Key Metrics in the Penny Business
In my 25-plus years in the automotive service business, I have seen plenty of change! In fact, it seems one of the main constants in our business is change. We’ve seen oil specifications changing (imagine going back 20 years and telling a coworker that 0W-16 would be the oil of the future), oil change intervals changing, rent factors changing, labor rates changing, original equipment manufacturer’s (OEM’s) accessibility changing and so forth. I have seen friends come and go from this business; some by choice, some by necessity, and yet others by circumstances beyond their control. One thing that hasn’t changed, though, is the fact this is a pennies business. For many operators, the difference between success and failure is the ability to watch those pennies.
The most successful operators I know are the ones who keep their teams constantly focused on operational and financial budgets and ensure they are watching their pennies. From laser-focused labor targets and keen awareness to cost of goods sold and sharp controls on their operating supplies, these successful operators ensure their success by staying focused on these important metrics. I was talking with one of our store managers last month who truly understands labor and overtime and why there is a zero-tolerance policy for overtime. He put in his own words how overtime cost for the employee extends far beyond the actual time and a half wages. Not only is there an increase in wages, but also a corresponding increase in payroll tax and worker’s compensation expense coupled with a decline in worker productivity.
One thing I have always prided myself on as an operator and vendor is my ability to adapt to the ever-changing industry we work within. The unique thing we have to offer is a keen understanding of our industry, the thin margins and need for raising ticket averages in a profitable way. Gone are the days of running 10 percent automatic transmission flushes and coolant exchanges. With OEM service recommendations continuing to extend, the need for profitable add-ons continues to grow. The need for profitable ancillary products that do not require additional labor to perform is key to the profitable growth of operators. I have always believed in the fact that it is much easier to “pop and pour” than to perform labor intensive services, such as brake fluid changes or transmission services. While some customer service advisors might go for the one or two large ticket items to carry the goal, this may not be as profitable for the operator as selling small-ticket items like fuel and engine treatments to a larger percentage of the guests.
Another great way I have found to raise profitability for my own operating locations is through the use of converters. Big oil makes a lot of money off their specialty oils. That is no secret. They often incentivize operators with big rebates and special pricing over certain thresholds of purchase percentages. Often, these rebates and special prices still do not add up to the use of converters with straight conventional oil. In fact, we have proven in our own operations that the use of converters with conventional oil saves an average of $300 per store per month. Again, when we are talking about a penny business and the use of converters can add another $300 to the bottom line, that might make the difference between a red and black statement.
Another benefit of utilizing converters is the ability to offer different formulations at an upcharge. For example, utilizing a synthetic high-mileage converter, an operator can offer a synthetic-blend high-mileage package by using this with straight conventional oil or a full-synthetic high-mileage package by offering it with a synthetic oil. This not only gives the ability to offer an upgraded product to the customer, but doing so at a higher price can add additional profit for the operator. As a vendor partner, it is important for me to have the ability to help our customers grow revenue and profitability. We can truly help add more than just pennies to the bottom line.