News: Consolidator Report
The term ‘marketing’ is poorly understood in the collision repair industry, yet it’s the most important activity in a body shop. Here’s the true definition of it and how to maximize its effectiveness.
As a collision industry consultant, I’ve had the opportunity to spend a great deal of time in many good (and a few not so good) collision repair centers. Discussions with owners and managers generally revolve around the subject of work – specifically that there’s simply not enough of it! Once we finish discussing how “business is off by 15 percent,” the next conversation usually leads to going “lean.”
My job is to ask questions and hopefully assist clients in discovering answers to those questions. So, when a shop owner tells me his or her business is off, I ask, “Which segment is off? Insurance referrals? Customer referrals? Dealer referrals? DRP volume? Customer pay?” The answer is usually, “All of the above, I think, but I’m just not sure.”
In one shop, I sat in the customer waiting room for 15 minutes before anyone noticed me. I see estimators writing estimates, stapling their business cards to those estimates and reminding customers to call when they’re ready. I see vehicles sitting torn down, waiting for re-inspections or parts. I see a high percentage of ROs that have multiple supplements. I see customers being ignored, calls going unanswered and vehicles being detailed while customers wait in the office. I see ROs sitting open on estimators’ desks, supplements not billed. These are not good things.
I asked one shop owner, “What are you doing to market your shop?” He replied, “Same thing we’ve always done. We work the DRPs and do a lot of dealer referrals. But we’re still down 20 percent. Will this recession ever end?”
That’s when it dawned on me that our industry needs to get back to basics. It’s simple survival. Consider that total loss ratios exceed 20 percent, which means that if you’re doing DRP work, at least 20 percent of the vehicles coming to your door through those DRPs are totals. Do you depend on dealer referrals? Drive around and look at the dealers that have closed their doors.
Someone once defined insanity as “doing what you’ve always done but expecting a different result.” In today’s collision repair industry, “doing what you’ve always done” will result in a 20 percent drop in business. Many are waiting for a return to the “good ol’ days” and the end of the recession. Don’t count on that.
So “Back to Basics” will be the theme for a series of articles in the coming issues of BodyShop Business. Topics will include marketing, sales, damage analysis, production, financials and customer service. And now, on to marketing.
What Is Marketing?
What comes to mind when you think of “marketing?” Radio and TV ads? Junk mail? Yellow pages, billboards and websites? If those things are what popped into your mind, you’re right. Those are all marketing tools.
Marketing is the most important activity in your business. It’s everything you do to bring a customer to the point of sale. In most shops, that point of sale is the front counter.
Marketing brings work to the door. Selling puts the customer’s signature on the repair order. They’re similar activities but not quite the same.
Jan Carlzon, writing about his experience as president of SAS Airlines, once discussed “Moments of Truth.” A Moment of Truth is any time you have the opportunity, no matter how remote, to create an impression in the mind of a customer (or potential customer). They happen constantly, and they’re happening for your business right now. Someone just drove by your shop, saw your sign and your building, and formed an impression about your business. That was a Moment of Truth for your business. But was it a positive or negative Moment of Truth?
Managing Moments of Truth
Every customer who has ever come to your business followed the same path. Seconds after reaching for their cell phone and driving into the back of the car in front of them, they realized a need for collision repair and began to look for someone to satisfy that need. Somehow, your shop name was placed in their brain. That process is called “positioning.”
Once they had your name positioned in their mind, they called your business. That call was a Moment of Truth. So was the trip to your shop.
How clear were the directions you gave them when they called? They saw your shop, figured out where to park and walked through the door. They asked for an estimate. And that’s when selling starts.
But the marketing activity doesn’t stop. Each customer contact during and after the repair is a Moment of Truth.
Got a Marketing Plan?
Do you have a written, up-to-date marketing plan? Pointing to your head and saying, “I’ve got it all right here,” isn’t good enough.
