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While there isn’t always a quick fix for sagging sales, examining volume and production will reveal what went wrong – and what needs to be done to pull your shop out of the red.
More often than not, when a management position becomes available at a dealership or an independent facility, it’s because the owner is unhappy with his management. And this unhappiness is usually the result of insufficient profit.
The last two positions I accepted are no exception. The first was at a modern, clean facility in an upscale neighborhood – an area filled with doctors, lawyers and other well-to-do consumers. Being in such an affluent neighborhood, it was hard to believe the shop was having a hard time turning a profit – such a hard time, in fact, that it had run several months in the red.
It didn’t take long to realize many factors were affecting shop sales and profits. The most glaring problem was the quality of the finished product. While the technicians were very experienced, they didn’t take pride in their work. But rather than face the technician and have him redo something, the previous manager made excuses to the customer.
My first months at this shop were filled with scheduling “re-repairs”: poor color match, uneven gaps and even a body line that was not only crooked, but tapered off to nothing in the middle of the panel.
These were the worst kind of “rolling billboards.” Imagine the scene when Mr. Wreckum’s neighbor stops by and says “Geez, Bob, who fixed your car? It looks awful!”
Compounding the quality problem was the fact that after letting the manager go, they temporarily filled the vacancy with the parts manager. Of course, he was just helping the company, but his estimates were consistently higher than that of the insurance appraisers by a considerable amount. Potential customers were undoubtedly going elsewhere – based strictly on price since the parts manager didn’t educating them at all; he’d simply write an estimate and let them go on their way.
The most recent position I held was at a dealership that dominates a community but wasn’t able to retain any of the earned profit. The manager was a great guy but had no idea how to negotiate a claim. He’d work off the insurance estimate – only supplementing additional parts when absolutely necessary. With a minimal profit margin to begin with, writing off additional parts that should’ve been supplemented is immensely counterproductive. He would also allow the “tail to wag the dog”; if a technician said he needed more time on something, the manager would grant it – without getting compensated for it.
These two real-life examples demonstrate the need for a good grasp of business from a numbers perspective. It goes without saying that in any business, it’s troublesome and disheartening when sales fall to an unsatisfactory level. If sales volume gets too low, you not only fail to receive a proper return on your investment, but your business runs the risk of going under. While the collision industry faces these same risks, the difference here is that many shop owners tend to point fingers rather than assess and analyze their individual businesses. They blame insurance companies for suppressing rates, technicians for being unproductive and the sales staff for not selling enough.
Most independent collision shop owners worked in the industry for years before they decided to open a shop of their own or inherited the family business. While they keep up with the changing technology of vehicles, they often have little or no business training – let alone keep abreast of current business trends.
NASCAR’s No. 24 team with driver Jeff Gordon displayed one of the best business temperaments ever with their “Refuse to Lose” attitude. When something was wrong with their car or team, they kept working on the problem and adjusting until they fixed it. It was this unflinching positive attitude and methodical approach that led them to victory lane time after time and, eventually, the Winston Cup championship.
By approaching a business in the same methodical and analytical perspective, you can identify and correct problem areas. Without proper business training, however, most shop owners have no idea where to look first and end up taking a more disorganized course of action. This often results in additional frustration and persisting problems.
Almost all concerns within a collision repair business can be placed in one of two primary categories: available volume or production. While many areas or sub-categories exist within these two main topics, it’s evident how they’re both separate – yet intertwined – issues. Concentrating on one area while ignoring the other is a sure path to failure, possibly even a shortcut to the demise of your business.
Because examining available volume and production in one article would be too much, I’ll focus on factors affecting available volume in this article. Next month, I’ll look at factors affecting production.
Problem: Insufficient traffic (not enough people requesting your service). This is influenced by:
1. Poor demographics – Demographics is the study of the characteristics of the population of a given market area, including items such as age, income and spending habits. This is crucial to success, since it certainly wouldn’t be good business to erect a new shop in a very low income area or in a market where the population isn’t sufficient to support the business.
2. Competition saturation – Just as it’s not smart business to open shop in an area without enough people, it doesn’t make good business sense to open a business in an area where there’s already established and prevalent competition. While you may think your services or goods are superior, it’s difficult to change a consumer’s spending habits. The funds necessary to inform consumers of your business’s offerings and guarantees usually outweigh the return on such an investment. While this can be easier to overcome in major metropolitan areas, in rural areas, it can be nearly impossible due to the personal relationships developed between consumers and business owners.
