Breaking Down The Cost Of Doing Business

0:00Welcome to Repair Shop Reckoning: From Chaos to Control. Because too many shops today are running on chaos. Phones ringing, technicians frustrated, front counters overwhelmed, owners buried in problems with nobody to call. Kevin Brown has spent over 30 years in the trenches learning how to take that chaos and turn it into control. Shop owner, operator, consultant, leader. Through industry shifts, insurance games, bad hires, great hires, and lessons learned the hard way, This isn't theory.

0:30This isn't corporate training fluff. This is real shop experience, unfiltered. On this show, Kevin breaks down what actually works— running profitable shops, front counter control, training technicians, negotiating with insurance companies, building systems that make your shop run instead of burn, and the mistakes that quietly bankrupt shop owners every single day. No corporate scripts, no sugarcoating. And yeah, somebody might get offended. That's okay.

0:58Disney's two doors down. But if you want the truth about this industry, buckle up. This is Repair Shop Reckoning: From Chaos to Control. Let's get started. Welcome back. So today's topic is going to be, we're gonna have a two-prong approach. Number one, we got guys online, these technicians going, there's just no way these shop owners should be charging $200 an hour and only paying me $45 an hour.

1:22They're fucking me. They're, look at all the money they're keeping. That right there, you just don't know what you're talking about. You're just uneducated in that particular arena. So they're not keeping all that money. That's called gross profit. When you talk about them making 60 or 70% on a labor hour, that's gross. Okay. So what we're going to do is we're going to boil it down today of what they actually keep out of that.

1:48Okay. The second approach is I get a lot of phone calls from guys that say, you know, I'm, I go negative. I don't know my numbers. So therefore, you know, I was, I was giving my guys a percentage of the profit. And then I realized that it was too much. I wasn't even making it. I noticed my bank account was really taking a beating.

2:08Then I say to him, so what does your QuickBooks say? Who's QuickBooks? He sounds like a nice guy. Okay. They don't even have QuickBooks. So then you start talking to them, then they're running their business on a shop management program because the shop management people tell them that's all you need. Or we've had the other guys that are running their business on QuickBooks, doing their invoices on QuickBooks and everything, which causes a whole nother problem.

2:35So to go back to the shop management program, before we get into this, you have to have a shop management program that readily shows you your markups and your margins easily when you're building an estimate, because if you don't know where you're supposed to be or what target you're going to hit, or you haven't trained your people, you're never going to make any money.

2:52So you have to hit the front end numbers every time without, without missing it. You have to fricking hit your number, whatever it is. All shops are different, but you have to hit that number. The industry standard right now, you should be trying to make 58% on the cumulative, uh, RO. Could you? Yes. Will a lot of you guys? No. You think it's too expensive.

3:13You think your customers are going to get mad and go somewhere else. Okay, that's the bottom line. There's a set of industry standard numbers out there, and that's what everybody goes with. Some higher, some lower. You guys always think you need to go lower to make the customer happy. Let me tell you, when you go out of business, they're going to go to your competitor right down the street.

3:30They do not give a shit about you. Sorry to say it, here it is. So how I broke this thing down to make it completely simple, we're going to— we're not going to talk percentages or anything. We're going to talk about a $100 bill. We're gonna start out at our shop as $100 bill. That's what our sales are, is $100. All right?

3:48So big misconception in our industry, shop owners are just killing it. And I'm reading now, every dollar that comes in the shop is mostly profit, right? I mean, if you think about it, if a shop owner's making $100 and he's paying a guy $40, he's putting $60 in his pocket. You think. Right? Or paying $50, whatever, right? So instead of opinions, let's break it down the way that it actually makes sense.

4:10And I try to keep it completely simple Guys, I know somebody's going to come out there and whatever. Okay. The $100 represents everything that the shop brings in. That would be your sales for the month, right? Everybody following along. That's labor, your parts, your sublets, glass, whatever, right? And then that's your hourly costs or whatever costs non-loaded for your technicians. You're going to put that in there, right?

