Profitability "sweet spot", is there such a thing?

[gandgautorepair]

Looking forward and thinking about business goals for the future, I'm wondering if there is such a thing as a sales volume, personnel, or facility sweet spot for profitability. I'm in a semi-retirement mode already, so having profits to spend is a priority over simply growing the business for growths sake. I really enjoy being in business and planning and reaching for goals, but wondering about what those goals for the business should be. I've reviewed some industry financial data without any clear conclusions, but I'm wondering what folks here think or have seen or experienced.

A little about where I'm at currently. I started this business from scratch 7 years ago. We currently have 8 employees and did 1.3 in 2017. Any wisdom from you who have been doing this longer?  

[alfredauto]

Focus on efficiency. Do 1.3 with 4 employees, then do it with 2 employees.  8 employees should produce 4m+

[tyrguy]

13 hours ago, alfredauto said:

Focus on efficiency. Do 1.3 with 4 employees, then do it with 2 employees.  8 employees should produce 4m+

I don't agree with those numbers. Most shops I know doing 1.0M to 1.5M have at least 8 employees. We hit close to 1.5M a few years ago with 8 employess. Myself, 2 advisors, 3 techs, and 2 tire changers. Since the 5 car dealerships opened across the street we have declined to 1.1M with 7 employees when my first tech hired in '79 retired in '16. When we were doing the 1.5M my techs were billing over 95% of their hours so there wasn't much more capacity to gain. However, we  have since raise our parts matrix and hourly rate but even with that our sales would only increase to 1.7M if we were still billing the hours we used to. When I read shop profiles in the trade mags it appears that any shop doing over 2M has 10-12+ employees. 4M would need at least 15- 20+.

[Hands On]

What I have heard from a local owner is that if you can do 650 with 3 people your not going to necessarily get 1.3 by adding 3 more. I think I would add a second shop before I made a shop bigger. Easier for one person to manage two techs then one person to manage two service writers and 5 production staff.

[3PuttFever]

 I think those of us with smaller staffs and 5 to 6 bay shops doing $4m with 8 employees sounds out there. My goal is half that with 5 employees. It's going to take a bit to get there but I'm focused on car count, ROA, and maintenance sales. Doing 10 oil changes per day ain't going to cut it. 

[gandgautorepair]

On 2/5/2018 at 3:56 PM, alfredauto said:

Focus on efficiency. Do 1.3 with 4 employees, then do it with 2 employees.  8 employees should produce 4m+

Well, that's a lofty goal. There is such a thing as stress and burn out, and I would be concerned with employee turnover. With a small staff turn over can kill you. I don't work in my shop, so I need happy, well trained people who will stay a long time. Turn over means I might have to go back to work. I finally feel safe with 2 full time service advisors, and an admin person who was a CSR and can back up service write if needed, and a porter who has also been crossed trained to be able to write a ticket and handle some parts processes. My goal is for me to be safe not working there, and that means the right combination of people, and enough business to support that level.

I don't know if there is an answer to my question. I respect the experience of the people on this forum so I thought I'd throw it out there and see what can be learned. I'm dealing with goals about where I want this business to go, what to grow or not to grow too.

[bstewart]

Smaller shops are always more efficient. I've read in numerous places that the most efficient shop setup is 2 techs, 1 advisor, 1 shop owner, followed closely by 3 techs, 1-2 advisors, 1 owner.

Owning 2 small shops with 3-5 employees each will be more efficient than owning 1 large shop with the same number of people combined (6-10 employees).

EDIT: Shoot for 20% net profit based on sales. That should always be your goal to meet and beat. The best shops make up to 35% net profit as a percentage of sales. Most shops make under 10%, and many make 0-3%.

Edited February 25, 2018 by bstewart

[gandgautorepair]

On 2/25/2018 at 12:46 PM, bstewart said:

Smaller shops are always more efficient. I've read in numerous places that the most efficient shop setup is 2 techs, 1 advisor, 1 shop owner, followed closely by 3 techs, 1-2 advisors, 1 owner.

