Increase your net profit margins


STATISTICS OF THE STORE: D’s Auto & Truck Repair Site: Holland, Mich. Owner: Daris DeGroot Staff size: ten

Shop size: 6,000 square feet Average monthly number of cars: 200 ARO: $ 700 Annual revenue: $ 1.7 million

David Rogers, President of Auto Profit Masters, has spent over 20 years advising repair shops. During that time, he saw countless companies generating millions of dollars in revenue, but virtually no profit.

With rising parts prices and a burgeoning technician shortage, this is becoming even more common as margins get thinner and thinner, he says.

According to the Ratchet + Wrench 2021 industry survey, around 40% of stores have a net profit margin of 10-20%. However, the rating for an excellent operation is above 20%, where around 20% of stores fall, according to the survey.

Daris DeGroot, owner of D’s Auto and Truck Repair in Holland, Michigan, was on the verge of giving up his business about 10 years ago as his shop struggled to maintain much of its bottom line. So just a drivetrain shop, DeGroot committed to becoming a full-service repair shop, and with that, committed to changing its processes and mindset. Now the business is flourishing.

So what can repair shops do to increase their bottom line profit margins? Ratchet + Wrench spoke with Rogers and DeGroot to find out.

Check the numbers daily.

When Rogers starts working with a store that has low profit margins or is looking to increase average margins, the first thing he recommends is to measure KPIs on a daily basis. Rogers sees too many stores that only check their numbers at the end of the month or every few months.

“A lot of times a store looks back on a month that’s already gone,” says Rogers, forcing stores to become reactionary instead of being proactive.

And it goes without saying, follow your profit margins. Almost 20% of those polled in the 2021 Ratchet + Wrench industry survey said they were not tracking their net profit margin at all. Without tracking, companies have no idea how they are doing, Rogers says. But daily checks should go beyond the simple profit margin.

Rogers wants its customers to verify all of their numbers every day, even multiple times throughout the day. Browse all technician efficiency and productivity figures. Look at the closing rates of service advisors and the general health of the business. How many cars did the store see today? How does that compare to yesterday? How does it compare to last week?

Establishing this baseline allows the store to fine-tune other aspects of the business and fully understand whether this change has impacted profit margins. If a store changes things on the fly, looking back over a month isn’t going to tell an accurate story of what worked and what didn’t.

DeGroot looks at his numbers on a fairly regular basis. For him, a better profit margin came not only when he started monitoring regularly, but with what he watched. At first he only looked at what the company was spending and tried to cut costs there to improve profit margins. However, where the tide turned, his store wasn’t that concerned with spending, but rather ensured that the store was maximizing efficiency, productivity, and number of cars. This allowed it to increase its gross profit margin to around 65%. Rising net profit margins followed once his mindset shifted to increasing productivity, not cutting costs.

What has worked for DeGroot is picking a different metric each month. It would start with the parts gross margin. Once he got it where he wanted it, he would move on. The next month was profit from labor and so on. Slow and gradual growth, he says.

Find the right compensation plan.

Choosing the wrong compensation plan is one of the most destructive things you can do for your profit margins, says Rogers. What Rogers sees more than anything in troubled stores are poorly constructed compensation plans. In his experience, big guarantees, wages and hourly wages hold store owners hostage with their profits.

“Almost every store I see is struggling, I can go back to the compensation plan,” he says.

For this reason, Rogers recommends that most stores launch an incentive compensation program. Whether it’s a simple flat rate or a mix of flat rates and other incentives, motivating technicians to do more work will increase profit margins as more emphasis is placed on productivity and efficiency.

DeGroot implements a compensation plan in their store which is essentially a standard flat rate system with a few tweaks. The system goes out of book time unless something unusual happens in the store. All advisors have their own plan. Ditto for technicians.

Rogers is reluctant to take a one-size-fits-all approach. DeGroot’s strategy might not work for a store 10 minutes away from him. Every store situation is different, so the compensation plan should be different.

And incentive compensation plans are not foolproof. Rogers recalls working with a store that came up with a compensation plan that didn’t anticipate the strong growth it eventually experienced. A year later, the store owner turned to Rogers for help because his service editors were making $ 200,000, the store owner was not taking anything for himself, and his profit margins were suffering. So don’t just take your competitor’s compensation plan and expect it to work for your store, he says.

“You can’t create the perfect compensation plan and fix all the stores,” says Rogers. “If your goal is to get the best result, everything has to be unique. “

You should also consider the mental makeup of the staff, says Rogers. What will happen to them? Be flexible given an employee’s experience. For example, DeGroot’s plan includes some guarantees for new hires, so they have time to train and learn without having to worry about running cars right away. As the employee settles in, they slowly transition to a fully incentive program.

Find your blind spots.

About 10 years ago, DeGroot was on the verge of shutting down his business. In an effort to keep the business alive, DeGroot requested coaching. There he was recommended to begin the transition from a transmission store to a full service store and begin marketing, for which he had little experience.

Through this process, he understood who was the “right” customer for his business and began to market them. The store has gone from three or four cars a day to about 10 a day. His average repair order has also increased. Today, it fluctuates between $ 600 and $ 700 depending on the work the store is doing, and DeGroot is poised to generate $ 1.7 million in revenue in 2021.

“As we improved our customer base, our sales rate increased. Then we were able to pay more people and buy better equipment, which resulted in a big drop in our inefficiencies, ”says DeGroot.

It wouldn’t have happened if he hadn’t asked for help identifying his blind spots. With someone giving him that view at 30,000 feet, DeGroot was able to turn his business around and increase his profit margins. A big step towards improving profit margins is understanding that they need improvement and being able to objectively examine the business to see what needs help, Rogers says. And if you can’t do it, hire someone who can.

“A lot of stores are struggling and worried about sustaining their income with limited help,” DeGroot said. “Use the tools that are at our disposal. “


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