4:38So that's just the money coming in. This is not profit. This is just a starting point. Okay. Section 1. Section 2, cost to do the work. So this, out of every $100, about 40% goes right back out. That's just the cost of doing the work, right? Pays for your parts, your sublets, your technician wages, blah, blah, blah, blah, right? So, $40 of that $100 goes right back out.

5:07So, now you have a 60% gross profit margin right there, right? So, now we have to pay for everything out of that. So, let's talk about that. If this is where I did two models, I did a fixed model, which is hourly and salary, or I did a variable model, and I'm going to probably say expandable model, all kinds of crazy shit, I keep forgetting variable.

5:35Flat rate commission is your variable one. If things get slower, that $40 drops, right? Because your technician will go down. But what does not drop, hear me now, is all your fixed costs. Now, the way this is set up in my P&L sheets, see, this is very important that if you notice when I set up above in cost of goods sold, I just had my technician wages, just their base wages, not loaded.

6:02Loaded would be everything that costs me on top of what I pay them per hour. Vacation, paid days off or holidays, healthcare, retirement, all that stuff. That might shrink a little bit too. Hourly doesn't, variable does. So when we're talking about our P&L sheet, just kind of depict it, this right here, part of my P&L sheet shows me that my profit margin is right on my parts and everything.

6:32The middle section is what's got to come out of that number right there and ends up with the number you get to keep at the end. Okay, so once again, when you go back to the variable model, it's contracting as you get slower. The guys aren't producing, that means you're not paying, so your wages shrink, your parts shrink a little bit because you're not buying parts, right?

6:56What also shrinks? Your parts profit. Right? With your hourly fixed model, it all, the taxes, the wages and everything stay the same. Maybe the parts shrink a little bit, right? So your fixed costs on that all stays the same, right? So that's where the difference between variable model and fixed model come in. Okay. So one adjusts when things slow down, the other doesn't.

7:25We both know which is which, right? The variable adjusts when things slow down, and it's a little bit easier to manage your books that way. We'll go into that deeper, right? Section 3. So we take our $100, we paid $40 out, right? $40. What's left? There's $60 left, right? So with the variable model, that $60 is more protected, right? Because the $60 might not get hit because your wages are shrunk down.

7:59You're slow right now. So that $60 is a lot safer. It's stable, right? Well, with the fixed model, it's fragile because you're still paying, you're slow, but you're still paying out. So it's not reactive, I should say, right? Would you like the payroll is not reactive, the same $60, but one stronger and then the other, which, which one's stronger? The $60 is safer when you're variable.

8:24This is why a lot of these big groups are doing this, because they want you to take some of the risk. Yeah. That's the bottom fucking line. Yep. I think you can really think of a visual of either it's a flat line or it's going in a wavy line. It can go up and down versus how busy you are. Right. And you know what?

8:41The variable model works really freaking well if, like we talked about, the shop does well, the marketing's on point, everything's on point, the work's coming in, you're busy, you're not slow. You're cruising right along. The variable model's wide open. Fricking the shop's making a ton of money and stuff like that. Then when it slows down, the company is not dumping a bunch of money out.

9:01They're taking risks, but you're taking risks as a technician too. You're getting it when it's good and you're taking it when it's bad. This is where I think people have the problems with it right now. So many people call it so many different names. It's a scam. It's a ripoff. It's for the owner. It's for that. Like I said, I switched, everybody knows I switched our shop to hourly because just a lot of uncontrollable things.

9:27I was marketing my ass off, spending all this money on marketing, everything, everything. It's just, we're having outside problems that we just can't deal with. They were killing the guys' paychecks and it was stressing them out. Well, I'm not here to make them guys freaking miserable. We're here to make a living. That's what most people forget. So, you know, The $60 is definitely more at jeopardy, if you will, when you're slow for 3 or 4 months in a row and you don't have a ton of money coming in, but your payroll is staying fricking big.

9:56But if you go to the other one where it's, you know, your variable model, it's slow, what happens to your payroll? And payroll is your biggest expense. Yeah. So that's the biggest one. If you shrink it down, that can, that could actually sustain you longer as a business, but as a person, if you're not good with your finances, That could put you in the house of ruin, right?

