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Why Don’t They Make Any Money?

I spent the past two evenings presenting an advanced sales seminar and one on figuring the cost of doing business to a group of owners and managers of transmission and general-repair shops. One shop owner showed up with his entire crew – a service writer and three technicians. As I was speaking with him after class, he told me that his main reason for bringing them all was to show them where the money is supposed to be made, how it gets paid out and what’s supposed to be left over as profit. He also wanted them all to realize that everyone in the shop eventually comes into contact with customers in one way or another, meaning that they all play a role, no matter how small, in making the sale.

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Why Don’t They Make Any Money?

It’s Your Business

Author: Terry Greenhut, Management Editor

It’s Your Business

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Author: Terry Greenhut, Management Editor

I spent the past two evenings presenting an advanced sales seminar and one on figuring the cost of doing business to a group of owners and managers of transmission and general-repair shops. One shop owner showed up with his entire crew – a service writer and three technicians. As I was speaking with him after class, he told me that his main reason for bringing them all was to show them where the money is supposed to be made, how it gets paid out and what’s supposed to be left over as profit. He also wanted them all to realize that everyone in the shop eventually comes into contact with customers in one way or another, meaning that they all play a role, no matter how small, in making the sale.

The owner is a seasoned veteran who has had his own business for almost 30 years. He’s been to numerous management seminars and has paid consultants many thousands of dollars to put his business on the right track. He has proved many times that he isn’t afraid to invest in his business or his people. Unfortunately, as it turns out, despite how well he takes care of his employees they don’t always reciprocate by giving a 100% effort. In fact, most aren’t even making a 50% effort, which was obvious when he told me that he tracked productivity and that the shop was averaging below 50%.

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The owner indicated that he knew his cost of doing business, but when he told me his labor rate I immediately realized that he wasn’t charging nearly enough to make up for the low productivity. If, for example, he were charging $70 an hour with a productivity level of less than 50%, his effective labor rate actually would be about $33 an hour, not enough for any shop to make money.

After a while the conversation turned to whether I thought he had the right number of technicians. He was a little shocked when I told him that the best thing he could do would be to fire two of them. “What do you mean,” he said. “How would I get the work out?”

“It’s easy,” I said. “Hire one extremely good technician to replace them, one who can book 40 hours or more of billable labor if he’s on the clock 40 hours a week. Even if you pay him top dollar you will still be saving a fortune.”

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“I don’t get it,” he said. “Explain it to me.”

I went on to tell him that he is paying out $600 a month for health insurance on each of those two technicians. In addition, he’s paying for uniforms for each. Each gets two weeks’ vacation, which puts yet another dent in productivity. Of course, his workers comp and liability insurance also are based on the number of employees.

By having to pay out only one salary, even if it totaled the same as the two he’s paying now (although it probably wouldn’t), he would be saving about $1,200 a month by paying for only one family’s health insurance, one set of uniforms, workers comp and liability premium based on one technician instead of two, and one vacation, while enjoying more than twice the productivity, so he could make more from that one technician’s labor than he did from the other two combined.

“I’ve thought about all of that,” he said.

“Then why haven’t you done anything about it?” I asked.

His answer was similar to those of most of the owners I know in the business: “They’ve been with me a long time and I just can’t bring myself to put them out on the street.”

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That answer upsets me greatly.

“Those two technicians who have had the nerve to come to work year after year and not produce enough to allow you to make a living, even when you’re making sure that they do, will never lift a finger to help you if you ever have to go out of business,” I told him. “They will simply go and find jobs in another shop that will tolerate them and see how long they can continue to get away with it before they are once again asked to move on. In other words, you don’t need to feel bad for them because they are showing you and the business no respect whatsoever.

“If you want to be a nice guy, be nice to the people who take good care of you, the employees who go out of their way to help you succeed. You know who they are. They’re the ones who come in a little early, who have a good attitude and are willing to handle any challenge; the ones who will stay a little later when need be without your having to ask, the ones who think just good enough isn’t good enough. They’re the same people who attend training seminars without your having to twist their arms and who are willing to share their knowledge and help train apprentices. These are the employees you should treat with respect, because they respect you and the opportunity you have given them.”

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The owner agreed that it was time to make a change. Let’s hope he carries it out.

Tracking productivity is so important to the well-being of any automotive business. It’s the only real and tangible criterion you have for judging the effectiveness of your employees.

When I was in the army I worked in the motor pool. Every day a private would walk through our parking lot. He had a clipboard under his arm and every once in a while would stop and make some kind of a note. One day I went up and asked what he was doing. He didn’t answer right away. He waited ’til we chatted for a while and he decided he could trust me. Then he said, “I’m not really doing anything but hiding in plain sight. If I walk around looking like I’m working, there isn’t an officer on this base who will go to the trouble to find out what I’m really doing. I’ve been getting away with this for months.”

You might have an employee like that. He always looks busy. He has an opinion on how to do every job that comes into the shop. His nose is in everyone else’s work, and he tries to make you believe he’s the most-valuable technician you have. You’d be surprised at how many months or years he can get away with non-productivity if the owner isn’t monitoring it continually.

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I get a kick out of the real egomaniacs who say, “This shop can’t survive if I leave.” The trouble is that many times the owner believes it, especially if he is not a technician himself.

When you track productivity, employees can’t do that to you. The numbers don’t lie. All a technician can do about his lack of productivity is make excuses that you, after a while, get tired of hearing. People like that rotate around the industry ’til they use up all possible employers. You very likely may get one. It would be nice if their pictures were posted on a Web site so we would know whom to stay away from.

If you track productivity right from the first day you hire someone, you should know within two weeks whether he’s any good. If not, fire him and go on to the next one. Don’t keep him long enough for him to hurt the business. The same people who have low productivity usually have a high comeback rate to go along with it. You can’t afford to keep this guy on the payroll.

The same goes for people with bad attitudes. No matter how productive they might be as individuals, they can bring down the morale and productivity of the entire shop, causing others to display disciplinary problems over time. If for no other reason than quality-of-life issues for you and your other employees, this person should not be allowed to stay on unless he receives a major attitude adjustment.

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I told my student all those things and he seemed to understand, but change is always difficult. I hope he can make the necessary adjustments before they cost him too much more money.

Visit www.TerryGreenhut.com.

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