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Business Operations

Knowing What Numbers to Watch

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There’s an old expression that says, “If you’re not serving a retail customer, you’d better be serving someone who is.” I can’t take credit for that line, but have used it extensively over the years in this business.

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Everything starts with a sale, and if you’re not at the counter dealing with the end-user, then you need to be working with your people to ensure success.Balance Sheet

There was a time when you could take care of your customers and your people and the rest would take care of itself. It’s a lot more complicated than that today. The business is more diverse, vehicles are a lot more complex, customers demand more and good employees seem to be harder to find. It also costs a lot more to play today than 20 years ago. Equipment costs more, computers are an integral part of our daily lives, insurance and regulations have driven our costs up, and profit margins are not as robust. Bottom line is that we all need to be better business people to be successful.

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The trouble is, there is no exact recipe for success in the retail tire and service business. I was asked recently to wave a magic wand and make something happen. If I knew what the magic was I would have retired years ago, selling my secret when asked. But there is no magic wand – it’s a combination of smaller pieces that make us successful.

The list of those smaller pieces that contribute to shop success is endless, but I took some time recently to come up with the top five things that I feel will help any retail tire dealer be successful. These are by no means all encompassing, but they will work if they become part of your daily routine.

My Success List
1. Watch the sales and profit numbers
2. Control payroll and effectively manage tech productivity
3. Set yourself apart from the competition and develop an effective marketing plan
4. Be great on the phone
5. Break from your comfort zone and look for opportunity

For this, my first article, I’ll focus how to best keep an eye on sales and profit numbers.

Your Daily Numbers

Know your numbers. I know it sounds corny, but when you and your team get focused on the numbers, you will see improvement. There are so many ways to evaluate sales and profitability; most of them have merit, yet I am a believer in keeping things simple.

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When it comes to watching the numbers, three things are always on my radar. The first is looking at the numbers every day; the second is to make sure you are buying right, and the third is to control the 1%s.

As a shop owner, I look at the sales and profit numbers every day, then I chart them against a weekly objective. Weekly is easier for me because too many vehicles are not picked up the day that they are completed and that can skew things. I track the average repair order (ARO), car count, sales and gross profit, and tire units. The combination of these numbers gives me a good barometer of the business. When I see a drop-off in any given area, I will look for the reason and react if needed. You can also compare them against your budget and last year’s results.

It all starts with knowing what it costs to turn the key every morning. If you have a budget, then you already have the numbers. If not, then you need four pieces of information:
• Average monthly expenses
• Average gross profit
• Desired net profit (bottom line)
• Working days in the month

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Here’s the calculation:
1. Gross profit (let’s say it’s 49%) MINUS desired net profit (let’s say it’s 10%) = 39%
2. Average monthly expenses (use $46,000) DIVIDED BY 39% (.39) from above = $117,948 (required monthly sales)
3. Required sales from above ($117,948) DIVIDED BY number of working days in the month (say 26) = $4,536 (required sales per day). If the store is open six days a week, then the weekly sales objective is $27,216.
4. I like to double-check my math, so $117,948 in sales MULTIPLIED BY 49% (.49) gross profit percentage = $57,794 in gross profit dollars. Subtract your average monthly expenses ($46,000) = $11,794 in net profit, which is 10% of monthly sales.

I think it’s a good habit to share this information with your team. If everyone knows the objective, it makes it easier to understand when you push to get vehicles in and out. And if you take a few minutes to look at yesterday’s invoices, you’ll have a better understanding of your business flow, and occasionally you’ll pick up something that was missed.

Average Repair Order (ARO) – Industry benchmarks all tell us that bigger is better when it comes to ARO. I agree, but the numbers will vary based on the mix of business. If you are heavy with oil changes, the number will be less; if you sell a lot of tires, the number will be higher. The important thing to remember is to make sure your team is taking time to look at each customer’s vehicle and recommend needed services. ARO will increase.

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Car Count – To me, car count is driven by effective marketing. If you see a drop, it should tell you that something is wrong.
Tire Units – In this business, tires are paramount. Service follows the tire sales, which is a key element in the profit mix. But, there is also profit in tires, especially when the backend program discounts are factored in. Units and dollar sales should both be tracked to make sure purchase objectives are met.

Are You Buying Right?

The purchasing of tires and parts is an area that needs constant attention. Distributors want your business, and most have developed marketing opportunities with additional discounts. Pair this with manufacturer programs and the combined back-end discounts can be substantial. It starts with building a solid product screen, then working with your team to sell the products that have the greatest impact to your bottom line. So often, dealers will be enrolled in numerous manufacturer programs. There’s nothing wrong with this approach, unless you find yourself not being able to take advantage of opportunities.

Here’s an example we faced earlier this year: We are signed up as Bib-1 dealer with MAST. Our purchases fall between Bib-levels and when we consolidated our lines and focused our sales efforts, we found that we will attain Bib-2 status, which is worth an additional 2.5% to the company.

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Timing is also paramount. Many opportunities are driven by the products the distributors need to sell to reach their objectives. By staying on top of this, you’ll find this can add additional dollars that will drop to your bottom line. This is the same for parts. Competition is abundant, and the local parts stores are hungry for business. They all have programs that will offer back-end discounts and additional support programs. I believe in loyalty to long-time suppliers, but also realize what a couple of percentage points can mean to the bottom line.

Controlling the 1%s

“Watch the pennies, and the dollars will take care of themselves.” We’ve all heard this, and I agree totally. If you want to impact your bottom line, focus on managing the 1%s. Here’s an example using several numbers from earlier. Increasing sales just 1% (or $38.46) a day, decreasing the cost of goods sold just 1% (or $19.61) per day, and controlling expenses just 1% (or saving $17.69) per day improves the bottom line 66%. Keep the focus and this adds up to an additional $23,640 in the bank at the end of the year.

Of course, you may not hit the numbers every day, but if you hit them half the time it’s still more dollars to your bottom line.

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There is No Recipe

There is no exact recipe to success. It takes an ongoing focus to be successful, and it doesn’t get any easier. There are many benchmarks and numbers that come into the equation, but I’ve found that tracking those things mentioned above allows me to feel the pulse of the business, pointing me in the right direction when anything gets too far out of place.

Know the numbers. Emotions don’t tell the whole story. I have found over the years that a “gut-feel” or thinking that you know where things stand can be misleading at times. Take the time to focus, to understand and you’ll see your bottom line improve.
In the next column, we’ll focus on controlling payroll and technician productivity.

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