen, but he knows they have direct control over how many hours they sell.

“We just knew unless the shop got slow,” he says, “you knew monthly how much profit you’re going to make, it’s pretty predictable. Then after that, it’s just managing your spending ... to work on your growth.”

The Takeaway

After buying the mechanical repair shop in 2016 and then getting his operations in order by working with Mewes, Isherwood says he gained the confidence to buy his second collision repair shop.

“We had this model down pat,” says Isherwood, who notes he’d met the owner of his future shop in Courtenay, B.C., at CARSTAR meetings, and was aware he was maybe looking to sell. He took the historical numbers from Isherwood Body & Fender, and applied them to the prospective new shop.

“It just became a more replicable model,” says Isherwood, adding he wouldn’t rule out acquiring a fourth collision repair shop.

“I’ll look at the owner’s financials, and they’ll have to make sense just so I can get the funding, they can’t be a complete disaster,” he says. “If there’s something to be desired, it’s not too scary, because I know I can get in there and apply my methods and improve what’s already there.”

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