Automotive & HD Business Management Articles.
Bob Greenwood. September 19, 2013. ( over 5 years ago ) 818 views
A shop owner’s biggest fear is discovering the meaning of his/her numbers knowing how hard they’re working, but realizing they have nothing to show for all the effort in return.
“What percentage of invoices that we complete on a daily basis actually create NET PROFIT for the business?” This is probably the biggest question a shop owner can ask and the most important answer to find out about his/her business.
The number at the top is NOT the group you want to be in. Our studies show, that on average, 60% of the invoices going through an Independent shop DO NOT create Net Income for the business. These invoices create sales (activity) and gross profit for the shop but don’t produce any Net Profit. In fact, many create a critical loss or barely break-even.
This is the real Cancer of the automotive Aftermarket Industry. Consider—without Net Income, the business cannot grow, cannot repay debt, cannot hire and retain the best employees and cannot provide Management with “a life”. Instead, they buy a job and risk their family and staff’s financial security.
Why does this occur? The number one reason this problem is rampant throughout the aftermarket industry is because our sector of the industry (the independent sector) does not focus on Net Income. They measure sales, try to drive shop activity to get busy, and focus on shop cost of parts (commodities).
The second reason is because very few shop owners know how to actually calculate the net income on an invoice before they close it off. We’ve seen shops with as high as 80% of all work going through the shop, not contributing to the bottom line. These shops like to be busy and shop for their commodities continuously. How will any Independent shop stay in business under these circumstances? The only possible way they can do this is with Management taking out only a subsistence livelihood, stealing from the business, not reporting all revenue, their spouse works outside the business to provide family income to live on and their focus is working on much older vehicles with a low labour rate that require mechanical repairs versus diagnostic analysis. The math doesn’t lie… this person’s days are definitely numbered. The sad part is another little shop opens up to take their place and the industry rushes in to start them on the same path!
Make sure you’re not in the MAJORITY group. Learn how to calculate the NET PROFIT on each invoice before you close it off, and ensure your Service Advisors can do this as well. The future is exciting… but for a select few. 60% – 70% is THE issue our industry must address with great urgency. Sit down and prove your numbers today.