By Ed Kovalchick, CEO & Founder, Net Profit Inc.
Of course, some will remember this oft-repeated and well-known phrase in this title referring to “Badges” as was featured in a 1948 film The Treasure of the Sierra Madre. Beyond that, a variation was repeated in some ten films, various games, literature, television, and even comics, and now a reference in a national automotive column. Finally, it has been utilized everywhere!
Stinkin’ Budget
What brought budget up was realizing how consistently many of my clients tend to grasp only cursory budgeting, acknowledged primarily by the dealer and maybe the in-name GM/GSM, regarding major food groups like variable, personnel, and semi-fixed expenses. Beyond that, most don’t really drill down, and when I ask what their budget goals are for particular associate positions, I get a ‘dunno’ face followed by a ‘ain’t thought a-that’ grimace. Since personnel expenditures, both individual and related benefits of all profiles and dimensions, eat up much of the every department’s gross profit, getting into overall personnel costs is vital to managing the bottom line, at least as I see it.
A good for instance is a 45 percent maximum target for overall personnel expense for a fixed department, including office distributions. Breaking it down into bites and depending on the franchise statement makeup, it may include some portion of pay for people who don’t work in the department directly as well as that portion of their benefits. I haven’t met a department manager yet who understood the actual what and why of their statement’s distribution sequence, which may have been conceived three office managers ago. But they continue to take the hit anyway – some don’t even see any of the numbers they are held responsible for! However, I understand that you may be in the minority here, and can rattle it off your distribution package keenly, as well as detailed explanations for the amounts you are charged and why, including that GM you seldom see. Congrats to you and the dealer.
Calc This
Beyond payroll distributions, the actual department full and part-time support staff get charged 100 percent to a department as appropriate. The drill-down here are the questions of what percentage of the bill-paying monies should each position consume? Regarding service and the body shop, the cost-of-sale technician budgets are readily known, since that calculation blares at anyone viewing the sales and gross profits page, which includes the vital gross profit labor margin. One can even subtract the totals of labor gross profit categories from the labor sales, to calculate how much was paid to the tech staff. Divide that amount by the tech count and that calculation is what the average tech wage was for the period. You may find yours most interesting.
The reality is this – if the labor margins aren’t in-line, such as at least 75 percent minimum in service and 65 percent in the body shop, the personnel expenses will never fit a nicely profitable budget plan. Managing both the effective labor rates and the effective tech cost of sale are big challenges for today’s department managers thanks to the ever-growing loser quick service programs. And I still see body rates here and there, which have lavished in the lower $40s for a decade. You can’t make this up! I never thought in my lengthy career, I would be so thankful for continuous recalls and warranty work. Especially thanks to most manufacturer execs who have stepped up to the needed warranty service and parts rates in the past couple years – some we are still waiting for – hey, it will be Christmas soon.
In service and the body shop, the lion’s share of the direct personnel cost is the manager and his or her assistant managers, (service writers-advisors-consultants-babysitters, or whatever the next round of marketing execs invent). I can’t figure how these vital folks can have the tremendous responsibilities of job management, but get titled as such. Anything less than ‘manager’ is unfortunate for their positioning with the consumer when they want to “see a manager” cause you’re ‘nobody.’ In the body world, that would be the estimators or whatever the people who estimate collision work are titled in various shops. Assistant body shop managers are not out of the question here either.
Pay This
All support staff budgets should relate to the available bill-paying monies, gross profit. As at home or at the business, the ‘take-home’ is the dough creating the funds for budgets related to any expenditure. In the case of personnel, note that a budget of a percentage of gross isn’t typically a pay plan; however, that is the first calculation to make to begin a pay plan designed to calculate to a similar amount. I constantly see pay plans in place, which were never related to any budget, let alone fully calculated to predict the very best, expected average, and worst-case scenarios before installation. The “Let’s just use it and see what happens” approach is too common. How I know, is long ago, I made these mistakes for you!
The same budgeting concepts are important in the parts depo too. While this subdivision has been the last area to blow up personnel expense over the last decade, I see it happening more and more, particularly with the dastardly low wholesale gross profit margins now prevalent. Frankly as an add to the “Holesale” fiasco, too many of the service parts margins running under 40 percent make it nearly impossible to retain a competent margin on the expense page. If the margins are poor, forget hitting a budget, and pray big-time for lottsa volume that doesn’t cost a leg-lamp to gain.
Study This
I have made an easy-to-use Excel workbook, including an overall budget, for anyone to document the actual percentage of gross profit versus their (your) budget (or make one) for each support staff associate for the service, body, and parts entities. As a bonus, I made an additional tab for you to study your assistant service manager and estimator pay versus a provided budget range based on skill and experience. Just forward an email to Ed@NetProfitGroup.com and put on the subject line “Gimme the Budget Buddy” – please. Sometimes I am not sure what to send when you apply an unrelated subject line – I send a ton of goodies to folks.
It’s important to note not to eat at least an hour before this exercise is performed so that there is little chance of puking from the results. I’m just sayin’… unless of course, you don’t need no stinkin’ budget.
About the Author
Ed Kovalchick has traveled the world training and consulting in fixed operations for manufacturers and dealers. His extensive background includes master technician status, independent shop owner, dealer with all Chrysler & Nissan franchises, and founder of Net Profit Inc., fixed operations consulting and training. He is a graduate of the University of Louisiana and has served as state president of the Automotive Service Councils, and the advisory boards of Wyo Tech and Virginia College. He has been a regular columnist and conference presenter with Dealer Magazine since 1995. EMAIL: Ed@NetProfitGroup.com.
