Murray Voth: Small town business principles

by | Jan 22, 2021 | 2 comments

There was a recent letter to the editor in one of the aftermarket trade magazines by a shop owner that was lamenting how difficult it was to attract good employees. He said that all the good technicians and service advisors had left for big city jobs that have benefits. He said his business could not afford benefits,  because in a small town you just can’t charge enough to pay for benefits.

As you may have noticed, many of my articles are prompted by something or someone in the industry that has frustrated me, and this is no different.

The business principles that allow a shop to pay benefits in an urban setting apply to a business in a rural setting. I think it is very important for shop owners in small towns to stop making excuses because they are in a small town. 

Most small towns have at least a half a dozen businesses in them. Many of these businesses are profitable and successful. These businesses are one of the main sources of employment in those towns. Many of the business owners are respected for their success and contribution to their communities.

I know dozens of very successful shop owners in small communities. Their businesses are profitable, they pay great wages, and they offer benefits equal to that of large corporations. And they are respected in their communities. So, what are they doing differently?

Too many shop owners believe that the only way to make more money is to raise their labour rate. But in a small town they are afraid to raise their labour rates because they think they will scare away all of their customers, and the small-town gossip will kill their business. I know that focusing on technician productivity is the way to increase profits, rather than raising the labour rate.  Here are two examples:

Raising Service Rate:

2500 Work Orders a year

X Average of 1.1 Sold hours per W/O= 2750 hours

2750 X $85.00 per hour = $233,750

Raise Service rate $10/hour

2750 hours X $95.00/hour = $261,250

$261,250 – $233,750 = $27,500

Improvement of $27,500 in one year

Or selling all of our time!

3 Technicians X 8 hours a day X 250 days a year = 6000 hours

6000 hours X $85.00 per hour = $510,000.00 in Service Inventory

Service inventory of $510,000 X 54% Productivity = $275,400

Service Inventory of $510,000 X 90% Productivity = $459,000

$459,000 – $275,400 = $183,600

Improvement of $183,600.00

$183,600.00 – $36,000.00 in benefits expense = $147,600 in remaining net profit.

Depending on the study, aftermarket shops on average bill out between 4.2 and 5.3 billed hours per technician. And this takes place with technicians working between 8 and 8.5 hours a day.

And before anyone says, “good technicians are hard to find”, I am going to say, “good shop owners/managers are hard to find”. This industry needs shop owners who will look at their business and take responsibility for the outcome. They will measure their business, so they know what changes need to be made. When they take a close look at their business with proper analysis tools, they will find the following.

They will find that they are losing 1.2 billed hours per technician per day because they are not taking into account the age, rust, and condition of the vehicles they are working on and charging appropriately.  They don’t know how to use labour guides correctly. And have never measured the effective labour rate of menu priced items like oil changes.

They will find that they are losing 1.0 billed hour per technician per day due to verbal communication regarding the process. Walking back and forth all day to find out what to do next, to find out when their parts are arriving, or to find out if they can go ahead with a job.

They will find that they are losing 1.0 billed hour per technician per day when the technician is waiting for advisor, their next job, the parts they need, or no-show customers, etc. Small minded shop owners blame their suppliers or their customers for these problems, when in reality they are usually caused by poor scheduling practices. Successful shops are using email, texting or phoning to confirm their client’s appointments.

They will find they are losing 1.6 billed hours per technician per day because they are not charging for testing, in depth inspections and confirmation that the client’s concern has been eliminated. On small example is that of a test drive and burnishing the brakes after a brake job.

When I look up the labour time in the labour guides to change the pads and rotor on my truck it says 1.0 hour. And that is what I find a lot of shops are charging. When you look a little further is says, add .5 for burnishing the brakes. It also says add .2 per wheel to clean the hubs. That 1.0-hour brake job just went to 1.9 hours.

This is where the shop owners in a small-town yell at me that if they charged that for brakes, they would get run out of town. This is where I begin to ask another set of questions. Are you a price mindset shop, or are you a value mindset shop?  If you are a price mindset shop, you will attract price mindset customers. If you are a value-based shop, you will attract value-based customers.

Even in a small town there are lots of value-based clients. I will ask you: are the other successful business owners in town your clients? Is the town doctor, town mayor, town engineer, etc. your client? Or have you attracted the town cheapskate or the town gossip? Because if you have attracted the later, I can see why you would be afraid to charge properly.

Spend a day driving around your town and look at all the vehicles. Do you recognize them, have you seen them in your shop? If not, ask yourself why? I guarantee that many of the vehicles in your town are going to the new car dealers in the larger town near you. Or they are going to that well run independent shop that the town gossip keeps bad mouthing because of how expensive they are. Think about all of the people you know in your community. How many of them are driving new snowmobiles in the winter, and have new ski boats at the lake? How many of them have cottages or cabins? How many of them go somewhere warm for two weeks or longer every winter?

Another think to keep in mind is that it is usually less costly to operate a business in a small town. Lease rates for the shop building will usually be lower, and the cost of labour will usually be a little lower. So, there is room in the business for greater profitability from that point of view.

Last question to ask yourself. Do you want to walk around town with your head held high, knowing that you are a premier employer that pays well, has great working conditions, and offers good benefits? Do you want to be known as a successful business owner who actually has time and money to contribute to the community? Or do you want to sit back and complain that your customers won’t pay, that the industry associations should bring you cheap benefits, and that you are unable to attract good employees? It is a real choice.

2 Comments

  1. Michael A Schepens

    Great article Murray! This is so true.

    Reply
    • Murray Voth

      Thank you Mike! Hope you are keeping well!

      Reply

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