Build A Better PowerSports Business

I Just Lost A Mechanic. Why?

Facing Wage Reality
By Vance Breese

At the PowerSports Dealer show in Indianapolis, while solving the problems of the world with old friends and veterans of the motorcycle industry, I was reminded once again of an old wound. That reoccurring pain I felt was the difficulty of finding and keeping good service people.

The cry from the veterans is that they can’t compete with the wages that are paid in other industries. Some believe that unless a mechanic is truly passionately dedicated to motorcycles, they move on when the allure from other industries, of better wages begins to creep in. Many of my old friends are so dedicated that they will live in poverty just so they can operate in the most pleasant world of the motorcycle shop. This causes many of them to not understand when the size of a paycheck becomes a factor in the stability and retention of their service personnel.

Is this true? Must we pay our service personnel less than they could make in other industries? How did we get here and how do we change?

Lets run a few numbers first. Bob’s (not his real name) shop rate is $50 per hour and there are 2,000 working hours in a year so his two mechanics should generate $100,000 per year each for a total labor income of $200,000. Bob’s service department should also sell about the same or a little more in parts. The profit on service parts should be a little higher than normal but we will use a gross margin of 35%. So 35% times $200,000 is a gross profit of $70,000 on service parts. This means that each mechanic is generating $135,000 in gross profit or a total service department profit of $270,000. Clearly we would have the money to pay the mechanics a living wage! So where did Bob go wrong?

Bob’s real numbers look like this. Bob’s “A” mechanic generated $47,384 in labor sales and $56,784 in parts sales. The profit on parts was about $21,000. One way to see this is a gross profit of $68,394. His “B” mechanic billed $29,286 and parts of $24,682. The profit on parts was about $8,391. This could be seen as a gross profit of $37,677. The total service department gross profit was $106,071.

Clearly Bob is short $163,929 of gross profit. Where did it go? How can he get some of it back? Can we learn from some of these industries that are stealing our technicians? Are other people in our industry doing better than this and why?

Out of this, Bob has to pay $26,000 rent on the service department portion of the shop. Most of his $3,500 per year liability insurance is because of the service department. This leaves about $77,000 to pay the two mechanics a living wage and of coarse Bob should get something for his trouble. This would support Bob’s contention that he can’t pay a living wage to his mechanics.

I am not living in a dream world and you shouldn’t find something else to do with you time. In our industry, no one I know achieves 100% efficiency. I do know shops that are running over 87%, which in our example noted above, would be $87,000 for each mechanic just for labor and another $87,000 in parts. I have run between 65% and 78% in my own shop, which would mean $65,000 to $78,000 for our example. Bob’s number of 38% efficiency is typical, with the range for most shops being between 30% and 50%. To get your efficiency you divide what you actually get by what is possible. In this case 2,000 hours times the shop rate of $50 per hour is $100,000 per mechanic times two is possible and $77,670 is what we get for an efficiency of 38.8%.

Here are a few things that I believe to be true.
General Motors does a lot of research to find out how much they can charge for labor. In Bob’s town the GM dealer is charging $62 per hour for labor. I can’t guess why Bob should charge less. The income of people who can afford an expensive toy like a motorcycle is generally well above the income of people who can only afford a Chevrolet. Bob tends to make the assumption that everyone is as poor and cheep as he is. $62 per hour would be a 25% increase in his labor rate.

I was in a friends’ shop and asked one of the customers why he paid a higher labor rate than the local Harley-Davidson dealer. I am familiar with the local dealer and I was certain that his service department was at least equal to my friends shop. The customer answered, “because my motorcycle is important to me and I will get a better job here.” When I asked him how he knew, he said, “You get what you pay for!” This customer was in my friends shop because my friend was not afraid to charge a fair price. Before you say that you don’t have any customers like that, think about your own buying habits. A number that hasn’t changed much over the years is that only 16% of buying decisions are made on price alone. This friend did not have all the answers as his efficiency is well below 40% but at least it is 40% of a 25% higher shop rate. This means $24.80 per hour instead of $20 per hour or $19,200 more per year income for the two mechanics.

When I get my Ford worked on at the local dealer I don’t talk to the mechanics. I speak to a service writer. The service writer sells me as much as he can because he works on commission. He is responsible for ordering any parts that might be needed for the job. He makes sure that the parts are pulled for the job, and it is his job to see that the schedule for the mechanic is full. He is responsible for keeping track of the mechanics efficiency and if it falls below 110% someone is at risk of loosing their job.