Owning 2 small shops with 3-5 employees each will be more efficient than owning 1 large shop with the same number of people combined (6-10 employees).

EDIT: Shoot for 20% net profit based on sales. That should always be your goal to meet and beat. The best shops make up to 35% net profit as a percentage of sales. Most shops make under 10%, and many make 0-3%.

I imagine that could be a great setup for a working owner. I don't work in my shop, so I've grown it to 4 techs and 2 advisers, with an admin/CSR person and a porter. I felt this gave me a safety margin that I wouldn't have to go back to work if someone didn't show up or I lost an employee. My question came up in the context of setting goals and planning for the future. What are my goals? What size do I want to grow to? What does that mean for staffing and facility? We did 1.3 last year and it already looks like we'll hit 1.55-1.6 this year. Do I want to settle in with my current staffing and enjoy what we get or keep it growing and find room for more people? As a non-working owner, and looking at what other shops are doing, I consider a goal of 15% net as a good goal. Nothing wrong with 20% and I know that is an industry standard, but not that many are hitting it. We did over 20% for Jan and Feb, and will try to keep that going.

[bstewart]

Sounds like you've got a fantastic operation going for you! Your operation is something most shop owners can only dream about, great job!

And those are great questions to ask, and those same questions should be revisited on probably a yearly basis.

More people = more headaches usually, with conflicting ideas & personalities etc. On the other hand, you always should strive to be better, maybe not bigger but better in general.

[tyrguy]

On 3/28/2018 at 8:53 PM, KPI Mastery said:

Just seeing this post now and enjoyed reading through it and hearing everyone’s perspective.  To answer your initial question, Yes, there is a “Sweet Spot” in our industry and with a good understanding of performance metrics, as well as the processes necessary to improve them, it’s not unattainable.  I’ve been in our industry for 35 years now, running my own shops for about 17 of those. While we all realize it’s a tough business, what I’ve found to be most effective is process implementation that’s proven to drive performance.   Tyrguy seems to be coming very close to the ideal at 95% and I commend him on a job well done with putting out numbers like that, as the national average is far lower than this.   A few months ago my company surveyed hundreds of shop owners at SEMA, having them take the KPI Challenge, and we found that the average shop is running at 60-65% workshop utilization.  This result is also consistent with OEM Dealers in over 20 countries, as our company has been working internationally with OEM’s for over 20 years now.  I’d invite you to take the KPI Challenge when you have a moment, as this will allow me to see your exact numbers and possibly I can then help you attain your goals.  You can take the KPI Challenge on our homepage at www.KPIMastery.com

If you read my post closer, you'll see that those productivity numbers were in a galaxy a long time ago and far far away. We haven't seen numbers above 90% since 2011. Last year we ended at 82.73%, 3483.83 billed versus 4211.0 worked. However, that's with just 2 techs versus 3 techs previously so our actual hours billed are down 2300+ from 2011 when we billed 5842/6331 or 92.27%. I'd be interested to hear what productivity numbers others are running. Straight calculation, hours billed/hours worked. We will finish the 1st Quarter at about 76%, 830.0/1094.0. Anybody else?

Edited March 30, 2018 by tyrguy

[alfredauto]

One tech can do over 90% no problem if given the space. One tech one lift not happening. My guy has 4 lifts so there's no waiting or putting back together. Last year I ran with just myself and one tech and my stress went way down, our numbers went up, and we are both happier. Appointments are stretching out farther than I'd like but it's working. 

[Wheelingauto]

20 hours ago, alfredauto said:

One tech can do over 90% no problem if given the space. One tech one lift not happening. My guy has 4 lifts so there's no waiting or putting back together. Last year I ran with just myself and one tech and my stress went way down, our numbers went up, and we are both happier. Appointments are stretching out farther than I'd like but it's working. 

