Vin Waterhouse urges shop owners to use ‘financial GPS’, warns against labor discounts
Golden, Colo.—During the opening of the Automotive Service Association of Colorado’s (ASA-CO) annual Independent Automotive Professional Symposium, industry veteran Vin Waterhouse joked that today’s technicians should be called “techricians,” given the amount of diagnostic and electronic work they perform on modern vehicles.
Waterhouse, president of The Waterhouse Group, kicked off the daylong event, held at the Denver Marriott West, Jan. 26, with his NAPA-sponsored breakfast keynote, “The Financial State of the Industry.” More than 240 industry professionals attended the fast-paced presentation on repair shop profitability.
After the keynote, Waterhouse offered further details in his four-hour course, “Financial Success in Today’s Market.”
A financial GPS is required for any shop owner who plans navigating his way to “profitville,” he said. Key benchmarks to pay attention to, he said, are net profitability, expense limits, labor revenues, and shop supply percentages.
“If you don’t have a GPS or know where you’re going, you could end up in Death Valley,” Waterhouse said.
Diagnostics times increase
“In 1991 only 5 percent of a shop’s business involved diagnostics,” Waterhouse said. “Today at least half of your business is electronics. You don’t sell more parts when you do drivability.
“The whole business is changing,” Waterhouse said, pointing out that the old rule that each repair order (RO) is 50 percent parts and 50 percent labor is no longer relevant.
That changing dynamic makes the previously prevalent and acceptable practice of discounting an entire RO a dangerous practice today, he said.
Pitfalls of labor discounts
Although many shops discount labor, they seldom discount parts, Waterhouse said. Discounting labor is a profit-killing practice, he warned.
One hour of labor is eight times the profit of a 25-percent discount on parts, Waterhouse said. “Flat rate or salary, the money has always been in the labor,” he said. “If you want to discount something, discount the parts. The savings are tangible and the customer satisfaction is high.”
Waterhouse pointed out that when a million-dollar shop is discounting each RO 10 percent, that’s $100,000 a year. “If you give it away at the top, you’re going down,” he said. “Most shops that fail have been out of business 12-18 months before they close. Going forward, the rules we used to use do not work anymore.”
When the average shop only makes 3- percent net profit, after the owner’s salary, he said, discounts can really hurt.