Creating a wave of repair shop revenue

The average independent shop within the autocare industry has a tough time understanding their door/labor rate, along with productivity increases and what it means to their business. Many shop owners are convinced they can’t raise their rate because it would price them out of their marketplace. Many shop owners believe they only need more car count.

I disagree.

It is important to understand that the labor rates of the shop should not be used as a marketing tool. The labor rate reflects the shop’s competency. We are no longer in the breakdown and repair business; we are in the knowledge business. If you are incompetent, then make sure you have the lowest door rates in the marketplace. If you are competent, then make sure you have the right door rate in your marketplace.

Today’s business is challenging. We must diagnose the problem accurately, then explain it completely to the consumer in layperson’s terms — and at the same time secure their trust. The consumer is not stupid, but is likely to be uninformed. We as an industry have done a great job of keeping them in the dark.

Doing the math
What is the effect on your business if you raise your labor rate $5 per hour on maintenance work?

Assumptions:

• Your site efficiency number is 64.1%, meaning a technician who is available 40 hours per week, a total of five days per week, is being billed out 25.64 hours per week. (You cannot calculate this accurately if you don’t first calculate your Site Efficiency number, but once you have that number, you will start to know the facts about your business.)
• There are the equivalent of six technicians in the shop: Licensed techs are one tech, and apprentices are equivalent to a half-tech, so five licensed and two apprentices equal six techs for calculation purposes.
• Technicians work 50 weeks a year.

How much additional gross profit/net profit would be created by increasing the door rate $5? Do the math:

25.64 hours per week X $5 increase = $128.50 per week

$128.50 X 6 technicians = $769.20 per week

$769.20 X 50 weeks per year = $38,460 GP/NP per year to the business.

Now, this is not only gross profit, but also net profit because it did not cost you any more to raise the door rate.

The next step is to understand the productivity issue that is available in this sector of the autocare industry.

Using the same facts as above and charging a labor rate at $85 per hour in the maintenance department, what would be the results to the business if management got focused to get one more hour billed per technician per day over what they currently average? Do the math:

$85 per hour X 6 technicians = $510 per day

$510 X 5 days per week = $2,550 per week

$2,550 X 50 weeks per year = $127,500 GP/NP per year.

Between these two moves being incorporated into the business, and with management executing with discipline, the business generates $38,460 + $127,500 = $165,960 additional GP/NP dollars per year.

Let’s say you are not that good and you only achieve half these results. You still have changed your life!

It is not about car count, it is about billed hours per R/O. A professional shop understands they don’t need to be busy, they need to be steady.

Insert your own numbers and see what you have been leaving on the table because of the distraction of “noise” the industry has been providing to you over the years. The independent shop is not in the commodity business; that belongs to the manufacturer, WD and jobber business. The independent shop is in the knowledge business, which requires a completely different strategy and explanation of what a shop is and how it must measure itself and function today. The select few, at every level in the industry, who get this understanding clearly reap the rewards. They have not only a beautiful business, but enjoy a great career.

The rest buy themselves a terrible job because they don’t want to learn about who and what we really are today.

Let me know what you discovered about your business doing these exercises. I would love to hear from you. E-mail me at [email protected].

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