10:20Because you just don't have the money, you know. And a lot of guys are not good financial guys that are on flat rate. Now, there's a lot of them that are, but there's a lot of them that aren't, you know. I don't know the statistics, I'm not even gonna lie. But you know, you know the guys are gonna have trouble. The other guys are on a Mack truck getting a remote control car and Rat Fink and all that shit and spending money hand over fist on stupid shit they don't need.

10:41Then you see the guy that he's had for 20 years that he got repaired for the 40th time. And you're like, why don't you just get a new redshot? Nothing wrong with this one. I had a lifetime warranty. Now, the guys that have the money, yeah, them are the guys that have maybe a mediocre car that's in good shape and very well kept.

10:56They live in a mediocre house and they live within their means. Then you get the guys that are fricking dealer jumping. They're flat rate guys wherever they go, wherever they're busy. And then the guys that are fricking broke all the time, never making any money, the flat rate's a scam, this and that. And I'm not saying that flat rate is not a problem because I moved away from flat rate.

11:16I'm just telling you what I've seen over the years. Yeah. You know, so, you know, so that same $60, you know, it's in jeopardy when you're at a fixed cost versus a variable cost. It just, it just is. There's no other way around it. Right. So we take $35 out of that $60 to actually pay for the middle of the middle of the sheet here, middle of the P&L sheet.

11:41That's before we get to the net. So this is all the minuses. Just kind of look at this way: under your cost of goods sold, everything should have a minus because it's minus the Edison, minus this, minus that. Now, pro tip for me, guys, um, I go up and I edit my P&L sheet, customize it, and I do a percentage of, uh, income per line.

12:03So that way it could tell me what percentage everything is. And before, payroll used to run in the 20s. Now it's almost, it's in the low 30s for most guys. A lot of guys I don't know because they don't even have QuickBooks. I mean, we could look into it. I mean, I had some guys up as high as 40 when we crunch the numbers.

12:22I'm like, you're freaking $40 out of every $60 or $100 you take in, you're spending on payroll. Like, that's a problem, guys. So, you know, the middle part of the sheet is something you should pay close attention to. And an easy way to do that is just do a versus year. So, compare them year-to-year percentages. So, you can look at your, say, your medical insurance.

12:50Oh, shit, went up 17%. Okay. So, then you can start to know where your percentages are, and at the bottom, it'll give you How much your percentages go up. So that's a problem right now, guys, is, um, you have to start negotiating your insurances and all that stuff because the problem we're running into right now, a lot of these costs are going up, up, up.

13:10That's the middle of the sheet. When I say minus, I'm saying that comes out of your profit, right? But that number can grow. So instead of like all of a sudden it's $100, all of a sudden it's $138. $60. So all of a sudden they're taking your profit. Yep. So you have to watch your, your fixed overhead costs. Your $60 is shrinking down, right?

13:32That's the bottom line. That's where you end up getting to your 35% starts growing. Because we're saying in this model that it takes 35% or 35— I keep saying 35— to pay all your fixed costs to get your— achieve your 25. Yeah. Yeah. So think about this. You got 35, you start at 100, right? And let me just go up to it.

13:57You start at 100, $40 goes right out. So now you have 60 you're playing with, right? So then you're 60%, your 35% is how much it costs you to open the doors to run your business. So now that 35% out of there ends up leaving you $25. I keep saying percent. So, let me start this over. It's $100 minus $40 for doing the jobs.

14:22That's how much it costs you to do the jobs. $35 more to run your business, to open the doors, pay all the bills, right? And then it leaves you $25 profit, right? So, what happens to that $35 when that $35 keeps going up? Now, it's $40. Now, it's $45. Now it's 50%. Guess what happens down there? Now you're at 10%. $10. See what I'm saying?

