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Profiting From Personal Performance

I wanted this installment to be different, so I decided to approach it from the angle of “Personal Performance,” which is just another way of saying personal responsibility and how you’re addressing it.

By Dave Sutton

If you’ve been following my articles over the last year, you may be starting to get some new ideas for finding profits in selling high performance engines, parts and accessories.

We’ve discussed various sales techniques to battle internet and catalog parts sales, or “walk-in parts,” as I like to call them. I wrote about strategies and gave them creative names like, “Selling your knowledge,” “Discount for labor” and’ “The package,” just to name a few.

Next I wrote about profit margins and the profit dollars left from the sale after you have paid your supplier for the parts. We talked about taking a reasonably large down payment, taking time to educate yourself about not only your competition, but the latest trends. Remember, you can learn a lot about what the public is being fed about how to do all kinds of modifications and repairs just by studying those news stand magazines that specialize in what you specialize in.

I wanted this installment to be different, so I decided to approach it from the angle of “Personal Performance,” which is just another way of saying personal responsibility and how you’re addressing it. Yes responsibility for you, your family, your business, your employees, your customers, your government, your kids and your future. I feel an inch or two smaller just thinking about the responsibility, but that doesn’t make it go away.

Are you making money? Is it enough so you can hire the help you want? Do you discount your bills? Are you afraid you might lose your building, or do you own a building, but suffer at tax time? How is your equipment looking? Can you afford to update a new piece every year? Your performance every day, as either an owner or as a valuable shop employee, can have bearing on all these things. If you are the owner, then you know where the buck stops!

How you handle people is part of your performance as well. Do customers pay you a little more, but still come back day after day because they like the service you provide? Do your employees generally stay around for many years, or do you turn ’em and burn ’em? Are you an expert in any part of your field? Do you promote that through the business as a shop specialty or as a way to meet customers with similar interests through car clubs and other events?

I have two great examples from phone calls that I received just a few weeks ago. And this time I get to introduce a couple of characters for us to learn from. Here are two different guys, both fighting a common fight in this industry: the fight to survive. One can’t dig deep enough to find answers to his business problems and customer issues. The other tried and had good intentions, but ultimately failed . His worst performance was pleading his innocence, while trying to pass the buck.

We’ll call my first caller “Mitt Smiley.” Good financial guy, Mitt. Mitt is working through a huge decline in his business, mostly due to the loss of a large fleet account. Now, his employee overhead is high, as are all of his expenses. But revenues are now low. He called to see if I had access to any industry “benchmark” information. He wants to be able to compare his overhead, gross income and expenses to other automotive machine shops.

I was impressed with this. He was asking all the right questions, but I was a little unsure about where to find answers. First, we had to figure out all his financial information. You need to know what is happening in your own house before you can compare it with anyone else’s. I particularly liked his concept of efficiency. He took the total man-hours consumed in any given month (the paycheck time clock, including his own hours), and then he multiplied this times the shop hourly billing rate. This figure would equal 100% shop efficiency.

By taking his true billing dollars and dividing them by the 100% efficiency number, he comes up with an “Efficiency Ratio.”

For example: 3 men x 168 hours x $75/hour shop rate = 504 x 75 = $37,800/month.
Invoices of $28,000 divided by 37,800 = 74% efficient

I just chose these numbers, but let’s look at them a little closer. If he is 74% efficient, then we know that he and his employees are 26% inefficient. This would be time spent not working – or at least not billing. This could be a non-productive employee. It could be caused by the effects of a slow economy and less work and employees that aren’t busting their rears to get the work out the door. It could be the result of too many comebacks. It also represents the time spent coaching customers and helping them with problems they may incur.

There are numerous things that cause time loss during the day. Your job is to spot them and minimize them as much as possible. This could also mean that if business doesn’t improve, you may have to cut hours or even people. It also makes a case for increasing your prices to help cover for the time losses due to interruptions from customers that you can’t legitimately bill for.

