I have to say, one of the most misunderstood and ill understood aspects of shop ownership continues to be marketing. I preached about marketing and the importance of continuing to market a lot throughout the past two years, but it’s going to continue to remain extremely important if you want to grow.
I think a lot of people will say, “you know, I spent $50,000 on marketing this year and my business only grew by X.” The sad thing is, that's the improper way to measure return on marketing. Marketing is measured by car count and understanding that you have a really good person answering the phone, curb selling that customer and getting them over the curb into the shop. The way you track operations is through average ticket and the reason for that is because average ticket is what you do with the car. That's how well you sold it, how well you inspected it, how well you performed the work and got it done and out of the shop.
Your cash conversion cycle, on the other hand, is how efficient your business is. So, if you put $1 into marketing, how long does it take to go through the system—whether it’s Facebook, Google ad words, radio, direct mail, whatever—and come back to a customer who shows up at your shop, spends money with you, you get that check or credit card payment, and it’s in your bank account. How long does that take? That's the cash conversion cycle and how long that takes is the magic behind this. I think if you can get that from 10 days to eight days to seven days to five days to four days, the more profitable you are.
Without getting too deep into it, I think a lot of owners right now need to look at their marketing from the past year and ask, all right, how many cars did I get? Let’s say you’re tracking 3,500 cars for the year, and last year you did 2,500 cars. So you grew 1,000 cars and spent $50,000, I would say the marketing worked. But how did revenue do? If your revenue is only up 10 percent, that tells you your operations did not increase and improve enough to keep up with how well your marketing worked. And why’s that? Because all you did was basically raise car count and drop ARO.
If we don't reframe it and understand it from a business perspective, we can get way too caught up in just average ticket and repair car count. When we just focus on those two, we don't dig down into the system of the shop, which, at its core, is based on the amount of cars and what we did with those cars. If we can understand that, we can really grow.
When it comes to operations, what it really comes down to is being able to look at your business from the front of the house and the back of the house. You need to be able to say, my salesmen is selling well but my technician is not fixing real well, or vice versa. Everybody has a role and everybody is needed, but you need to be able to segment my operations to find the problem.
People will try to fix the back and the front at the same time, but they break it in half. It’s like a teeter-totter, actually. You need to say no, I'm going to shelve this because the front's got some issues, but it's not near as bad as the back and I’m going to focus on the back first.
This is a low-hanging fruit concept but you’ve got to really wrap your head around it. Otherwise, you might be adding too much effort on something that’s not the best use of your time. Remember, time is not infinite. It's finite. It's going to run out. You have an hourglass. I have an hourglass. What are we doing with that time? That's the only reason one shop owner has outgrown another—it’s because of what they did with their time. It's not that they spent more time on the business. It's what they did with it.
