If you aren’t growing, you’re dying.
Attend a business class and you’ll be introduced to this notion on day one. Work in any business long enough, and you’ll realize it’s the truth. In business, growth is life. It provides the funds to help you truly compete, to set yourself apart in the market place and make the kinds of major transitions that keep a shop modern and vital – which allows you to attract and maintain the best and brightest employees who make further growth possible. Growth is at the very core of our economic system. Take the opposite approach and choose to simply sustain your business, and you risk losing it as the market changes.
Many shops have found this to be the case in the past decade and closed their doors when they discovered they couldn’t weather a bad economy or keep up with the rising costs of staying in business. Similar factors have hurt small businesses everywhere, but the collision industry has been particularly vulnerable. Much of this vulnerability, according to some industry members, can be attributed to a widespread “anti-growth” philosophy. Too many shops are content with simply paying their bills and having a little bit of money left over at the end of the month. Simple stasis is the status quo.
If you’ve fallen into this trap, it’s time to change. Let’s examine some of the sources of the industry’s anti-growth sentiment and then move your shop forward with some strategies proven to pull a business out of the doldrums and onto the highway of growth.
Collision history 101
Thomas Missiner has spent more than 35 years in the collision repair industry, rising from a painter’s apprentice to an estimator and eventually to manager of several shops in northern Florida (along with stints in the insurance industry and as a paint jobber). By all rights, the industry veteran says he should be spending his time on a golf course. Instead, he has started a bustling consulting operation in the Tallahassee area.
“I wouldn’t miss out on what’s happening today for anything,” he says. “Our industry is going through huge changes I believe will eventually get us back to where we were 30 years ago when it was far more common to see shops expand and there was a lot more opportunity and excitement about body work.” The excitement and opportunities began to dry up beginning in the 1990s when Missiner says the industry as a whole shifted to a new business model. With that model, came new thinking that he says abandoned proven, rock-solid business practices.
Missiner says shops became so focused on forming direct repair program (DRP) partnerships they didn’t realize what they were giving up. “All partnerships are a compromise. You have two parties each giving up something for a greater good. Of course, in a DRP you’re cutting rates to ensure a steady flow of business. Shops ended up giving up a lot more than that,” he says.
“The problem there was that we gave our businesses away to insurers. We weren’t small businesses anymore. We were just another part of a corporation. We’re a cog in a machine. A lot of us began thinking like that.
“We looked at the money and got content. We stopped running our businesses as independent operations. We relied on insurers to bring us customers and do the marketing while we turned a wrench.”
Missiner says this process produced an entire generation of managers and owners who don’t know how to build a business from the ground up. He’s re-entered the industry to teach business skills he says have been lost. Missiner says the time is right due to a couple of game-changing factors. For one, the shrinking number of shops will give remaining shops more leverage in the industry. He also believes the increasing difficulty and costs associated with repairing modern vehicles will force insurers to back away from trying to control the repair itself (though they’ll look to control costs in other ways). “Insurers will realize because of liability issues repairs will be best left up to experts, the shops,” he says.
OEM guidelines will dictate repairs and shops gradually will be compelled to become OEM certified. Certification costs a lot in terms of time and money. These investment dollars will have to come from growth, says Missiner. He hopes he can help restore one key skill to help shops return to a growth philosophy: risk management.
“Businesses grow when operators take smart risks,” Missiner says. “I think when too many of us joined DRPs, we expected the risks to go away. That’s not how things should work.”
Success in any market needs to be founded on smart people taking smart, truly informed risks. “That’s how you end up with a healthy market driven by smart operators instead of outside influences,” he says. “We’ve been sorely lacking that.”
It’s in the numbers
Johnny Mock, owner of Johnny Mock’s Auto Body in Turtle Creek, Pa., shares Missiner’s belief that many shops aren’t practicing the skills they need to grow. The skill Mock says every shop must utilize is proactively and aggressively examining their numbers – sales, overhead costs, expenses, gross profits and net profits – and then utilizing these figures to set benchmarks and goals.
“When you know your numbers, then you know what it takes to run a business. That’s when you become a true businessperson. That’s when you truly start to grow your business,” he notes.
One of the key numbers Mocks says shops need to address is their breakeven number, which represents the total monthly sales needed before any net profit can be realized.
Mock notes that some (perhaps, many) shops still don’t know how to accurately calculate more common figures such as net profit and gross profit. He explains that net profit is money that is left after overhead expenses (utilities, insurance, advertising, etc.) are paid. Gross profit is the money left over after the expenses directly related to shop profit centers (labor, material, parts and sublets) are paid. Net profit, then, is gross profit minus overhead.
Being able to calculate these figures relies on breaking out profit centers into four areas: labor, parts, materials and sublet. For an even more accurate and valuable look at shop numbers, these centers can be broken down even further. Labor, for example, can be broken down into: body, frame, refinish, detail and mechanical.
The more a shop’s numbers are broken down and out, the more information they provide on where a shop is bringing in money and where its expenses are. Once a shop knows these figures, it can begin setting benchmarks, which are achievable standards that allow a shop to see where it stacks up against other shops (for more information on benchmarks, see “Financial Benchmark” in the May 2009 edition of ABRN).