When was the last time you applied this simple formula to your business? But to get back to the purpose of his call, “What other measures might a shop owner use?” was what he was asking. In parts distribution and manufacturing, there seems to be no shortage of experts with previous experience to call upon. Buying and marketing groups and owners can share info between themselves to help aid in the productivity of their mutual businesses as well. It also seems that at least once a year, someone publishes numbers in a jobber retail type magazine establishing these benchmarks. And if you are willing to pay, there are plenty of companies out there that can produce reams of reports listing every detail of business, forward, backward and sideways.

But the organizations that are out there for the average machinist to contact don’t have the resources to get this done. And honestly, these reports can be pricey to produce and there is no saying that it would save anyone’s business, even if they had all the answers. That said, I still believed that Mitt was on to something. If we could find a few benchmarks, or a few averages that any shop owner could look at and use as a scale to compare his business information – it sure couldn’t hurt. We’ll come back to this.

Mitt’s loss of his fleet account was another story, and here is the comparison I was drawing. His large, national fleet account walked due to warranty issues that were beyond Mitt’s control. But he did try to address the problems in many ways. First, he was honest about his position with his customer because he felt that issues with. an intake manifold, for instance, which he did not install, were not his warranty problem. His shop was not hired to install the manifold, just straight long blocks. But he did do all the research he could, like contacting his suppliers and AERA, to see if this was a known problem with this engine family. He purchased different manufacturers’ gaskets, to do his own in-house evaluation.

He still lost the customer due to no fault of his own. It will take time for this customer to come full circle back to Mitt’s shop. By that time the customer will have experienced many levels of service and [Mitt] can hope that his trying to go above and beyond to find solutions to someone else’s problem, will come back to reward him.
I could really appreciate Mitt’s dilemma. You always want to help your customer, even when it is not your problem. After all, goodwill is a great endorsement for your business. But when multiple engines start coming back for the same problem, and it was nothing you had your hands on, practicality dictates that you cannot afford to take on all of these problems.

Plus, beware, once you open your wallet to help someone out, it seems he always comes back looking for more. I have watched those who turn in labor claims and defective parts for 35 years. Many times, it is the same customers who you hear from over and over. I’m sorry, but the law of averages just won’t allow for all the bad parts to end up with the same couple of customers over and over again.

Mitt had asked great questions. He was above the curve in ideas to look at and actions needed to be taken to further his business. When he first called, he asked what shop owners I knew who were doing great – people who obviously were savvy enough who he could call and get some of these benchmarks from. The tough answer was that until now, he would have been near or right at the top of a very short list.

Some time later that week, I received another troubling phone call from a customer we will call Sal Easton. Sal had purchased a new bare cylinder head from one of our distribution centers. But here he was, telling me what a piece of junk this thing was.

This head, like many parts, was manufactured overseas. But some finish machine work is done in the States, so it is hard to know where to place any blame for poor manufacturing.

Let’s just say that while this company’s warranty issues are no secret, its warranty policy can be. While there is no warranty coverage for labor, period, the company will replace the part, the head and usually cover some gaskets if there is a legitimate problem with its product. This hidden warranty issue can be a problem for the WD and this particular distributor puts a label on the outside of the box that clearly states that it is the responsibility of the machine shop and the installer to inspect the head before installation and it clearly states what will be covered, and by the manufacturer only. I should know – I created the labels myself.

Since this was a bare head Sal had ordered, spotting any potential problem should not have been an issue. But I did not know enough about whom I was dealing with. Apparently this head had been machined improperly on the head gasket surface. It must have come loose during the end of the surface grinding process because the surface of the head runs-off at an angle about .020˝, right off the back of the head. Not only that, but the valve guides were looser than the guides in the well-used original head. For me, this was not a great surprise. I had assisted many customers by getting them another head when they were unfortunate enough to get the occasional bad one.