I think we can learn something from this trip to the Ford dealer!
First, why would we want our mechanics talking to the customers when it could be that he has a far better mechanic skill set than his sales skill set and when the mechanics are not working they cost us our shop rate? In our example, it is $50 per hour.

Second, what does it cost when our mechanic has to take a job off his lift because he doesn’t have a part? He has to put the job away, making sure that all the parts are kept with the job. Generally this takes about 15 minuets. Then when the part comes in he has to put the bike back on his lift and track down all the parts. This generally takes most mechanics about 20 minutes. If this was supposed to be a two-hour job we just lost 29% efficiency or $29.16.

Third, I have seen good, hardworking mechanics not start on the next job because it was only 45 minuets to quitting time. He would rather cleans up and gets ready for the next day. There went $37.50 times two, times 5 days times 50 weeks, or $18,750 for the year. If we paid a shop kid $10 per hour to clean up and pull parts and saved a mechanic from doing the same job at $50 per hour wouldn’t that be good business?

Fourth, the service writer is responsible for keeping the flat rates on track. They do not rely on flat rate books that are written to save the factory money on warrantee. At one service school I was taught to up the flat rate charge 10% for each year old the bike was because of all the damaged parts, missing parts and parts that don’t fit. Who is watching the flat rates in your shop?

Lets see what would happen if we applied some of this to Bob’s Shop. We have added a shop kid to our payroll for $10 per hour or $20,000 per year and we have a service writer that probably needs to make as much as a good mechanic. We are now charging $62 per hour and have achieved 85% efficiency. $62 times 2000 hours equals $124,000 times 85% is $105,400. Two mechanics makes this $210,800. We are selling as many service parts in spite of our 85% efficiency because our service writer is a better salesman and has more time. $200,000 times our 35% margin is $70,000 gross profit. We now have $280,800 Gross profit. We subtract the $20,000 for the shop kid, $24,000 for rent and $3,000 for insurance and we have we have $213,800 to split up between Bob, the service writer, and the two mechanics. This sounds more like a living wage to me.

So, in my opinion, the reason we don’t make as much money and can’t pay as much money as a car dealer is because he is doing a better job.

I think we should catch up.

Living By The Numbers

Recognizing where my numbers need to be
By Vance Breese

I don’t have the same taste as my customers. Clearly I am more committed to all things motorcycle than most of my customers. As an example, for years I carried electric vests because I liked them, but my market was so small and the weather was so nice I was never able to make a profit.

When I would take my annual inventory I would spend too much time on all the things I liked and too much time hurting over the big mistakes I had made. A well run inventory should turn 3 times per year so even at a 33% margin makes it a 100% return on investment. That means if something that cost me $100, then has a birthday in my store, it now just cost me $200. It was very hard for me to admit I had made a mistake and blow it out for less than cost, but if it were to have second birthday in my store, now I have $300 invested in the item. The concept is called lost opportunity. Inventory is a tool to make money, but I found that I been making a personal and emotional investment in items. If I don’t have the money to buy inventory then I have lost the opportunity to make money. The really sad part is I have spent the money to create the opportunity and the mechanism to process the sale.

What I needed was a divorce from my inventory and I didn’t want to continue to make support payments. I started by doing it by the numbers for 80% of the parts. If I sold one in five months I stocked it. I stocked a one months supply, Simple and it helped. If something spent a year in the store I sold it for half of cost. Red tag sales worked well for me because people had to look thru the rest of my inventory to find the deals. It is amazing what people will buy if it is a deal.

Clothing is even more critical because, in my opinion you need to have all the sizes even though most of my customers were extra large. This means if you find out that a particular leather jacket style doesn’t sell you have to discount them sooner.

Service parts don’t necessarily go by the same numbers because if you have to pull a bike off the rack for the lack of a part, you have lost money on the job.

As I got more sophisticated I began to study the history of parts and the margin and soon realized that I would rather sell something with good turns or a good margin than something that is really cool.

I had to be careful about counting discounted items as a sale. It didn’t take me very many mistakes coming back into inventory to raise my pain to the level where I learned something new.

Playing by the numbers lowered my level of stress and helped my bottom line.

About the time things seemed to be going well emotionally, I hired a person to work the counter and they didn’t share my pain and returned my inventory to emotional chaos. I needed to do the purchasing because his bad taste made mine look discriminate.

Here is the rub, I may have been the better salesman than the new counterman, but I learned that I needed to spend more of my time away from the counter in order to keep my head around the inventory.