3. Image – The saying, “You never get a second chance to make a first impression” is certainly true. When it comes to collision repair, the image of the facility as seen through the consumer’s eyes is an important part of his decision-making process. If a prospective customer visits two shops – one with old parts lying around, dirt everywhere, a dingy office and no customer waiting area and to another facility that’s clean and tidy – which do you think he’ll choose? All other things being equal, people will generally take their vehicles to the cleaner business. Why? If it appears you don’t care about your workplace, how can you expect customers to believe that you’ll care about their automobile?
4. Accessibility – Consumers want easy access to a business. This means not only convenient driveways and entrances, but also not having to fight traffic or travel long distances. Having a service available 40 miles away when a similar service can be obtained around the corner often results in the conveniently located business prospering and the distant business floundering.
5. Advertising – Everyone has seen advertising all their lives — some good, some bad, some funny … some stupid. But if you can remember the ad – funny, stupid or otherwise – it was effective.
Effective advertising requires creativity and planning, and contrary to common belief, it doesn’t need to be expensive. Sponsoring a local little league team, a high school football team or a bowling league is very inexpensive. Be sure to refer back to the demographic study; sponsoring a local high school team in an area primarily consisting of senior citizens wouldn’t be as effective as it would be in an area with mostly young, married couples with an average of two or three children per household. Sponsoring high school and little league teams also shows your business’ support of the community.
Local church bulletins, monthly specialty papers, local AARP fliers and coupon mailing companies can be an inexpensive means of advertising. Signs on company vehicles are also effective in getting your name out to the consumer. Whatever the means of advertising, it’s vital to “target” the consumers that you wish to attract.
6. Marketing – Many business owners think that marketing and advertising are one and the same. As a result, they spend more money on advertising than necessary and little or no time actually marketing the business. While it’s obvious that advertising is important, good marketing can easily build volume with only an investment of time. A good example of marketing is rotary clubs. A mix of local business owners and vendors supporting each other can benefit everyone involved. Marketing can also include knocking on doors of businesses connected in some way to your industry. For example, you can market to insurance agents to let them know your business offers a lifetime guarantee.
Another productive form of marketing is an “open house” event. In dealerships, this is often done in the form of a “new owner clinic,” but independents can accomplish the same thing by advertising that on a Saturday, the business will host a “customer appreciation day” or open house, with hot dogs, hamburgers and free gifts. When the public arrives, market your services. By giving back to the community, you show that you’re dedicated to the people who support your business.
7. Insurance referral programs – For the past several years, insurers have developed and implemented direct repair programs (DRPs). Insurers benefit from these agreements with shops by not having to assign field appraisers to the claim, which reduces overhead. Insurers also sometimes require discounts on parts and/or labor. Also, much of the administrative duties are often assumed by the repairer, further reducing claims costs. This is certainly beneficial to insurers and quite possibly to the consumer — in the form of cost control over premium rates.
But it doesn’t end there. Industry leaders are currently moving toward a managed-care-type of policy, in which motorists can purchase a reduced cost policy that mandates they use a “preferred” shop. This trend, similar to HMOs, is being seriously considered by all major insurers. The benefits to the repairer are fewer hassles in getting claims resolved (quicker turnaround), greater ease in reaching agreed-upon repair figures, less money being carried on the books for accounts receivable and, in many cases, more volume from insurer referrals.
While these programs can be beneficial to all involved parties, you need to carefully consider the benefits and consequences before contracting this type of work. Shop owners don’t usually consider many factors when entering into these agreements. Knowing whether or not a parts and labor discount is feasible is simply one aspect. Some programs require limits on paint materials. Many times, necessary procedures are considered “included operations.” Other programs require guaranteed turnaround times. Sometimes shop owners must agree to supply loaner/rental cars at his expense. And all of these programs require computerized estimating – often utilizing a different company’s software than the shop currently uses. The list goes on. Some also require digital cameras to transfer photographs of the damage along with the claim. Additional administrative duties can also result in the need to hire more employees. Combine the above with the fact that most of these programs have no guarantee of additional volume, and you can clearly see it’s possible a shop could actually decrease its profits.
Business owners need to do the arithmetic. Performing cost calculations in every area to know where you stand is absolutely critical prior to making a decision regarding DRPs. Knowing the average profit margins on labor, parts and materials while having a concise understanding of your business’ overhead are essential. Only then can a sound business decision be made.