Creating a back-to-basics marketing plan isn’t difficult, but most don’t do it. Think of a marketing plan as a roadmap or a travel plan. The marketing plan is a statement of who you are, where you are, where you want to go, how you plan to get there and how you’re going to pay for the trip.
Some call the answer to “Who am I?” a mission statement or a value proposition. It’s usually three short paragraphs stating the core values of your company. The value proposition defines who you are, how you compare to the competition and why customers buy from you.
It may take 60 days to define your value proposition, as you’ll be asking customers, vendors, insurers, bankers, friends, family and competitors, “What makes my collision repair center unique?”
Once you define who you are, you need to determine where you are from a marketing perspective. Some refer to this as a “statement of current circumstances.” In a marketing plan, you need to know the sources of current business. What are you doing, from a marketing standpoint, to bring customers to the door? What are you currently spending? Are you realizing an adequate return on your marketing investment?
Define Your Market
Define your market geographically. The easiest way is to place a map of your town or city on the wall and draw a circle with a six-mile radius around your shop (50 miles if you’re in a rural area). Better yet, pull the last 60 repair orders, find their addresses on your map and place pins on each address. You’ll see your market as the area with the heaviest concentration of pins. Once you get started, your definition of your market may be refined by source and type of work.
DRP Is a Marketing Tactic!
Many look at DRP participation as a key to operating a successful collision repair shop. However, it’s really nothing more than a marketing tactic.
Yes, it continues to be a hot topic, but look at our definition of marketing: Everything you do to bring a customer to the point of sale. What does participation in a DRP do? It brings customers to the door.
But a DRP is an expensive marketing tactic, with the major cost being concessions. The discounts are pretty easy to see, but look at the little things like agreeing to materials thresholds, absorbing tow and storage bills or passing sublet through at cost.
With total loss ratios exceeding 20 percent, you need to recognize that 20 percent of the work coming to your door through DRPs will require administrative effort and expense with little or no compensation. Other costs like lost parts, GP dollars due to the use aftermarket parts, and the cost of agreeing to spot-and-blend formulas on initial panel refinish add to the DRP marketing investment.
I’m not anti-DRP. I simply look at it as a marketing tactic with some real marketing costs. The decision to participate or not should be based on cold, hard analysis of numbers.
Let’s say we’re looking at participating in a DRP that will bring an additional 10 ROs per month to our shop. If our average RO is $2,500, that should translate to an additional $25,000 in business per month. But two of 10 ROs will be total losses. Discounts will reduce the average RO by 10 percent, or $250. Other issues such as materials thresholds and agreed non-included operations at no charge will add to the expense. Those 10 additional ROs will cost the shop more than $2,000 per month! (Eight repaired ROs @ $250 discount each). Add to that the administrative expense of processing the total losses and hidden concessions, and the marketing expense of this DRP could easily exceed $350 per RO, or 14 percent of sales when compared to retail.
I suggest budgeting 3 to 6 percent of your gross sales for marketing activity. If you look at DRP discounts and program requirements as marketing expenses, you may be spending more than that on the DRP tactic alone!
The alternative: Should you choose not to participate in a DRP or can’t get on a program, budget the same percent of sales toward other marketing activities. For example, if your shop has $2 million in annual sales and DRP marketing represents 10 percent of sales, budget that same 10 percent, or $200,000, toward other marketing efforts. That $200,000 will buy a lot of pinpoint-accurate guerrilla marketing activity and build tremendous brand awareness in the marketplace. Many are finding that the return on investment is much higher using other marketing tools as an alternative to DRPs.
Coffee Is for Closers
Do you know what your “close ratio” is? It’s the number of repair orders divided by sale opportunities times 100. Don’t rely on your management system for this key number unless you upload every estimate into the system. I’ve known many shop owners who felt their close ratios were in excess of 85 percent, but looking deeper, they found that the estimators were only uploading the estimates they had closed. Few actually count sales opportunities as opposed to estimates.