But in this case it was different. Sal had chosen to work late and get this job done for his customer. Whether or not he had been procrastinating or not, I don’t know. But it was important enough to him that he took it upon himself to resurface the head because there was no way a gasket would seal in the back where it was machined wrong from the factory. Next, he admitted he did not have a good selection of small pilots and had problems finding one that would work with these loose guides. It sounded like he found something close.

I told him straight out that I was sorry but asked if we could  get him another head. He said no because time was a problem, and he could not wait for us to get a second head. He had spent the late hours fixing this “piece of junk” himself, but he was compelled to share with me how bad this thing was. It sounded at this time like Mission Control was in charge, and it was all systems “Go.”

If it were only that simple. My next call from Sal was not as curt as the last. No, now I was his new partner. Seems “we” had a problem. “Our” head did not work out on the customer’s car. “We” had some serious bills for diagnostics and “we” were going to have to do something about how “our” customer’s engine runs (Where was I when “we” got paychecks last month?).

It seems this engine has a problem with off-idle and low rpm performance. It has low manifold vacuum and the car is not very drivable. The installer was unable to diagnosis the problem so he chose to take it to another shop that has real test equipment. They discovered that it does have low manifold vacuum and they believe it is a valve guide problem. That will be $200, thank you. So now my “new partner” has determined it is the manufacturer’s responsibility to fix and pay for this problem. And if they won’t, well then “our” new partnership is going to have to do something.

When I mentioned the rather large warning decal on the box, his response was something like, “Oh, so that’s how you are going to play it?” Needless to say, the conversation did not end there. A few reminders on who chose to work on and use the “junk” head and who did the valve job with improper tooling, did not make me very popular.
I did promise to handle the claim to the manufacturer in the best manner I knew. I would address all he needed in a letter to them and that we would have to send them back that head if we were going to get anything at all. After the ringing stopped in my head, I reflected on our breakup. It was no longer “we.”

Just so you know, I was able to get full credit for the head and a set of gaskets. But their policy stands – no labor and especially no additional labor that was never authorized.

Profits do come from performance. Do the job and do it right, and we can profit. Personal performance dictates responsibility for you and your performance in getting the job done. It is also your responsibility towards your business. Ask yourself, what are the factors that I have control over, that can help me keep this business alive?

Measure your efficiency as described and in any other method that will give you clues as to you and your business’ performance. Take responsibility for your actions. If you’ve made a mistake, let’s learn from it and move on. Share your mistakes with others and they will share with you. Remember, it’s nice to learn from someone else’s mistakes sometimes – it doesn’t cost as much.

Speaking of sharing, this column was written to start a forum, an open discussion of the “benchmarks, formulas, checks and balances” that we as an industry of engine rebuilders use in our personal business to measure our performance and success as a business. It has been asked if we could sponsor a research program to establish these factors and share them with this and any automotive machine shop audience to help further our existence.

If you would like to participate in this exercise, please contact me at the e-mail address provided. We are looking for successful businesses that are willing to share data as to expense ratios and percentages in various aspects of your business. All information will remain private and it will only be used to structure benchmarks for success.

I thought I should share something about myself and the personal performance goal. If you have ever received my agency business card, you might have been confused when you read,”High Performance Representation.” No, I don’t just rep performance lines and it is not a grammatical error. By putting this in print on my card I hand out several times a day, it is a personal challenge to live up to.

So you decide, are you like Mitt, responsible for your future? Are you questioning what it will take to survive in the future, but also willing to share with the industry and participate in keeping this a viable industry. Or, do you want to blame others for the condition of your business, business in general and your lack of performance? Do you see yourself as a Mitt or as a Sal E.?

Dave Sutton has more than 33 years of automotive aftermarket experience, starting with his days as a jobber store stock clerk and driver. He currently operates a manufacturer’s rep agency in Minneapolis, MN, and is a District Sales manager for Sterling Bearing. For information about developing your own sales plan, email him at dsutton@enginebuildermag.com.

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