It’s the end of the month. Numbers are flying everywhere. You think you did one thing based on your shop management system, but when you get your P&L from your accountant, it turns out you did something totally different. None of the numbers make sense; they don’t add up. And now you're frustrated. You go home and tell your spouse you don't know if you want to keep doing this because you're sick of riding the wave up and down before you finally decide you're going to dive into the numbers and figure this out. This time, you're going to fix it.
And I’d like to encourage you to fix it in a particular way.
Assess by Department
The best way to dive into your numbers is by department, and then by individual. If you think about it, the technicians and the parts are like the factory and they’re producing a different widget every single day. It's never the same. When they’re fixing an A/C component or rebuilding transmissions, it's always a different product. Then you have a sales department, service advisors, people ordering parts, customer service and management—that is all overhead. You have to make enough money through the technicians in the back to generate enough to pay for the entire office in the front. So, when you're looking at your numbers and things aren't adding up or making sense, you have to ask yourself if you're making enough in the back to pay for the front. If there is no way to make enough back there to pay for the front, then you need to downsize the front, or the back must produce more and if so, one of the easiest ways is to make the back larger, so it can pay for the front more easily.
Help Your Customers Understand
Once you get going and you start operating in this methodology with one side paying for the other, you then have to understand what you are going to say to your customers whenever they come in and question your prices. A lot of owners aren’t going to explain it well. Using an analogy such as, “Well the steakhouse marks up the steak, so we have to mark up the parts.” Unfortunately, that analogy doesn't always apply. Unlike a restaurant, our customers can go to O'Reilly or NAPA and get their parts. You can't go to Cisco foods and buy food at a large discount so that comparison doesn’t work, especially when the customer is at the front counter asking why you’re selling them "$50 brakes for $100.” And since your staff isn't equipped to say, "Well, Mr. Customer, the markup on our labor pays for our technicians and advisors, and the parts markup covers the rent, insurance on the building, utilities, benefits, overhead, etc." You need to help your customers understand this in a simple way. When you do, it shows that your staff believes in it and understands how the back generates money to pay for the front; you start to get to a higher level of groupthink that you haven't been at before in your company.
Make Small Changes
When you make too many changes in your company at once, and you decide you're going to change the marketing plan, add a technician and hire a new salesperson, you've changed so many factors that there's no way to know what's impacted the business. I like to do split tests—testing one change at a time to get a result. If you make one change and get a result, you will see a breakthrough and gain facts that allow you to make good concrete decisions that create a track record of performance and profitability. I'll make one change, let the dust settle. Another change, let the dust settle. I realize that big doors swing on little hinges and that small changes might create a huge effect. I'm going to let these things compile until I build something amazing. When you shoot from the hip and make too many decisions, you can find yourself in a hole quickly.
Assess by Position
Another way to look at your numbers is by position, starting with gross profit by technician. Figure out who's generating the most gross profit. Then take the advisors and divide your overhead by advisor and figure out who's using the most overhead, and then the rent, etc. I continue to do this so I can figure out who is making me profitable and who is not. As I do this and have only been making one change at a time, I begin to see results. I've been focusing on a process, getting my team involved in solving problems and coming up with solutions. This gets my team excited to be a part of this organization, and all of this creates a place where people want to work.