8. Consumer-based programs – An alternative to DRPs are the consumer-based programs. The two prominent systems, Accident Check and Wreck Check, are based on the premise that the customer has the right to be fully indemnified in the event of a loss. Contrary to common belief, the programs aren’t anti-insurance; they’re strictly pro-consumer.
Consumers often benefit from such programs by getting more complete, proper repairs to their automobiles. They further benefit by having a more thorough knowledge of their rights as provided in their policies. And they’re assisted by the shop in asserting these rights. Topics like in-depth instructions on getting paid for everything done to a vehicle, educating vehicle owners about their rights, collecting for paint materials, maintaining profit levels and many others are included with these programs. Accepting liability for the finished product and how to calculate the cost for it is another area in which these programs are strongly focused. As part of educating the consumer, these programs also concentrate on the vehicle owner’s right to choose a repair facility.
These types of programs typically face strong resistance from insurers. Having a strong established clientele will help the business if entering into this type of program. Generally, the profit margins in all areas are increased, while reducing the volume required to reach a desired net profit. And in my experience, consumers who are properly educated within these programs tend to be very loyal, never again “shopping around” for service.
Problem: Low “capture” rate (not closing the sale). This is influenced by:
1. Inefficient personnel – Just as important as the estimating skills of a shop’s estimators is their ability to be organized. The old adage “organization is the key to success” isn’t only true, but can be enhanced when you add, “disorganization is the key to a mess.” To be efficient, estimators must possess good time management skills. If estimators are running through the shop trying to follow jobs, they can’t effectively follow up on previous estimates. A well-known fact in the collision repair business is the shop that follows up in a timely manner on all written estimates often captures the job.
2. Not asking for the sale – Many shops hire estimators based solely on their ability to write estimates accurately. But the best estimators aren’t only able to accurately assess damage, they’re also good sales people. Preparing an estimate isn’t just the act of documenting damage; this time should also be used to pre-qualify and sell the customer.
While there are many methods and approaches to do this, it’s very important that the estimator/salesperson verbally ask for the customer’s business. Writing an estimate and – without saying a word – allowing the consumer to walk away doesn’t demonstrate your interest in repairing the vehicle.
It’s possible to train a good estimator to become a better salesperson if he has the right personality. Likewise, it’s generally possible to train a good salesperson to become an estimator if he has a basic interest in learning about automobiles.
3. Customers uninformed of benefits – Part of the selling process must include informing prospective customers about the advantages of having their vehicles repaired at your facility. Things like a lifetime guarantee, computerized paint mixing and matching, original equipment manufacturer (OEM) parts, technician training, years in business, etc., should be stressed during the estimating process. Some customers can be sold by a quick tour of your facility. Others, however, may have no interest in the shop at all, so for them, concentrate on the length of the repair process. A good salesperson will find out the consumer’s concerns and focus on alleviating them.
Problem: Poor estimate quality. This is influenced by:
1. Underbidding to capture the job – Although some may argue this point, underbidding to get a job into your shop is a mistake. Doing so not only lets the consumer assume your estimator doesn’t know what he’s doing, it leads the consumer to question your ethics. Proper education on the possibility of hidden damage is an important part of the estimating/sales process and prevents the question of why the final amount is higher than the initial estimate. Informing consumers that a lower estimate amount often results in an inferior repair and how the implications of a poorly completed repair may affect them later can result in gaining their trust.
Besides being a document of the damage and a sales tool, the estimate provides a road map of the repairs for the technician. By underestimating the damage, items and processes can be easily overlooked and result in poor customer satisfaction or additional administrative work and delays while you wait for supplement authorization.
2. Failing to educate customer – Some customers will ask about the repair process – which parts will be replaced and which will be repaired, whether or not there’s frame damage, how the shop will match the color, etc. These curious customers should be walked back out to their automobile, and with estimate in hand, your estimator should go over every item line by line. If the customer has expressed concern regarding color match, a quick stop in the paint room will invariably assure them that they’ll get a satisfactory finish. Placing a dollar bill on the paint scale to show pinpoint accuracy is a great method of gaining confidence – even if consumers have absolutely no idea what they’re looking at.
Some consumers are more concerned with how long the repairs will take. Most seasoned appraisers can give a fairly accurate approximate delivery date if they don’t account for delays as the result of additional hidden damage. But the consumer needs to be educated on the claims process. Simply telling them their vehicles can be finished in four days doesn’t address possible delays involved with getting an appraiser to inspect the damage.