14:47So now you're at a 10% net. So your overhead just ate up all your profit. That's why it's very important for a business owner to look at your overhead. Let me just go ahead and talk about some overhead things. Okay? This, I'm reading off my P&L sheet. Yep. Fuel. Right now, fuel is a big one, guys. If you're running trucks up and down the road, all your company trucks, you have 10 company trucks, all your employees have trucks or whatever, going to pick up parts.

15:15You fricking just— I don't even know how much fuel went up. Oh, quite a bit, right? Yeah. Like a whole dollar. I have an electric car, so it doesn't matter. I was going to say, you don't know? Yeah, no, it's like a whole dollar. Yeah. My diesel fuel the other day when I filled up my diesel truck to go up north was $5.27 a gallon for diesel.

15:32Okay. Yeah. So I know, I think it cost me when I filled up, when I got back home, because I pulled the trailer, I think it was $114 to fill up that truck or $120 to fill up that truck. Right. So license plates is another one in our state went up. Okay. Shop tools. You always got to buy shop tools. Okay. That right there is just, people say, what's the cost of doing business, but still comes out of your profit.

15:58Yes, it could be a write-off for sure, but it still comes off your profit. Yep. It's still a cost. It's a fixed cost that that one you can control. Yeah. Yeah. Right. You say, oh no, we're not buying that shop tool the next month. We're not having a good month. But how do you tell a guy that when he needs it to do a job?

16:12You're kind of fucked. Okay. Uniforms. Uniforms you can't really do. You can't do anything with advertising. Here's a, here's a tip with advertising, guys. They say you should do 10% of your gross for advertising. Okay, here's what most people don't tell you. If you're so busy and you can't get the work done, you have a 3-week wait, cut your advertising back. They say you could do it to like between 3% and 5% just to stay relevant.

16:45You don't need to freaking spend the whole 10%. You're wasting money. You're advertising to people to call you to say, I can't get it for 3 weeks. You're wasting money on advertising. So cut that back. And this is where percentages play a big part in your P&L sheet. Cut that cost back. If you cut that cost back, whatever you save goes directly to the bottom line.

17:05Think about it. It's like no different as you guys just go out there and go, yep, um, I hired a guy that I want to be my parts guy. Okay, how do you pay him? Pay him hourly. Okay, that just came right off your bottom line. That's a fixed cost. That's straight overhead, baby. No matter how you do it. Yep. So start to think about it real hard.

17:25If you're going to sit there and say, okay, I'm only making 10% net, you just put frickin' another guy on payroll. You just frickin' took right out of your frickin' bottom line because especially when you're paying them hourly, I mean, obviously it's going to cost you something too if you're paying them flat rate or commission. Yeah, but think about that. If he's on commission, he does nothing and produces nothing.

17:44You have to pay him nothing. That's why people like commission. It makes people hungry. But on the other hand, it causes you all kinds of problems. 'Cause how many people have these salesmen that fucking lie through their teeth to close a deal and cause a big problem for fixed ops? You know? Yeah. Yeah. So like I said, marketing, you gotta just, you gotta be very careful of marketing.

18:04And we talked about the marketing people and how they're crooks, okay? They made a fricking $10 billion industry, a trillion dollar industry on marketing, okay? So you gotta be careful. Watch that. Here's a big one that creeps up on everybody. Dues, books, and subscriptions. Your computer subscriptions and stuff like that. Guys, you've never taken into consideration that no diag fee that you do, uh, that you have no way of really making it up.

18:29That could pay for some of your subscriptions on these scan tools. Every freaking scan tool has a subscription now. Back when I was coming up, we had a couple scan tools. You buy a cartridge from the scan tool guy when you come around, like MasterTech or whatever, uh, Vitronics. You could buy a cartridge and lie. Say it was like 2000, you could say, okay, I'm going to use this 2003.

18:51They're kind of all the same. You could lie to it. 2003, you just say, hey, it's a 2000. Well, now you can still do it, but it's just all a mess and everything's subscription. So they can scan tool subscriptions can creep up on you. They're very expensive. So you got to kind of figure out how to pay for them. And then that is a cost you can't control.

