How to reduce costs and increase your profitability
Running a shop can be quite a challenge. Every day is full of things that must be done. There are car repairs that need to be completed, employee training, and conflict resolution, just to note a few. It is easy to let things that are working on their own continue to do just that. Over time, expenses tend to increase. These expenses will continue to take a bite from your bottom line. Most shops have a net profit of about 2%-3%. Shops that are run more efficiently can realize a 20% net profit. A shop that grosses one million dollars annually can realize $10,000 for every percent of increase in net profit. There are some fixed expenses that you cannot work with, but there are plenty that are under your control. You want to find expenses that you can lower that will not have a negative impact on your customer’s experience. Some of these strategies will actually improve your customer’s experience by having parts that are needed on hand instead of waiting for delivery. This can not only improve the service you provide, it can create opportunities for additional sales.
We all have waited for the parts house to deliver something we should have had in stock. This usually happens when the customer is waiting, of course. We were out of a simple relay or common oil filter and did not realize it. This is the least efficient and highest cost way to go. Having common parts on hand will insure you are ready to service and repair your customer’s car and significantly decrease your cost on these items. Buying in bulk is the way to decrease cost and improve stocking levels. Your local parts store always has a flyer with wholesale specials on these items. Be on the lookout for these specials from all the local parts houses. Look for items that fit most cars, like bulk wire, popular lightbulbs, relays, heat shrink tubing, washer fluid, bulk hose, hose clamps, and fuses. These are highly used, everyday items, and they are items that have an extremely high profit margin especially if they are purchased at the best price possible.
There are other possible suppliers for these items, not just local parts houses. Major suppliers located around the country have programs that include free shipping for a minimum order of $100-$200. The prices they offer are usually lower than anything your local parts house can offer. It is just a matter of planning ahead and doing a regular order every month or so. Use your shop management system to run a sales history and set a good stocking level based on one month’s use of the items. This is much more convenient and easier than ordering things on an “as needed” basis. You can get spray paint, nylon cable ties, electrical tape, fuses, nut & bolt assortments, disposable gloves, literally hundreds of items you use every day. They are small, for easy shipping, and have universal application. For things like coolant, oils, filters, refrigerant, and wiper blades, use a more local supplier. Your bulk oil supplier will usually offer some of these items in cases at a great price. Look at their offer on different items and compare it to what you have been paying. You will be surprised at the savings you can take advantage of and drive your bottom line up significantly.
Many supplies are needed to run a shop and they are not related to vehicle repair. Make a list of these items and what you typically pay for them. Start doing some comparative shopping. These are Items like mop heads, floor cleaning solution, parts cleaner, and brooms or other cleaning equipment. Other items to consider are floor mats, oil change stickers, key tags, and repair order pouches. A big expense that is regularly overlooked is toner, ink cartridges, and paper. Ask your service advisors and office manager about other items that could be an opportunity to reduce expenses. Have a meeting and discuss all the potential items that could be a change to save some cost.
A PLAN TO MAKE IT HAPPEN
Get with your service advisors, managers, and office managers, and explain the general idea of reducing costs. Set a date for a meeting within a week so it stays top of mind with everyone. Ask them to think about cutting costs as they work through the next week. Ask them to make notes for the meeting. Touch on the topic for the next few days with each of them so they keep thinking about it. Start your own list to have during the meeting. Have everyone bring a list of ideas and items to offer during the meeting. Ask open-ended questions throughout the meeting. Keep a master list of items that are worth looking into for controlling costs. Make a list for everyone to look into. The service advisors can look for better deals on common parts. Your office manager can take on the office supplies. Finalize each list and delegate the appropriate person to research what the existing cost is and the alternative solution or vendor to reduce those costs. Set a follow up meeting date. Make the date very soon to keep focus and a sense of urgency. You do not want this to fall by the way side. Be sure to have everyone include the existing cost, the new cost available, and the difference it could make over the course of a year. Review the information and decide what changes need to be made. You will be pleasantly surprised with the savings you can achieve.
This area holds the most potential savings. You are the customer in this scenario and you hold all the cards. I recommend you handle this project yourself. Think about all the services you use for your shop. Here are just a few that come to mind; waste oil and filter pickup, uniform laundry service, garbage pickup, recyclable metal, garage and liability insurance, and credit card processing.
Start with a monthly expense report and also a copy of your agreement with each vendor. Analyze the numbers. Check to see if you are under contract or just month to month. Make sure that they are charging what was originally agreed upon. Quite a few of these services tend to gradually have price increases or add-on charges, as time goes on and you become comfortable with the vendor. Contact alternative vendors for each service. Get a written quote from several vendors in each category. Do a comparison to see what the potential savings could be and what differences are in the service provided. The potential savings could be quite a bit.
Take a look at all of your expenses that can be controlled. These will be different for every shop. Keep your retail prices the same so that your savings all drop straight to the bottom line. Remember, what gets measured gets managed. This process will heighten cost awareness for your entire team and they will begin to help control costs more every day. This is a great way to ACCELERATE YOUR SUCCESS!