I will never discount gross profit as a key to building net profit results. A client of mine however is growing gross profits in wonderful fashion. Gross profits have doubled in the last 18 months yet net profits are less than stellar. He is profitable and I will admit a rookie manager that the real result will always be the bottom line net profit. In developing a manager towards improved net profit results the focus must be on cost controls. If this client had reasonable controls on costs they would reach 25% net to gross profit on a consistent basis very quickly. I must say over the years some clients use the company to cover personal expenses such as boats, landscaping at their homes, and anything you can imagine. Discounting these items with the understanding that it demoralizes the staff and generally is destructive especially if this effects the manager’s bonus plan let’s move on to good cost controls. 
 

If an expense is tracked and monitored with a solid process I will promise improvement no matter what the item is. For an example let’s say you want to reduce shop policy amounts. If management has a green sheet form to fill out requiring lots of detail including the Technician, advisor, and amount of expense including all of their written comments on what happened and how to prevent in the future the cost will decline at least 30%. If the expense on shop policy is not tracked or managed at all with no comments needed it just shows up on a statement this expense will be a lot higher. Track it looking for trends and patterns with everyone aware of every policy expense and watch your cost of operation decline.

Today I challenge you to review your processes on tracking at least 5 major expenses and controlling them consistently with the team aware. Profits will climb with the effort. Five suggestions if you like our shop policy, adjusted cost of labor or unapplied time, advertising, labor costs, and shop supplies.

Rob Gehring is the President of Fixed Performance
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