Check your “pending estimate” file in your estimating system. If there are hundreds of estimates sitting there, your close ratio is not over 85 percent. Good estimators close 75 percent of their sales opportunities, and many go higher. We’ll discuss this more in “Back To Basics: Selling.” The point is that there’s no reason to make significant marketing investments if you can’t close the jobs that come to your door now. Know your DRP close ratio (it should be more than 90 percent), non-DRP close ratio (it should be 55 percent or higher) and overall close ratio. Target 75 percent overall.
What if you don’t know your close ratio or don’t trust the one generated by your management system? Manually count every sales opportunity for the next 30 days and compare that to the number of ROs generated from those estimates.
Source of Work
What are your current sources of business? Do you know what percent are insurance referrals, repeat customers, customer referrals, drive-by and others? Do you know which agents refer customers and how many of those agents have referred over the past year? Know where the work is coming from and where it’s not coming from.
When I ask the source question, many shop owners and managers pull a report from their management systems. That’s fine, but unfortunately, many of those reports contain significant errors.
Each and every customer needs to be asked: “What brought you to our shop?” The best source of marketing information is the customer who walks through the door seeking an estimate. They have the marketing information, but we rarely ask for it.
Don’t just assume that the source of a customer who came in as a DRP assignment is that DRP. They may be a repeat customer or a customer referral. They may have driven by your shop every day for four years, felt comfortable with you, then gave your name to the DRP file handler and you just happened to be on the program. If we simply noted the source as DRP, we overstate the DRP impact and understate the amount of work coming from other sources.
Accurate source reporting tells us where the work is coming from and which marketing tools are working and which aren’t. If you run an ad in the local paper but no one sees it, why continue running it?
What are you doing now? You need to list all current marketing activity, determine the cost of each activity and evaluate each one based on cost and effectiveness.
Where do you want to go? Once you’ve defined who you are and where you are, you can determine “where you want to go” and write down some marketing goals.
Perhaps your source report indicates active insurance agents who don’t refer business to your shop. Target those sources!
Maybe there’s a market area from which you receive little business. In that case, your goal might be, “Increase sales from ZIP code XXXXX.”
How to Get There
Now it’s time to figure out how you’re going to get to where you want to go.
There are lots of tools you can use to this end – Internet, websites, billboards, TV, radio, direct mail, etc. The Guerrilla Marketing books (www.gmarketing.com) are excellent resources on how to properly use these marketing tools.
Every shop must have multiple marketing strategies so it doesn’t put all its eggs in one basket. Basic strategies include:
• Customer referral strategy: Build repeat and customer referral business.
• Agent referral strategy: Develop and maintain relationships with insurance agents.
• DRP strategy: Build a strategy to maximize DRP referrals.
• Brand awareness strategy:
Marketing strategy intended to keep your name in front of those in your market or target market.
The customer referral strategy is often overlooked. You can increase repeat and customer referral business by consistently using direct mail, e-mail and other tools. Develop a standard process to repeatedly contact customers with thank-you letters, repair anniversary cards, phone calls, e-mail specials, coupons and newsletters.
Time to Pay
It’s now time to figure out how you’ll pay for the marketing plan.
One question I’m often asked is, “How much should I spend on marketing?” The answer varies from shop to shop, but a good guideline is 3 to 6 percent of gross sales. So if your shop has $1.5 million in annual gross sales, your marketing budget should be $45,000 to $90,000.
Develop a budget and stick to it. Also, constantly review source reports, CSI information and customer information forms to determine what’s working.
Marketing is constantly changing. Look at the growth in the Internet compared to the decline in Yellow Pages and newspaper ads. Since the market is evolving and media is changing, you need to constantly evaluate and adjust your marketing efforts to maximize the return on your investment.
Hank Nunn worked in the collision repair industry in a variety of roles for more than 35 years. He is now retired. If you would like more information on the subject you just read about, email BodyShop Business Editor Jason Stahl at [email protected].