19 May Increase Your Profits With Our Menu
In my experience, most new clients don’t know if they have a good menu at first. That’s OK. It happens all the time that we get comfortable with our business and stop paying attention to every item we’re selling, or the changing prices of parts.
Or, if you’ve made the jump from Service Advisor to Service Manager you might forget to keep an eye on what your competitors are charging.
But, if all the guys in the neighborhood have changed their prices, it will affect your business. Some new clients tell me they got bogged down working on a menu for months and it never got finished. Some don’t even have one.
This all leads to one major downfall—losing money. If you don’t have a menu, customer’s don’t know what’s available. If your menu is too long or outdated, sales will be lost and profits lessened. If you’re not familiar with what the other guys are doing, you can lose customers altogether.
So, the very first thing you need to do is begin making a strong relationship with your parts manager. See parts managers are trained to think inside the box because inventory is a mathematical formula, there is no gray area. But, as a service manager you have to think a little differently because you’re playing the laws of averages. Take your parts manager to lunch and begin a dialogue so you can work smoothly together moving forward as you figure out your menu.
Then, tackle these six things to ensure you create a menu that’s going to increase your ELR.
- Have a clear idea of what you want to sell. Begin by collecting information like: Do you have in-house products? What does the manufacturer recommend? What do you want to supplement that with? What services do you sell? Get clarity there, then remember to keep it simple and get really good at selling one thing at a time, or pick five to get your guys working on selling. Remember, success is attracted to simplicity.
- Know the true cost of all the parts involved. One big problem I see when it comes to creating menus with clients is, they think they know what things cost, but often they do not. So they wind up selling services, but not based on the true cost of the parts. That’s a recipe for disaster. Keep in mind that every part you don’t sell is a lost sale. Ask your new best friend, the parts manager, to make a one-sheet with everything you want to sell.
- Get accurate labor times. We see menus where guys are getting paid two and a half hours for an alignment when it only takes 20 minutes. We’re trying to establish a cost that is competitive in the marketplace. If you don’t have top level machines get with your chemical supplier, or go out and find one, because they’ll work a deal with you and bring in the newest, coolest machines. They’ll be fast and your guys will make a lot of money with them.
- Get some market Data (Market survey). Make some phone calls to local shops to determine the prices parts and services are selling for. Understand what’s out there and position yourself with the higher range. You don’t want to be priced with the lowest level shops. Once you find out what the market range is, then talk to your advisors and frame them with the market data and explain why and how you’re going to position yourselves.
- Have a target Effective Labor Rate (ELR). You must be able to understand what ELR you need to create profit, and a lot of it because you may lose money on things like the oil change, the brakes, maybe even the batteries. So you have to pick a high target Effective Labor Rate to balance your profitability.
- Work backwards from the sale amount. This is important because the first thing you have to ask yourself is, “What do I believe I can sell this for?” With this tool we have you plug in the sale amount, and it subtracts the parts plus the parts bump from the sale amount, and it takes whatever’s left and divides it by the labor hours. Then it spits out the ELR. We have a spreadsheet that will do this for you. Click here to find it.
To wrap up, it’s worth it to take the time to make sure your menu is as good as it can be, and with these tips it shouldn’t be hard or take too long. Gather your team, and your parts manager, and begin the research that will help you get the information you need.