Grow Your Business By Adding Locations
Most shop owners grow their businesses by increasing sales. More and more savvy business owners, though, are growing their business by adding locations. Let’s take a look at why and how they’re doing it.
The automotive repair marketplace changes constantly, and everyone in the business is trying not only to hold onto existing market share, but also to acquire more of it.
New-car dealerships intensify their focus on building profitability in their service departments by capturing the post-purchase service business of customers who have bought new cars, as well as by bringing older vehicles back into their service bays. In addition, manufacturers encourage dealers to add locations with operations that mirror independent shops so as to capture repair business currently going to the independents and aftermarket franchises.
Dealerships have also been adding stores by acquiring existing dealerships or by obtaining additional product lines and building new facilities to house them. This has resulted in some of the largest “automotive groups” in the history of the automotive business.
Niche aftermarket service and repair franchises are experiencing a rapidly shrinking market share, and, to make up for it, are moving swiftly into the business of general automotive repair. You can see this in increased marketing efforts that may include a name change to convey an image of complete one-stop service and repair. Where markets are strong, they add locations; where markets are weak, they close locations. The common factor between these two sectors is this: Most have more than one location.
Independent repair shops, meanwhile, are trying to retain customers and increase repair orders by beefing up their marketing efforts to create more visibility and to offer more services to both existing and new customers. The cost of these increased marketing efforts comes directly off the bottom line, unless these efforts generate additional profits to offset the investment.
Some owners have realized that multiple locations provide the advantage of “economies of scale” — that is, mass buying and management power. This enables them not only to reduce the individual expenses of each store, but to have more marketing capital as well. Another advantage to having multiple stores is greater visibility.
Going From One Shop to Multiple Locations
The first step toward growing your business this way is to build a business model that functions efficiently and profitably. One of the most efficient models today consists of two service advisors and three technicians, whose combined efforts result in annual gross sales of between $1.3 to $1.7 million. Managed correctly with excellent staff and all the necessary systems in place, this model will produce an annual operating profit of 15% to 20%, after the owner pays themself for whatever position he or she may occupy in the day-to-day operations.
These results can be accomplished in a facility consisting of three to five bays. The model can be easily managed with the expertise of most independent shop owners. However, many problems can occur when owners attempt to grow their business beyond the size of the model. In fact, some larger independent shop owners actually wind up deciding to downsize their business according to smaller, more efficient models.
If you’re not able to achieve the described model, but you have another that works well, you still may be ready to take your successful systems and procedures and use them to operate additional shops. Many shop owners have been very successful with this strategy; others, however, have failed miserably.
Some Success Strategies
The most common strategies for success begin with the development of a complete and proven business plan. A good plan includes the duplication of existing systems and procedures, an understanding of the elements and methods of business acquisition, the knowledge to acquire qualified staff, and the ability to obtain adequate funding.
The Business Plan: Systems & Procedures. A complete business plan should include all the standard elements, including sales and cash flow projections, a marketing plan, and sources and uses of funding.
The best method of duplicating systems and procedures is through the development and implementation of:
- An employee handbook containing personnel guidelines and workplace benefits and job descriptions for all positions
- A standard operations manual with detailed descriptions of how every element of the business works, and the related procedures for staff to follow.
Choosing a Location. Selecting a location requires extensive demographics studies and/or gut instinct. Most manufacturer dealerships and franchise repair shops have departments with people highly qualified in finding and interpreting the demographic information needed to make the best business decision. Most small, independent shop owners, on the other hand, have very limited resources with which to work.
Smaller businesses, therefore, often rely less on demographic information than on gut instinct and perceived opportunity. Nevertheless, an owner would be well-advised to obtain demographic and other pertinent information on a piece of land before buying it and following through with the development.
The Facility. Few business owners in the independent repair industry are building new facilities. The majority of those adding locations are acquiring existing turnkey operations. Of these, most are leasing the facility, often with an agreement to purchase the land and buildings once the business is paid off.
Be sure to check back next time, when we delve deeper into the considerations that should be made when you are looking to purchase an existing repair shop. In the meantime, join us for Guerrilla Shop Management, beginning March 19th, which covers business planning, marketing, financial operations, and so much more.