19:10So you have to charge for it on the other end to offset it. Okay. And how you could do that is putting it in a category in your shop management program and know how much you're grossing on that fricking scan tool or on the diagnostic stuff to maybe offset it. Say, okay guys, we're not charging enough for diagnostic work because, you know, we spent $10,000 on subscriptions on these scan tools.

19:31That means somewhere here we have to make way more than that to opt to net what we need to pay for this. Yep. So we don't kill that number. And these are, this is like really breaking down the P&L sheet, going number by number. So insurance, insurance is fricking horrifically growing out of control. Um, anytime you fart, they want to raise your insurance.

19:54I think our one insurance went up like 6%, uh, our liability insurance with nothing, no claims, nothing. I said, yeah, it's just, just the way it is. You know, things are going up. Nothing we can do about it. So just go ahead and pay. Well, that comes off. You know, if you look at your P&L sheet and these numbers keep creeping up, that 25, that 35 gets higher, that 25% gets lower.

20:17$35, not percent, $35 goes higher, the $25 goes lower. It's nice when you use the 100 as the example, percent and dollars are the same in this case. Yes. For those that are slow with it. Yes, yes. I'm just trying to keep it in uniform, but yes, that's why, exactly. 10%, $10. Yeah. So once again, we go back to the point with health and dental that went up.

20:40I know we have a 17% increase this year. How we did this, and I told people before and they're like, ah, you're a fucking asshole. We do not pay a percentage. We pay a flat dollar amount for these guys. So that helps, but it still went up. Yep. On the guys so that we can control that one. Cause that was one that I had a struggle with and we, just couldn't control it.

21:02And it just was like eating in and eating in and eating in, you know. So what we do is we just raise what we pay a little bit and then they pay the rest. And it's, you know, there's liability on both sides. They have families and stuff like that. They're getting health insurance. Yep. You know, you know, office supplies. If you have an office assistant that wants a fucking pen of every color because she just likes everything all color-coded, you know, that's the kind of shit that could take right away from your profit.

21:27Nickel and diming. Nickel and dime. Yeah. Now, you know, outside services. What is outside services? Your lawn cutting, your whatever. Anybody that comes in, does you have them come in and do outside work for you? Okay. You could kind of maybe do that stuff, but if you're profitable, you should be fixing cars and writing service versus going out and patching the roof.

21:47Hire— you should be profitable enough to hire a roofing company or a landscaper to go out there and do that. You don't want to have your fricking tech or your service advisor out cutting the lawn. Okay. You business owners that are your, you know, think that, you know, the guy on flat rate or on commission or whatever he is should be out there cutting the lawn.

22:05He should be fricking selling service or doing his job inside your business. I'm a strong believer, do what you do and pay people to do what they do. Um, you know, pension, a match pension. There's some tax savings for the company. This line I don't even care about. I mean, the bottom line is we match the guy's retirement. I'm happy to do it.

22:24There's some tax savings for us on the other end. So that one I don't care about. Professional fees, which is your accountants and stuff like that. Ours are pretty low because we do all our bookkeeping in-house. Only thing we get done is our tax returns by our accountant. We have a meeting once halfway through the year. We pay for that. Besides that, all our bookkeeping is done in-house.

22:44A lot of you guys don't even have that because you don't even do bookkeeping. Yeah. Yep. Right. So Um, here's my wife. We don't want— she's officer salary. Uh, health and dental, other pension, rent. Rent's another one. Now, a lot of times if it's set up right and if you can do it, you as a business owner, you would own your building, but you would hold that in an LLC.

23:11You would pay yourself rent. Hopefully the fair market value is way more or more than what your payment is. Because at that point you can get some passive income. Say your building payment's $5,000, you charge yourself $7,500 a month rent, you pay your payment, then you can keep $2,500 in your pocket off your LLC. Okay, then you do a triple net lease, so the company pays all the taxes and everything.

23:37So you're literally just keeping that 25% or that $2,500. The thing is with That is when you have a mortgage and you get to write off the interest, you don't get to write off the principal. So if your mortgage payment is $200 that you're paying and you owe, you know, $100 is interest and $100 goes towards the principal of the building, you're allowed to write off that $100 interest.