This is where this discussion becomes lost. This discussion needs definition of efficiency, productivity and other terms being thrown around so those who need to understand it better might. Instead it scares some who dont feel they can get to some numbers and others who are well above. For instance, a seasoned tech with plenty of space should be significantly above 120% efficient. Overall a shop needs to consider the talent they employ before they can assess a goal for efficiency and productivity.

Above 90% productive, incredibly hard to do and even harder to do consistently.

This is by my known definitions of the terms though.

[bstewart]

I'm confident that Alfred is referring to productivity, not efficiency. There's lots of posts on here that define the two and how they differ.

Industry benchmarks nowadays are over 100% shop productivity and 125-150% efficiency per tech for top tier, well managed shops.

How can you have over 100% productivity? It starts with a well laid out shop and proper tooling, billing for things "by the job" not by the hour, having "set-it-and-forget-it" equipment that works in the background while the tech temporarily moves on to another job, and charging a "full and proper" rate for all your diagnostics, which should be 1.5-2.0 times your regular shop rate, not to mention a minimum diagnostic charge at least .5 hr.

Difficult? Yes. But impossible to do consistently? Absolutely not, shops around the country are doing it right now on a regular basis. Productivity = profits.

[Wheelingauto]

11 hours ago, bstewart said:

I'm confident that Alfred is referring to productivity, not efficiency. There's lots of posts on here that define the two and how they differ.

Industry benchmarks nowadays are over 100% shop productivity and 125-150% efficiency per tech for top tier, well managed shops.

How can you have over 100% productivity? It starts with a well laid out shop and proper tooling, billing for things "by the job" not by the hour, having "set-it-and-forget-it" equipment that works in the background while the tech temporarily moves on to another job, and charging a "full and proper" rate for all your diagnostics, which should be 1.5-2.0 times your regular shop rate, not to mention a minimum diagnostic charge at least .5 hr.

Difficult? Yes. But impossible to do consistently? Absolutely not, shops around the country are doing it right now on a regular basis. Productivity = profits.

I'm confident we don't define productivity the same. As KPI referred to productivity as I understand it is time available for a tech (at shop for 8 hours) vs time actually doing work (think piss breaks). This figure cannot be over 100% it is an impossibility.

 

[tyrguy]

12 hours ago, bstewart said:

I'm confident that Alfred is referring to productivity, not efficiency. There's lots of posts on here that define the two and how they differ.

Industry benchmarks nowadays are over 100% shop productivity and 125-150% efficiency per tech for top tier, well managed shops.

How can you have over 100% productivity? It starts with a well laid out shop and proper tooling, billing for things "by the job" not by the hour, having "set-it-and-forget-it" equipment that works in the background while the tech temporarily moves on to another job, and charging a "full and proper" rate for all your diagnostics, which should be 1.5-2.0 times your regular shop rate, not to mention a minimum diagnostic charge at least .5 hr.

Difficult? Yes. But impossible to do consistently? Absolutely not, shops around the country are doing it right now on a regular basis. Productivity = profits.

We have always referred to productivity as hours billed to hours available. I see that in another above post the writer refers to this metric as utilization. However, I would say that to achieve high productivity numbers it starts even before shop setup, tooling and such. It actually starts with marketing because no matter how good the techs, if you don't have the work, you can't bill the hours. We had a 15 year run where our productivity numbers averaged 96-97% year after year with 1 year [2004] that we hit 101% [6511 hr/6440 hrs] with 3 techs. Then the recession hit, coupled with 5 car dealerships opening up within a 1/2 mile and we saw those numbers decline to 72% in 2015. In 2016 1 tech retired and with 2 techs I've been able to get that number back up to 83% last year. Lastly, although I agree with charging a full and proper rate for diagnostics, the "rate" has nothing to do with the productivity number. It's just the fact that you charging the "time" that affects productivity.

