Making the grade

Are you up to date with your business financial management guidelines to operate your shop today? Take the time to do the following test on these basic questions just to see where you sit. 

The following 10 questions are provided to demonstrate the typical and basic information that a shop owner should be able to answer if he or she is going to manage the business profitability. If you are able to answer these questions, then you are well on your way to becoming a very profitable business.

1. In a profitable aftermarket auto repair business, what should the average gross profit percentage be on the following:  

(A) Oil / Fluids

(B) Tires

(C) Batteries

(D) Aftermarket Parts

(E)  Dealer Parts - Domestic

(F)  Dealer Parts – Import

(G) Maintenance Labor (hourly paid techs)

(H) Diagnostic Labor (hourly paid techs)

(I)   Total Sales including Labor

2. What are the total retail sales dollars required to achieve the following?

(A) A shop with a Gross Profit demand of $56,600 operating at 57 percent GP

(B) A shop with a Gross Profit demand of $41,270 operating at 63 percent GP

(C) A shop with a Gross Profit demand of $49,280 operating at 70 percent GP

3. A productive technician is presently earning $1,250 gross wages on a weekly basis. To maintain the payroll percentage at 30 percent of total gross profit, with an overall shop gross profit of 63 percent, what total retail dollar sales would this technician have to produce to earn $1,500 per week?
4. If you have four technicians being paid $15, $18, $22 and $30 per hour, what should your labor rates be for (A) Maintenance Labor  (B) Diagnostic Labor (C) Re-flash labor ?
5. A shop is averaging 94 percent gross profit on maintenance labor and 63.5 percent on total shop gross profit. The shop just leased a new piece of equipment to produce new labor for a payment of $1,300 per month. What is the amount of labor per month that must be billed utilizing this piece of equipment to break even on the lease payment?
6. A shop that averages a total gross profit of 62.1 percent and nets 4.2 percent of total sales before tax so how much revenue must be produced to replace a $1,200 bad debt?
7. What is the minimum total site efficiency percentage number for a successful shop today? What is the utopia total site efficiency percentage number to strive for?
8. How do you calculate average billed hours per RO/invoice?

9. How many average billed hours per RO/invoice should a successful shop average from their maintenance department?
10. If we sell a line-item at 60 percent gross profit. We have a sale on that line and reduced our price by 20 percent. How much more do we have to sell from that line only to maintain the same dollars we had before the price reduction?

I hope this little quiz creates some positive internal discussion in your shop among your management team. Many shop owners and managers struggle with the basic math to run a business today and I’m trying to point out that we all must continue to learn throughout our entire life.  You can’t shut business education down because things change, and so do many business formulas and guidelines that drive bottom-line profitability. The above questions are just the tip of the iceberg and that is why shop owners and managers must continue to learn to work on their business and not just in their business. 

To obtain the answers to the above questions go to www.vehicleIM.comhttp://www.vehicleIM.com and click on Motor Age Sept. 2014 Answers and enter the password “motorage” in the box.

The aftermarket is an exciting arena to run a business today. The opportunities to earn excellent net income are enormous to sustain a great career but it takes a great deal of self-discipline to realize those dreams. As I have mentioned before in previous articles, “shop ownership is a position in the business today” and when the owner does not realize this, or accept it, that he or she must be totally accountable in that position, the shop usually has below profitability required to move forward and management just bought themselves a terrible job. Do not become an industry statistic. Understand the math; understand you business.