24:05They call the other one income because you're paying down debt. Okay. Yep. Okay. For those who don't know that. All right. Repair and building maintenance. Here's where a lot of people get themselves screwed up. Repair and building maintenance is stuff that you're going to pay for right away. If you were to go put all new doors in your building and stuff like that, that would have to be a— that would have to go in be— what do they call it?

24:31Slipping my mind right now. Amortize. An amortization. It would have to be amortized over several years. They won't just say, oh, You need a $200,000 tax deduction right here 'cause you put doors in. They're smart, they say, "Okay, we're gonna take a little bit here, a little bit there." Then it goes, you know, in an amort schedule. So service charge is a big one, guys, that you guys aren't paying attention to on the banks.

24:54They'll creep up on you too. How do you offset that? You charge credit card fees. This will bring a whole slew of people going, "You're a fucking cocksucker and everything else 'cause you charge credit card fees." A lot more people are doing it, guys, Whether you like it or you're not, it happens. And people wanna use credit cards, they have to pay.

25:12I don't have a problem when I go somewhere with a credit card fee 'cause I know how it is. Now, people say it's a write-off. Yes, but if you spend $10,000, you don't get $10,000 off. You might get like fricking, what was it? I think like $1,200 or $1,300 off or whatever the number is. It's a fraction. It's not 100% write-off. It's not tit for tat.

25:32So remember that, guys, you gotta watch your service charges for more than 2 years, preferably a year, but a lot of them just lock you in at 2 years no matter what. But you know, the, the upside to that is if you're charging you by law, you're only charged by Visa and MasterCard. You're only allowed to charge up to what they're charging you.

25:53You can't make money on them. Imagine that, right? Even though they can make money on both ends, you can't. It's so funny, right? Yeah. So that's something you have to pay very close attention to because then they'll eat you alive. I've seen a lot of these guys. I look at their credit card fees. I'm like, holy shit. Oh yeah, that's a friend of my brother's uncle's aunt's.

26:10You know, they do processing. Like, holy shit, they're killing you. You have to be careful. You definitely have to be careful with the credit card fees. That's a big one. Bank service fees and credit card fees are a real big one for people. That's a real big— nickel-dimer. You know, here's the other one. Payroll taxes. Payroll taxes. You're the tax collector. They hurt no matter what.

26:33You still got to write the check out of there. So your bank account's here. You have to write that check, it's here. You know, payroll taxes, I think for me right now are $3,000 a week, about $3,000 a week in payroll taxes is what pretty much. Yeah, that's exactly what it is. Like $2,900 and some change because I see it every week when we do payroll.

26:59I'm always thinking to myself, holy shit, holy shit. You know, we have a big payroll. I pay my people well. I'm okay with that. You know, telephones. Here's another one that creeps up on everybody. Telephones. If you got everybody and their brother has a cell phone under your company because you just think you want to call everybody, that's another one that can kill you.

27:16You know, utilities in Michigan here, I can tell you right now, Garrett Auto and Trucks Edison bill was between $450 and $500 for 20 fucking years. Ever since COVID right now, last month it was $750.96. Wow. Yep. So that was another big dog that really, you know what I mean? Um, hurt us. Um, natural gas. We don't really have natural gas bill to the point where it doesn't even blip my screen.

27:44You know what I mean? The heater we just got over. Now here at the body shop, sometimes our natural gas bill to run the paint booth could be a couple thousand dollars a month. So we, we watch that definitely, you know? So after all that stuff comes outta there, guys, we get down to the very bottom number. That is our net. So, I hope I depicted that to the point where once again, the top of it is us billing everything.

28:06So, we'll say percentage, dollars, doesn't matter. We're talking about $100, right? So, right off the rip, we do our bills. It costs us $40 out of that $100 just to do the work. So, we take a $100 bill, we take $40, whoop, we throw it right out the window. We have $60 to work with, right? That's our profit. That's our gross profit.