Edited May 22, 2018 by tyrguy

[bstewart]

7 hours ago, Wheelingauto said:

I'm confident we don't define productivity the same. As KPI referred to productivity as I understand it is time available for a tech (at shop for 8 hours) vs time actually doing work (think piss breaks). This figure cannot be over 100% it is an impossibility.

 

tyrguy said it correctly, Productivity = Hours billed / Hours worked. Yes it's possible to bill 9 hours for an 8 hour day for 112.5% productivity, if you're billing by the job, not by the hour, and then your techs beat the job time.

 

7 hours ago, tyrguy said:

Lastly, although I agree with charging a full and proper rate for diagnostics, the "rate" has nothing to do with the productivity number. It's just the fact that you charging the "time" that affects productivity.

You are correct, however some shops bill it differently. Instead of 1.5-2 times the shop rate for diagnostics, some shops cut the time instead. Bill 1 hr "normal shop rate" for diagnostics and the tech gets .5-.7 hr to diagnose in that time block, which causes the shop to sell more time than the tech works. But in general, you are 100% correct.

[Wheelingauto]

1 hour ago, bstewart said:

tyrguy said it correctly, Productivity = Hours billed / Hours worked. Yes it's possible to bill 9 hours for an 8 hour day for 112.5% productivity, if you're billing by the job, not by the hour, and then your techs beat the job time.

 

You are correct, however some shops bill it differently. Instead of 1.5-2 times the shop rate for diagnostics, some shops cut the time instead. Bill 1 hr "normal shop rate" for diagnostics and the tech gets .5-.7 hr to diagnose in that time block, which causes the shop to sell more time than the tech works. But in general, you are 100% correct.

This is an interesting discussion for those it could help and the tools they need to achieve them. In order to manage a business we need the correct tools. The smaller the business the less tools we need. But as a business grows, more tools and measurements must be used to diagnose problems within the business.

Tech time management as originally taught by RL O Connor refers to 3 different measurements. Sold, actual and available time.

Sold time is the amount of time you allot to the technician to get a specific labor function completed. The dollars and cents do not matter for this calculation. Only tech gets one hour to hang said part on car.

Actual time is the time it actually takes the tech to hang said part.

Available time is the time the tech is onsite ready and able to perform job duties.

Why do we need to track all 3 instead of some sort of hybrid. To diagnose problems.

Tech Efficiency The technician for the most part is responsible for this. IF he/she focuses on the job at hand, properly tooled and trained should be able to bill out many more hours than actually working on cars. Sold divided by actual = Efficiency. A good tech can easily be 150% efficiency.

Productivity The business is mostly responsible for productivity. If the tech runs out of cars to work on he can not be productive. We are all human and need a few minutes throughout the day for non productive functions such as piss breaks but if we have enough cars and jobs get sold correctly, we can be 90% productive. We CANNOT BE MORE THAN 100% PRODUCTIVE. 8 hours worked vs 8 hours actually working on cars. Actual divided by available is productivity. 90% is a high mark IMO.

RLO used to have non productive categories for a tech to punch in and out of when not working on cars in order for us to measure unproductive time. If a tech was on the phone calling parts stores he is not productive.

Now, of you want to talk dollars, like how many dollars for diag procedures or how few dollars for an oil change we are talking about effective labor rate. At the end of any day take all the labor dollars for completed work and divide by total available hours and you have effective labor rate. This is solely a management function and the tech has not control over this. But I am off subject.

Why do we need to track these metrics, to properly diagnose a malfunction. You may think you know by gut or watching, can be very effective for smaller businesses, but truth is in a larger business metrics dont lie. We have all heard at one time someone bellyaching we're not making money, all my techs are slow, dont know what their doing etc. Then we go look at the layout of the building and find out to do one job the tech has to walk to both ends of the shop to retrieve something he needs frequently, or does not have the tools he needs with him and back and forth to the box which is 3 bays away. Of has to go to the parts room to get the only scan tool for whatever reason.

