Is it time to add new revenue streams at your shop?

Jan. 1, 2020
The best time to invest in a new profit center is before you need one, when you already are generating significant income.

WHEN IT comes to growing the bottom line, shops have three basic choices: (1) Grow their entire business; (2) Cut expenses (go lean); or (3) Add new profit centers. Each has its advantages and disadvantages.

Of the three, adding new profit centers has always been the least popular choice – for several key reasons. First, shops often believe the costs and headaches related to investing in a speculative new profit area won't be offset by suitable revenue. Just as significant, taking this kind of business path usually means moving into some unfamiliar waters – a decision many repairers aren't comfortable in making. Finally, shops ask themselves, "If adding profit centers was such a great choice, why wouldn't more repairers be doing this?"

Vehicle restoration and custom painting can't always be counted on to return a shop's investment. Despite a background in this industry, shop owner Ray Donahan failed to add these services to his shop's business. (IMAGES/ O’RIELLY COLLISION CENTER)

Bob Gelder, co-owner of B&L Auto Wreck in Arlington, Texas, used to be a part of this crowd.

"I always laughed ideas like this off as a pipe dream, like buying some new-fangled cooking appliance that was supposed to replace most of what I have in my kitchen," Gelder says.

Gelder isn't laughing any more. Two years ago, he reluctantly, at the urging of his co-owner and spouse Louise, began selling truck accessories at his shop.

That addition is paying off handsomely, to the tune of an average extra $600 to $1,200 per repair. Gelder is quick to point out that adding such a profit center isn't right for every shop.

Express repairs aren't guaranteed to put new profits in the fast lane. Shop owner Robert Gearling says he waited too long to successfully implement this profit stream.

Indeed, before you take the plunge into a new profit center, consider the lessons and experiences of shops that have succeeded and failed at building their businesses this way.

Keep on truckin'

Gelder still exhibits disbelief over the good fortune he's experienced by adding truck accessories and other services to his small, four-tech shop. His decision actually sprang from a chance run-in with a neighbor.

"I happened to mention to him that we were working on his son-in-law's pickup. He said he'd like to pitch in by adding some custom floor mats and other parts," Gelder says. "My wife Louise ordered them off the Internet, and we installed them."

When he picked up his truck, the customer was so impressed that he asked the shop to order more accessories. Within days, other customers began showing up at the shop after seeing the truck.

Louise Gelder

Gelder couldn't believe the interest (or the potential profit), especially considering the number of nearby department stores and parts retailers who also were selling accessories. It still took some nudging from his wife to convince him to buy into an accessories revenue center. That nudging took the form of growing profits from this area, driven by Louise, who made sales to most of the shop's customers and then to their acquaintances.

Once Gelder saw the sales weren't simply some passing phase, he turned this part of his business almost entirely over to his wife, who ran with it.

She set up an accessories area in the shop waiting room and located financing sources for customers. She also talked a part-time detailer into learning how to apply spray-on bedliners and added that to the shop's services.

"The business took off, and we never looked back," says Gelder, who recently expanded his shop to include an additional 2,000 square feet of floor space to showcase accessories, which Louise constantly refits to show off as many new products as possible.

While selling truck accessories may seem like a winning formula for many shops, Gelder says they should remain cautious. A friend of his with a shop in Oregon failed miserably using the same business model, according to Gelder, who says that several factors at work at his business helped him succeed where others, such as the shop in Oregon, are likely to fail.

Manager Brian Guerrero of Tucson, Ariz.-based O'Rielly Collision Center is having success adding PDR work to his business in large part because his shop can grow this service at a pace that benefits it and the shop. Here, PDR technician Chris Stevens works on a vehicle.

Among them, he works in an area with a high number of trucks and estimates that more than 60 percent of his business involves repairing trucks – notably full-sized pickups.

"The larger the truck, the better the odds the owner had accessories that may have been damaged in an accident and the better the chance he'll have the funds to replace them or buy new ones," Gelder says.

More than anything, Gelder credits having someone on board who possessed a genuine talent for running the profit center. When the opportunity to add a profit center presented itself, Louise Gelder acted quickly and made the right moves to get the business going. She had a knack for knowing exactly what accessories to sell and where to get them for the best price and quickest delivery.

Perhaps more than all that, she's a "natural salesperson" Gelder says.

"Customers like her and trust her immediately," he says. "You know that old saying about being able to sell ice to an Eskimo? Louise could convince him to buy lawn chairs, a beach ball and a volleyball net and be thrilled about it."

Restoration disaster

Such talent was sorely lacking when Ray Donahan decided to boost his profits by entering into a business he at one time worked in and sorely missed – restoration and custom paint.

When Donahan left the Army in 1974, he decided to forgo moving back to the cold winters of central Minnesota and start his civilian life in Southern California. He began building hot rods and doing custom paint jobs from a small garage he rented until a local shop agreed to train him as a technician.

Ten years later he opened his own shop, Ray's West Beach Auto in Long Beach, Calif. Business was good for the next 22 years until he unexpectedly lost his two biggest direct repair program (DRP) contracts. Donahan considered partnering with other DRPs, but because he felt burned after losing his most important two, he decided to reboot his business.

