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Business and Management

Profiting From Personal Performance

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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?).

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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.

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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.

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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.

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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 [email protected].

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