OR..... the tech is always being interrupted to do something other than fix cars. Tell boss I dont have an oil filter in stock but boss is busy talking to wife about weekend plans (or customer or whatever) and tech grabs a smoke break and a phone and calls Ed down at the parts house, after 10 minutes of BS finally order the oil filter that should have been in stock but was not there. Or take a customer home because management could not do it. Waits for the last part to fix that car and there are no more cars to work on or no more bays to work in.

If you measure and monitor these figures and then spend the time to make corrections as necessary you will achieve the net profit goals discussed by some gurus. It is easily attainable.

I can go on and on about it but it's time to go home. I hope this benefits someone.

 

[Wheelingauto]

Funny or sad the discussion stopped here?

[gandgautorepair]

I understand the benefit of tracking efficiency. I'm just having a hard time figuring out how to accurately and consistently get the numbers. I'm talking about having the tech clock in and out on each job so you know how much time is actually spent working. For you who are doing this, how do you do it? Time clock to punch in and out? There is a time clock per RO function on the Bolt On tablet, but it seems like it could be very inaccurate so we haven't started using it yet. Is it just a matter of me forcing the issue and making it happen? The problem with that is that I don't work in the store, so I need serious buy in from my people or it will be inconsistent. I learned in 25 years of dealership management that inconsistent numbers cannot be used for managing. I would like to have the numbers, have had many conversations about it, but am not sold yet in implementing it.

Also, I have a C tech lube guy who does our oil changes and alignments. My goal for him is 20 hrs week billed, and this month is the first time he's actually hit that average. He also cleans up around the shop some and helps the other techs some. When I add his time and numbers in it skews the overall numbers. I've been counting half of his time as available to try to get a comparably accurate number. How do you count a lube techs hours into the average? We do a lot of oil changes, but not nearly enough to keep him busy all day doing them, and he gets .4.

[Wheelingauto]

6 hours ago, gandgautorepair said:

I understand the benefit of tracking efficiency. I'm just having a hard time figuring out how to accurately and consistently get the numbers. I'm talking about having the tech clock in and out on each job so you know how much time is actually spent working. For you who are doing this, how do you do it? Time clock to punch in and out? There is a time clock per RO function on the Bolt On tablet, but it seems like it could be very inaccurate so we haven't started using it yet. Is it just a matter of me forcing the issue and making it happen? The problem with that is that I don't work in the store, so I need serious buy in from my people or it will be inconsistent. I learned in 25 years of dealership management that inconsistent numbers cannot be used for managing. I would like to have the numbers, have had many conversations about it, but am not sold yet in implementing it.

Also, I have a C tech lube guy who does our oil changes and alignments. My goal for him is 20 hrs week billed, and this month is the first time he's actually hit that average. He also cleans up around the shop some and helps the other techs some. When I add his time and numbers in it skews the overall numbers. I've been counting half of his time as available to try to get a comparably accurate number. How do you count a lube techs hours into the average? We do a lot of oil changes, but not nearly enough to keep him busy all day doing them, and he gets .4.

If I had to do it today I would figure out how to do it electronically but we have been doing it so long until I find a bullet proof way I will not change. Everyone walks in and punches in on a time card for work. That is how we capture available time. When they start working on a job they punch in on the written work order. When they are done or waiting they punch out. When the advisor is writing the ticket up they calculate the actual time and put it in the software. Sold time is calculated when the job is estimated.

The guys/gals will be resistant at first but you have to sell them on the fact this will let you improve things and in the end it will make them more. They automatically think it will be punishment.

I have a lube tech, 1 apprentice, 1 b tech and 2 lead techs. While my productivity numbers are not the best< I still know where we are as a group. Because I have a large facility we have very good efficiency numbers. You dont really have to worry about who you stack up to or against, you only need to improve against yourself and everybody wins. If you dont measure you cant diagnose and fix it or improve it.