Benchmarks can include standards such as percentage of gross profit generated from each profit center. For example: Labor - 65 percent; parts -30 percent; materials - 40 percent and sublet - 25 percent. Other benchmarks Mock suggests include average repair order (for example $2,200) and sales produced per employee (for example, $10,000 -$15,000 per month) and sales produced per technician (for example, $20,000 - $25,000 per month).
When a shop doesn’t hit its benchmarks, Mock explains, owner and management must step in and figure out why. “You might have problems, such as slowdowns somewhere in production, or in some cases you might not be hitting your numbers because you need more sales,” he says. “You resolve those.”
Mock says the key in using these numbers is following and utilizing them from the beginning of the month and addressing any problems immediately. “If you wait until the end of the month, it’s too late. Many shops fall into this,” he says.
Mock says working by the numbers allows shops to punch up or even create profits in areas where many shops are losing money. For example, in order to hit benchmarks on parts sales, Mock says his shop charges recyclers for parts that arrive in a condition worse than advertised. “It costs money for labor and materials to restore these parts to the point that we expected in the delivery. Those costs need to be recouped,” he says.
Mock says this information is particularly critical when it’s time for a shop to find ways to grow because it allows an owner to know where to grow. “You see shops investing in new paint booths or hiring extra techs because they believe doing so will pay off, but it doesn’t,” says Mock.
Adding equipment and personnel to aid throughput won’t grow a business if throughput isn’t the problem. Mock explains that if a shop already is hitting its production benchmarks, growth needs to occur elsewhere, for example by increasing the number of jobs coming into the shop. Using the same logic, when a shop exceeds its sales benchmarks, it’s time to consider investing in throughput to handle the extra work.
Mock notes that operating by the numbers provides one other important benefit necessary for growing. It brings order to a business. “You have to get your business in order before you try to grow it or else you end up with an even bigger problem,” says Mock.
“Growing isn’t really the hard part. Preparing to grow is,” he explains.
Build a customer base
Once a business is put in order, add customers to grow. Missiner says this is one skill area shops need to relearn after years of relying on DRPs. He says the best place to start is by maintaining your current customers, something Tony Bonfe, co-owner of Bonfe’s Auto Service and Body Repair in St. Paul, Minn. (one of ABRN’s 2009 Top Shops), agrees with.
Bonfe notes, “You’d like to believe your customers will always come back to you. But people move. They die. You have to be constantly replacing customers.” His shop has been in business for more than three decades and prides itself on having a steady stream of customers and their families who have been returning for work during all those years. Still, the shop aggressively markets itself.
Bonfe employs two part time marketing specialists who deal with insurance reps, handle advertising and reach out to customers in more creative ways such as by contacting condominium and townhome associations and offering their members deals on lube services and other deals to get them familiar with the business.
Once customers are added, relations with them must be constantly attended to. Mock says relationships with large customers such as DRPs or dealerships particularly must be “massaged” to ensure they are content and won’t suddenly decide to seek work elsewhere. Mick notes this can happen often, sometimes only because an insurance rep decides he no longer wants to deal with a particular shop.
He stresses that a shop can’t grow if it is losing customers. For this reason, Mock warns that shops shouldn’t risk relying on more than 15 percent of their business from any one source. Mock says he’s made that mistake and won’t do it again.
Jay Giddings, manager of Plains Auto Coach in Lincoln, Neb., stresses using as many different customer bases as possible, even if that means going against industry trends and pursuing DRPs. He advises shops to “pursue what you can manage.”
“That means entering into contracts that you negotiate that do help your business,” he says. “Look for insurers who work with you. Leave yourself in charge. As much as I hate to say it, they’re not all bad. Some of them get it. Just be prepared to get out if things change.”
Giddings says using this strategy has helped his business grow by an average 11 percent annually each of the past five years. He also has taken other steps, such as hiring marketing professionals, and suggests shops take advantage of every marketing opportunity they can. He says some of the most effective tactics, such as radio advertising, take time. Shops need to keep that in mind. He says shops also need to realize that attracting new customers is only half of the job: “Satisfying and keeping the ones you have is the hardest step. You have to get used to the fact that this is a slow process, requiring a lot of work.”
Patience: The ultimate virtue
Missiner notes that shops actually are better off taking that approach and growing slowly. He returns to his belief that shops need to relearn skills such as managing growth. Giddings concurs, “We can grow in double digits because we have managers who have been around for a long time and have been through it. For other shops that may be looking for the first time to really grow, I’d recommend taking it slowly. Learn to manage growth through experience, otherwise it’s going to blow up in your face.”
Indeed, Mock and Bonfe have both grown their businesses gradually and with great success. Perhaps those are the best lessons here. It takes time to growth. Growing is the best use of your time.
According to ABRN’s 2009 State of the Industry survey, over 95 percent of shops survey said they believed they’d still be in business the next five years. That being the case, shops should ask themselves: Where do you want to be at the end of that period – still running in place or crossing the finish line?