"I was tired of dealing with insurers. I wanted to deal with my real customers," he says. "I decided to go back to my first love – hot rods – and begin restoring cars and doing the custom paint."

It seemed like a great idea. The local area was flush with spending money and an interest in classic cars. His employees were excited. Due to a long-standing connection to the market, Donahan was able to hire a custom painter and restoration technician popular with the locals.

What could go wrong?

Everything, Donahan says.

His two new hires, who would form the foundation of his new profit center, had always been self-employed and couldn't (or wouldn't) make the transition to a 9-to-5 job.

Donahan's first work orders for restoration and custom paint lagged well behind their estimated completion times.

The work itself was uninspired and failed to satisfy customers. Negative word spread quickly. Donahan attempted to bring replacement hires on board, but the economy (it was 2008) tanked. Potential customers held onto the dollars they would have spent on a classic car.

Disappointed with the failure and fearing the business would close, several long-time employees left the business. Donahan was back where he started, looking for a way to save his business.

Fortunately, his story has a happy ending. Donahan was able to sign on to several DRPs to help bring in business. He also uncovered a new niche profit center. He began performing fleet work – doing small repairs on vehicles and small to mid-size used and new car lots.

While his business hasn't returned financially to where it was five years ago, he is confident and wiser. "I haven't given up on the hot rod business yet. My mistake was rushing in with unproven people and bigger expectations than I should have," he says. "Right now we're going to stick with what we know. We're not going to get rich, but we're doing OK. Sometimes that enough."

Express lane to failure

Robert Gearling, the retired owner of the former Top Class Body Repair shop in Rochester, N.Y., suffered a similar, though less happy fate when he experimented with "express lane" repairs around the same time Donahan was attempting to add custom paint and body work.

Like Donahan, he also lost a major DRP, which nearly crippled his business. His shop also faced a declining local population and increased competition from aggressive competitors. If he was going to survive, he needed to attract new customers and new DRPs, both of which were in short supply.

After speaking with a business consultant referred to him by his paint vendor, Gearling said he and his shop manager decided their best option was to add express services – a business niche dedicated to quick repairs such as same-day bumper work. The niche would also take care of some of the repairs needed on major hits.

Gearling says the chief selling point of this profit center was its ability to draw in cash customers and cut cycle times, which was expected to attract DRP work.

The business spent two months reorganizing floor space and training workers on what work to direct and on several new one-day repair processes. Gearling spent several more weeks tweaking the express area with his employees by directing real work to it.

When the express zone was finally up and running, it turned out to be a disappointment. Work was sparse. Any savings on cycle time never appeared. Four months after the express zone open, Gearling retired and closed his business.

Gearling, however, says the idea wasn't a bad one and defends it – to a point.

"It didn't work for us. I place the fault of that on me," he says. "My business was just too far gone for it to have done us much good."

Gearling explains that he had waited too long to make the kind of changes that would help his business cope with a slumping economy and business. Insurers preferred to send their DRP work to his competitors, who discovered what he was doing and began opening their own quick repair niche services. They were far better prepared and able to market that work to customers.

"They undercut me on price. There was no way I could make it charging what they did," he says.

"Looking back at it, if I had made this move before things got bad, I could have really helped myself," Gearling says. "I learned that lesson too late."

Starting small, building smart

An interesting and telling counterpoint to Gearling's shortfall is the experience another shop is having by adding a similar profit area.

Tucson, Ariz.-based O'Rielly Collision, ABRN's most recent Top Shop winner, last year began investing in paintless dent repair (PDR). PDR has been a popular choice when it comes to adding revenue streams, but it's also disappointed a number of the shops that have added it to their services. Too many competitors and too little return on investment are generally the two biggest complaints shops lodge at the service.

Why would a Top Shop take this direction?

Shop Manager Brian Guerrero says adding PDR made sense based on O'Rielly's business philosophy – the shop is interested in offering as many services as possible. It also fits into a work culture where employees are offered and receive as much training as possible. Guerrero says PDR presented itself as an opportunity for the business to give what he calls his "A" technicians the chance to gain skills to move them to the next level.

O'Rielly's spent $13,000 to send such a tech to California for complete training and to invest in PDR tools. That's no small cost for any shop, but O'Rielly's isn't looking to quickly recoup that investment.

Instead, the shop is implementing this new service incrementally. Its first use will be on vehicles at the O'Rielly's dealership and offered to customers needing collision and other vehicle repairs. Then it will be marketed to a larger customer base.

"We're giving our tech the chance to build his experience and build a new service without having it be overwhelming," Guerrero says.

To date, Guerrero reports his PDR business is growing, albeit slowly. That's what the shop expected and what will help the shop grow this new part of its business successfully.

Final lessons

Obviously, drawing a portrait of four different shops with four very different experiences adding new profit centers doesn't create a definitive picture of the process of adding such centers for the entire industry. That's not the point.

What these anecdotal experiences point to are the very different journeys shops take when adding revenue. Building a new revenue stream is as unique and difficult an experience as building any other part of a shop's business.

These four different stories point to one vital, final lesson. The best time to invest in a new profit center is before you need one. The best time to look for new profits is when you're already generating significant revenue. The best time to look for a new sales success area is when you're already succeeding.