28:28Then we go down through the list like I just went through. We want to keep them costs static 'cause that's 35% we're saying to run it, right? If that 35% starts creeping up, or $35, 35%, same thing, like you said, what happens to that bottom number? It starts going down. So the 35 starts going up, the 25 starts going down. So that's something people need to realize.

28:55The thing I get as you go through this is like the visual is like if you're not paying attention to these numbers, and again, it, it, there's so many conversations you've had or messages that, that are coming through that people aren't paying attention. And if you're not paying attention and all of a sudden these, these, the health insurance raises, like these different things are, uh, go up and you don't realize it, the insurance bill goes up.

29:17Your office manager Pam really likes those pens and she has petty cash and she's just going out and getting stuff and you have no idea. Because you're not paying attention to it, how quickly you can be in the negative and not even know it because what you did last year to run business made you money. Right. So let's just do this real quick.

29:35Let's just say I have 2 trucks that get 18 miles a gallon and I drive 300 miles a week each truck. So 600 miles. Yep. What were my gas prices 2 months ago? What are my gas prices now? So work this up for me. I have 2 trucks that get 18 miles to the gallon. I spend about— I do 300 miles a week with each truck.

30:10What were the fuel costs in December to run them trucks? Versus today's date with the big fuel increase. How much percentage did fuel go up in the last 3 months? Let's just see what it says. Yeah. Just to kind of show people how you can get dicked real quick. Real quick. All right, it's thinking. It is saying each truck went from I have to take off my glasses for this.

30:47It's the joys of getting old. I was like, why'd you take my glasses? So basically right now it said in December we were spending about $108 a week on fuel, which I think is low maybe. And now we're spending $175 a week. Per truck. Is that per truck? Okay. Fuel alone added $3,500 a year in cost. The big picture fuel is then it was $470 a month.

31:23Now it's $760 a month. It's $300 more a month. It's 63% higher fuel costs. So you start thinking about, you start sprinkling that across your P&L sheet, $300 here, $600 here. It can really get to the point where it starts really hurting you. Um, and think about this. We'll just say, uh, $2 times— so roughly it could cost you $60 more a week just in fuel surcharges from one supplier.

32:03So what if you have 5 suppliers? Also, there's another $300. Okay. Now with the fuel costs alone in the surcharge, there's $600 more a month. You know what I'm saying? So that could add up. Yeah. Okay. Some guys are like, fuck gives a shit about $600 a month. Well, a lot of things can happen. Not that only that $600, you have some of the other stuff that goes up.

32:29Your wages go up. You know, a lot of stuff goes up. Your property taxes go up because you're on a triple net lease, or your rent goes up. Okay. Some of these guys are just barely hanging on or don't even know they're barely hanging on. They can't pay payroll, can't pay their bills. They don't have QuickBooks. They don't even know anything going on.

32:45They don't even know about that $100. They don't— they never take into consideration how much it takes to run a shop. That's the frickin' problem. If you really stop and think about it, like There's two different types of costs of running a shop. There's two different types of, of, uh, costs of running a shop. There's, you know, how much it costs you to actually run the shop and how much it actually costs to run the shop and build profit into it.

33:11You know, some, a lot of them guys don't even know either of them numbers. They couldn't even tell you what it costs a day to run their shop. You got it. You got to think about that. I'm not going to spit my numbers out. I know them very well, but you have to know these numbers. And when I go into these shops, I start breaking these numbers down for people, their eyes get real big.

33:29You know, they're like, yeah, I kind of thought that might be the case. I just didn't know how to come to it. And I always hear the same thing. Well, I'm not a numbers guy. Well, you better fucking learn if you're running a business. And this goes part and parcel with us getting these technicians that become business owners. They're on Chris's fricking thing.

33:47They're like, fuck yeah, I'm a tech. I could run a business. These guys have no clue what it takes to run a business. This is a whole nother set of skills that took me lots and lots of years to figure out. Yep. And a lot of guys just don't have the skill. They don't even know how to price this stuff upfront. Or I tell you what I see happen now.

