Thursday, 31 July 2003 17:00

Profit centers — confusing or vital?

Written by Tom Franklin

While doing a marketing analysis for Phil Horn at Village Auto Body Works in Westbury, New York, I was surprised to learn that mechanical work was preferred to body work in Horn's area. After all, in California very few body shops have a full-fledged mechanical shop because that service is considered to be relatively unprofitable. 

Active Image
Horn says they are able to command a much higher hourly rate for mechanical than for body work, as rates for collision repair are kept low by insurance companies. Since Phil has both a complete, full-service mechanical shop and a body shop, he can choose to focus his marketing dollars on whichever activity is most profitable.
Profit centers
The concept of the "profit-center" is well known in the world of merchandising, but few body shop owners or managers think much about it. A prime example of profit-center thinking is the direction most oil companies now take with their franchised gas stations. At one time nearly every gas station had a mechanical bay and did the basic tune-ups, oil changes and more.

Today it's difficult (if not impossible in some areas) to find a gas station that hasn't replaced the mechanic with a "convenience store." Studies of comparative profitability determined that convenience stores generate more profit at a much lower cost than mechanical services at a typical gas station.

The consolidator's edge

Large corporate enterprises, which today include auto body shop consolidators and multi-shop operations, use sophisticated management systems to pinpoint exactly where profits are coming from and the ratio of profit-to-cost in each area.

A good system tells an owner or manager exactly how profitable specialties like air conditioning work, alignment work, or windshield and glass replacement are at a given moment. Whether or not they use this information for a specialized marketing strategy is another matter. Not many get this detailed or specific. And smaller, indepen-dent body shops rarely come close to monitoring their profit centers this way.

Getting specific with marketing

When it comes to marketing, advertising, and promotional efforts, many shop owners are confused about which operations will be most effective. They're hit-on by advertising sales people wanting to put them in a local throw-away paper or a booklet of coupons or some other promotional scheme. Will any of these be cost effective? If so, which ones?

Advertising in the yellow pages is a given. But what about local newspapers or coupon books, flyers, etc. Is it really effective for a shop to spend money on these ads? My answer: not if the ad just promotes general body repair work. Getting more specific with your ad however, focuses the reader's attention and has more impact.

An ad that announces that 25% of car accidents occur while a driver is backing up may draw some attention. The ad could then focus on non-insurance work: a special repair deal for rear bumpers or even over-sized rear-view mirrors or backing-up warning devices.

An ad that announces that "Motor Vehicle Crashes are the Leading Cause of Death for Children," is a specific fact that will draw attention. And it can be followed by noting that a majority of these deaths are caused because the children were not properly restrained in a car seat or with a proper seat belt. This opens the door to offering a free inspection of the children's car seats to see if they are properly secured. In the vehicle. There are still many people who don't understand how to do it properly and you can build your profile in the community by helping them.


Focusing on profit centers

Phil Horn's more profitable mechanical shop in Westbury, New York, may not be an anomaly. With gas stations closing mechanical shops to put in convenience stores, this can open up a new opportunity for body shops to profitably add a mechanical shop. After all, many body shops already perform many mechanical repairs in conjunction with collision repairs, so they have the equipment and personnel to do it.

Some shop owners have raised the objection that they get referrals from their local mechanical shops and don't want to be seen to be competing with this valuable referral source. I have a client, Pete, who has both a body shop and a complete mechanical repair shop, but he also gets continual referrals from other mechanical shops in his area.

How does he accomplish this? It's simple. Most small mechanical shop owners operate on a small profit margin. To them, $100 or $200 free cash money is a windfall. Pete simply pays a generous referral fee for body work to these owners of local mechanical shops. Apparently it doesn't bother them that he also does mechanical work. They're happy with the extra money in their pocket.

It all comes down to asking what is profitable. Is it profitable to focus on selling tires, special rims, and hubcaps? It all depends on your market. Ultimate Motors, located in a largely Hispanic and Filipino neighborhood, sells a lot of customizing products. Young guys in that area are eager to spend their money on these very profitable items.

Just as oil company gas stations are finding it more profitable to sell coffee, candy bars and miscellaneous junk than to repair cars, it may be time to take that rejection of mechanical services as an opportunity to create a profit center that might enhance the bottom line at your shop.

Do a profit center analysis

Try this simple exercise. Break down all of your services (and products, if applicable) into separate categories. While body work, frame work and paint department work are obvious categories, list out the other sub-categories like glass, alignment, brakes, mechanical, air-conditioning, radiator work, towing, rental cars, and any other services your shop provides.

For the next couple of months, do a running profit check on each of these categories, even if you sublet them. You may be surprised when you do a cost/profit ratio analysis to discover a higher percentage of profit in an area previously considered trivial. Then take a look at the possibility of focusing a mini-marketing campaign on delivering more of that service or product. Small profits add up - especially when the cost is low. You may find that you have some profit-making gems hiding right in front of you.

Tom Franklin has been a sales and marketing representative and consultant for forty years and is the author of the books, "Business Battlefield Marketing for Body Shops," "Tom Franklin's Top 40 Marketing Tactics for Body Shops," and "Strategies for Greater Body Shop Growth." His marketing company now provides marketing solutions and services for body shops and other businesses. He can be reached for questions or comments at (323) 871-6862, by fax at (323) 465-2228, or by E-Mail: tbfranklin@aol.com.


Read 5268 times