Have you set out to increase profits at your auto repair shop but have no clue how to proceed? It can seem like such a simple task, but there’s a lot that you have to consider if you want to make a lasting difference in your business profits.
Traditionally, tracking financials and making reports has been a daunting task requiring a lot of manual labor. Thankfully, those days are long gone with the introduction of modern technology such as automotive shop management software that makes tracking important metrics a lot easier. By taking advantage of a QuickBooks integration, you can remove a lot of the labor that comes with tracking finances, which can make improving your position a little easier.
In addition to taking advantage of the latest technology, here is a selection of ways you can accelerate your shop’s profitability:
Be smart about your finances
Sounds simple, doesn’t it? But there can be a lot more to consider than you would have initially thought. Knowing your financial position is crucial as a business owner, and there is a lot you can do to help your standing in that regard. Knowing what to keep an eye on can set you up for success and set you apart from your competitors.
Make sure you aren’t spending money on anything that isn’t impacting your bottom line positively, and reconsider all your expenses to weed out the ones that aren’t beneficial for you. For example, if you’re spending $200 every month on tools and supplies and it’s a recurring expense, then you should consider investing a higher amount one time in high quality supplies that’ll last longer. Alternatively, you could consider renting a specialized machine when needed instead of buying outright.
Actively save
The COVID-19 pandemic has shown us how unstable times can get, so it’s imperative that there’s enough savings to make sure that there’s enough cash for a rainy day. Conventional investing wisdom says it’s a good idea to have enough savings to cover 3-6 months worth of expenses. While that is a good rule of thumb, it’s not an iron-clad rule.
To help with saving, you can start thinking of savings as overheads. In an interview with Ratchet and Wrench, Kurt Krans, owner of European Autospecialist, says “Saving is difficult, but I factor it into my overhead. Saving for the business’s future should be an expense of running the business, because it is absolutely essential. If you set an amount aside every month, and treat it as overhead, and factor that into all of your finances, you can maintain that.”
Know where your money goes
As a business owner, you need to know exactly where your money is going. Knowing where you stand daily can highlight trends, keep you updated with the relevant details, and help you make better decisions on the fly.
Now you might be overwhelmed by the exact metrics to track since there are so many particulars and ratios. You don’t have to remember them all, of course, but there are a number of KPIs that you should definitely track. Some of the most relevant ones could be:
- Net profit margin: This is the proportion of profit to revenue, which can be very useful for general decision making.
- Gross profit margin: Some routine decisions might require you to use the gross profit margin, which is your gross profit over revenue.
- Inventory storage status: Parts keep coming and going, so knowing exactly what the condition of your storage is can help you decide which parts to get. Having an effective shop layout can help you get more space for machinery or parts without the shop feeling cramped.
- Parts and labor margin: As an auto shop owner, your parts and labor margins are arguably your most important metrics. Alan Beech, of Beech Consulting, recommends a 50% parts margin and a 60% labor margin, so make sure you do all you can to get the best labor ratio.
- Average repair order (ARO): Your ARO is the money you earn for each repair order. This is a metric that lets you know how much each order is worth—so the higher, the better!
There are a lot of other metrics that can prove useful. While this is certainly not an exhaustive list, it does provide a baseline for you to work off. Depending on your store you can choose to replace a metric or prioritize a few of them over others. Make sure to examine your business holistically to find out which metrics matter for you.
Stay on top of credit
You’ve heard the horror stories many people tell about the piling credit card debt that seems to never stop. If you’re not careful with your credit spending and loan management, it can be detrimental to your business. If you have any credit cards or loan products from any bank, here are a few things you should consider to make sure they don’t become a liability:
- Hire an accountant: Having someone on the team who has experience with finances and numbers will be one of the most valuable investments you can make in your business. An accountant that is familiar with auto repair industry will be even better to make sure you stay on top of finances.