While these approaches are suitable for consumers who express an interest in such matters, don’t force all this on them – some consumers just simply want their automobiles repaired. Don’t waste their time showing them the intricacies of the repair or claims process if they don’t wish to know. However, always stress the lifetime repair guarantee if your business offers one.
Problem: Poor reputation (public knowledge of substandard repairs).
This is the single most difficult factor that’s within the control of the business to overcome. Once a bad reputation is developed by any business, regardless of the reason, it can take a great deal of time to overcome. Higher-than-normal sales and marketing techniques will be required, as well as assurances of improved quality controls and better business ethics and practices. A bad reputation is always earned, not merely perceived. The effort and finances required to counteract a bad reputation is, at the very least, tenfold the effort required to earn it, and rarely short-term. A shop with a bad reputation may falsely blame others, but the fact is, it’s management’s, and ultimately, the owner’s fault.
The following are the two most common reasons a shop has a bad reputation:
1. Previous work of low quality — Of the two causes of a poor reputation discussed here, this is easier to deal with. To correct this, training, equipment, and employee satisfaction and participation are key issues.
Training an employee to be up-to-date with vehicle technology is vital to a quality finished product. The techniques involved with repairing today’s vehicles have changed drastically over the past few years. Having everyone in the shop stay current with technology is a responsibility of the owner.
Along with training comes the need for the latest equipment. Knowing what to do but not having proper tools and materials to do it is extremely frustrating and discouraging to technicians, and it demonstrates a lack of caring by the owner. Owning a business involves much more than getting a job in and out the door. It takes a strong commitment by the owner to the business itself and to the employees.
While lack of employee training or outdated equipment can lead to poor-quality work, that’s usually not the case. Often employees don’t care because they perceive that the owner and management don’t care about the customer. It’s a definite requirement that everyone be customer-focused and driven. With no customer, there’s no purpose for the shop. If the owner doesn’t care or if the employees perceive that he doesn’t, what incentive do they have to be customer-focused themselves?
Two popular ways of dealing with quality control are to institute a written “Quality Standard” and a final checklist to ensure complete, thorough and acceptable repairs. With these items in writing, there’s little argument as to whether or not a repair is acceptable for delivery to a customer.
2. History of fraud, theft, criminal activity or poor ethics — Stealing, either from a customer or an insurer, is a crime. Any act of fraud is a crime. And most people generally don’t do business with criminals. Saving customers’ deductibles is an act bordering on fraud, which can significantly decreases profits or result in poorer quality repairs. All insurance policies clearly state that the insurance company will “pay to restore the vehicle, in the amount in excess of the deductible.” The deductible is the first portion to be paid.
Allowing a body technician to repair instead of replace a part as written on an insurance appraisal, then converting the dollar amount to labor or neglecting to reimburse the insurer for the unused part is fraud. If caught and convicted, the shop owner – who’s ultimately accountable – and the offending technician can be incarcerated for fraud. Once permitted to occur, this practice is difficult to stop.
Criminal activity in any business is very serious. To be completely cleared of any wrongdoings, the owner must not only fire the employee, but also report the crime to the proper authorities. Once criminal activity becomes public knowledge, the future is bleak and the business is undoubtedly headed for failure. While in very rare instances such circumstances have been overcome, criminal acts shouldn’t be tolerated under any circumstances.
But Wait! There’s More!
While all of this information may be a lot to swallow (and it certainly isn’t an exhaustive look at volume), it’s crucial to take a look at all of these factors if sales aren’t where you want them. Analyzing these factors, understanding what’s wrong and trying to solve any problems you find will make your business better – and your profits higher.
But volume is only half of this story. Next month, I’ll describe a list of items that affect production, and when you join these with the aspects of volume, unsatisfactory sales may become a thing of the past.
Writer Patrick Yurek has 22 years of industry experience and has held every conceivable position in a collision repair facility from sweeper to management. Among his credits are several PPG certifications and General Motors technical certificates. He was the president of the General Motors Service and Parts Managers Organization of Western New York until he relocated to the Charlotte, N.C. area, where he’s now the manager of the Griffin Chrysler, Dodge, Jeep, Toyota, Pontiac, Buick, GMC collision center in Rockingham, N.C.
Factors that play a role in insufficient available volume include:
Low “capture” rate (not closing the sale):
Poor estimate quality:
Poor reputation (public knowledge of substandard repairs):