For the past five years, I have had the privilege of working closely with collision shops as a consultant, helping them navigate the unique challenges that come with running their businesses. Before that, I also gave workshops on various collision repair topics. I take immense pleasure in collaborating with collision shop owners and sharing in their experiences, insights, and triumphs. Collision repair is a unique field within the broader auto repair industry, with specific demands, including acquiring and retaining customers, hiring and keeping skilled employees, and managing insurance-based payment structures. The skill sets, temperaments, and challenges faced by collision shop owners differ from other segments of the industry, and I've been fortunate to learn from these experiences over the years.
Since this is my kickoff column for FenderBender, I thought a bit of an overview would be in order of my background and what I hope to share.
A Diverse Range of Shops and Common Profitability Concerns
My experience spans two-person collision shops to larger multi-shop operations (MSOs) with millions in annual sales. Regardless of size, one common theme emerges: profitability. It’s often assumed that profitability concerns only affect struggling shops, but this isn't the case. Shops with $1.5 to $4 million in annual sales face the same financial challenges and often need as much strategic planning and cost management as smaller operations. Profitability is a concern for every business, and achieving it can seem elusive without the right tools and strategies.
Simplifying Profitability
For many shop owners, the term "profitability" may seem vague or carry different meanings depending on their background and current business situation. In the simplest terms, profitability is the ability of a business to generate income relative to its expenses. This concept sounds straightforward, but its execution can become complex, especially when trying to balance daily operations with long-term financial goals. My aim is to explore strategies for increasing profitability without disrupting day-to-day business operations. I’ll focus on actionable steps to enhance profitability and track progress through simple, accessible metrics, such as net profit percentage, gross profit margin, and return on assets.
Cost Management: Tackling the High Cost of Parts
A significant challenge in the collision repair industry is the high cost of parts. Parts delays can cause a ripple effect throughout the shop. When parts are held up, jobs get delayed, customers wait longer for repairs, insurance companies incur additional rental car costs, and technicians are forced to juggle between jobs, which can compromise quality control. While supply chain issues are often beyond a shop owner's control, managing internal processes can help mitigate some of these challenges.
Understanding Your Customer Base
A collision repair shop’s customer base is unlike that of a general auto repair shop. Collision customers seek services because of an immediate need; a vehicle has been damaged and only a collision shop can perform the necessary repairs. However, that doesn’t mean you can overlook identifying your target demographic. Collision shops need to understand who their primary customers are, whether they are self-paying customers, insurance clients, wholesale accounts, or those coming through direct repair programs (DRP).
Enhancing Productivity: From Jobs in the Door to Jobs Out the Door
Securing work is an achievement, but getting it done efficiently is where many shops struggle. Without a streamlined workflow, jobs can pile up, leading to delays in repairs, insurance invoicing and ultimately, payment collection. This bottleneck can force shop owners to shoulder the financial burden while waiting for accounts receivable to be settled.
How to Know If You Are Profitable
Profitability isn’t just a vague goal; it’s a measurable outcome. The first step in determining profitability is understanding what your net income should be and regularly assessing what it actually is. For many shop owners, the financial side of the business can be overwhelming, and numbers are often neglected in favor of focusing on day-to-day operations. But without understanding your shop's financial health, it's impossible to make informed decisions about profitability.
Simplifying Profitability Tracking
Tracking profitability doesn’t have to be complicated. Focusing on a few key metrics can provide valuable insights without overwhelming you or your staff. Metrics such as net profit percentage, gross profit margin and return on assets (ROA) can be easily accessed and tracked through most shop management software systems.
By regularly reviewing these numbers, you can stay on top of your shop’s financial health and make adjustments as needed to boost profitability.
The Importance of Profitability in the Collision Industry
While every shop owner wants to help their customers, profitability remains the backbone of any successful business. Without financial stability, it becomes impossible to provide the level of service and quality that customers expect. A shop that isn’t profitable won’t be able to invest in new technology, hire skilled technicians, or expand its services. Identifying the factors or combination of factors that might be limiting your profits is the first step toward making meaningful changes that will improve your financial performance.
By simplifying the way you view and track profitability, making necessary adjustments to cost management, improving productivity, and understanding your customer base, are some of the ways you can drive your collision shop toward long-term financial success.
These are just the broad strokes for the FenderBender reader of helpful and insightful points on owning a successful collision shop. There is nothing better than helping shop owners. You are part of an exciting industry and I’m so thankful to be a part of it. More to come in future columns!