- Keep a sheet/logbook: Tracking expenses can be a daunting task. Recall the last time you tried to trace expenses and ended up looking at months of financial statements. Keeping a separate sheet or book that records credit card expenses will help make tracking easier and make sure nothing will skip your eye.
- Think carefully about a purchase: Making a purchase for your shop can seem like a good idea at the moment, but it’s important to make sure this is a purchase that legitimately adds value to your business. It’s also a good idea to consult with your team of technicians and managers to get a second opinion and ensure the team agrees with you.
- Choose a good credit facility: Whether you’re getting an additional credit card or loan, it’s crucial that you take the time out to examine different options and make sure you choose the one that’s best for you. Make sure to examine interest rates, payment periods, and if possible, have your accountant or lawyer examine the product before you buy it.
Make sure your credit score doesn’t fall too low, since a low score would mean you won’t get access to better loans at cheaper rates and better credit facilities. Knowing the different financing options available for auto repair shops will help you make better long-term decisions and improve your business profitability.
Invest in your business
Investing in your business might seem like an obvious idea, but it’s one that a lot of other shop owners don’t consider well. Your shop consists of your technicians, managers, machines, parts, and various other assets.
Having the best assets you can get will make sure your business runs smoothly and establishes a strong foundation. You often hear of a new business getting bad reviews online because the staff wasn’t friendly or because the manager didn’t care effectively for the customers’ needs. This can be a huge hit not only for current business but can hurt future business as well. By training your team, investing in their skills, and letting them know that you have their backs, you can encourage better business practices, decrease employee turnover, maximize efficiency, and increase customer satisfaction.
Invest in your customers
Your employees are the engine of your business, but your customers are the fuel that makes your shop run. Providing top-tier customer service is the best way to not only increase customer retention, but also attract more customers into your shop. Here are a few tried and tested ways to make your customers feel special:
- Offer referral rewards: Recommendations from friends and family are still one of the most valuable considerations when selecting an auto repair service provider. Encouraging customers to recommend your shop and rewarding them for doing so encourages more customers to come in and increases your ARO.
- Start loyalty programs: Customers that stick with you for a long period of time are valuable, and it’s always a good idea to reward them for it. You can start a program with a lower reward, like a free car wash for customers that consistently come for 3+ years, and bump it up massively for customers that are with you for 15+ years. Making customers feel welcome and appreciated is the best way to boost customer loyalty and retention, and accelerate business.
- Give free coffee to waiting customers: Small acts like this can be a total game changer for your shop in the eyes of the customer. No one enjoys waiting for a long time, especially if they drove a long way to be there. Offering these customers a small gesture like free WIFI and good coffee will go a long way in making the customer feel valued and set you apart from your competition. This in turn helps establish a loyal customer base, while also attracting new business to your shop.
- Advertise coupons in the local papers: Generally, customers like convenience, and having auto repair shops nearby can be one of the biggest reasons customers keep coming to you. Encouraging local business by providing incentives such as coupons in the local papers can attract a lot of new customers who, out of convenience of physical location, will keep coming in if the services are exceptional.
- Train your staff to value customers: Checking negative Google reviews will reveal an interesting pattern—a lot of the negative reviews mention rude employees. Training your employees to handle different situations and treat the customer with the utmost respect and care will be absolutely game-changing for your business. Customers who feel appreciated will keep coming in and encouraging business and growth. Plus, good reviews online are essential to have in this digital day and age.
Encouraging customers to come into your shop and increasing your ARO should absolutely be an objective for shop owners. Fortunately, it’s technology that can help you provide the best customer service. Never underestimate the power of customer retention and remember to make your shop memorable in the mind of the customer.
Closing thoughts
Making your business profitable involves looking at different areas of your business and improving each one. When the foundation of your business is strong, you can easily work to expand your shop and encourage growth. Make sure to look at your auto repair business holistically and examine each area to see which can be improved. Whether you’re cutting costs or increasing revenue, you’ll always benefit by consistently examining your performance and redirecting cash to profitable areas.
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