34:04A lot of the times they're so broke that they under— they mark the parts up, then they keep discounting to try to get the job to the point where they're not making any money. They'd be better off not doing the job because they're so broke. Yep. They're looking at it and going, okay, there's X amount of money in my bank account and I can't pay my payroll this week.

34:23So if I do this job right here, I could put that money right there with this and I would have enough to do payroll. Not understanding that, say they're getting $800 for that job and it costs them $900 to do. They don't give a fuck because they don't even, they just need that money versus stopping and pumping the brakes and saying, okay, my QuickBooks and everything's right.

34:44I'm not making any money. Or I look at my shop management program because they don't have QuickBooks. And I look at my shop management program and it says I'm making 30% on the job. Guys, you cannot stay in business with 30%. I just showed you that. And here comes the guys that say, well, I let people bring their own parts. If they let you— let people bring their own parts, that means you need to double your labor rate to stay in business.

35:05Cause it's almost a 50/50, depending on what kind of work you're doing that particular month. Parts profit, labor profit, labor sales, and gross pretty much are close to the same. And a lot of guys don't take that into consideration. So they keep discounting to get that job. My friend Hal, who was my original boss in the repair business, he owned Hal's Auto Clinic.

35:27He told me, he said, people can smell when you're— when you start fricking automatically making deals right off the rip. Yeah, they fucking know. Absolutely. Now, I'm not saying that you get a guy in there and he's giving him and Hal and he's spending $12,000 and he's like, oh, by the way, I forgot to tell you, I need wiper blades. That's a big difference.

35:45You're going, I'll throw the fucking wiper blades on. When you got that job up there, a job that big would be in the 40% margin, right? You could afford to put a $25 set of wiper blades on, throw them to them. I'm not saying that. What I'm saying to you is you did the book time on the brake job. You marked your parts up right.

36:01You look at your job and you're like, you're right where you should be, which is usually a little bit higher on brake type of work. And then a guy goes, well, I could do it, go down the street and they'll do it for this. In my friend's garage. And you look at it and go, I could do it for that. And you just took, you know, all your profit and threw it right out the window to match the guy, to keep your guy busy in the back.

36:18When in turn you would've been better off paying your guy to sit on a bucket. 'Cause how can you sell a job for $200 when it costs you $300 to do it? That means you lost $100. Yep. And a lot of these guys don't even know that. And I think one, one of the most enlightening things, we went to this, um, years and years ago.

36:38I remember the guy's name is Ned Tamarchio. It was a Snap-on Financial, um, Motorvacs type of thing. And he was talking about how he wasn't billing his stuff right. And he would go and swipe his credit card every week for his payroll and go, man, I only have 2 more weeks worth of payroll. I don't know what to do. And how he met a business coach and the business coach said, what are you doing?

37:00You're like underbilling or under— uh, estimating everything you're doing to the point where you're losing freaking thousands of dollars a month. And he thought he was doing it right. And he basically put an alternator up on the thing and said, okay, this alternator is $50. We're going to double the price. That means we made 100% profit, right? Wrong. You made 50% profit because the alternator cost you $50.

37:23A lot of guys don't realize that. They say, okay, I'm just going to double this. That means I'm making 100%. No, no, you had 50% of the alternator cost you. Yep. They don't even think about that, right? And then they say, well, you know, the book time's 0.2 hours or 0.5 hours or whatever. My guy could do it for 2/10. So they lower that down.

37:44And then you say, okay, my guy's wage, I'll load it in there. And what I made on this alternator, and I do all the math. Wow, I made $12 or I lost $12. That's why these shop management programs are so important nowadays to have a good cost calculator to get you to the number you need to be. And I cannot say that enough.

38:03If you're not building on the front end, you're not teaching your people, you have to hit this number, okay? Or you're not going to make the freaking— we're not going to make any money, we're not going to stay in business. I just literally had breakfast with a guy this morning that told me that they had a fixed ops meeting and people get yelled at for not selling flushes and not selling some of this extra stuff or not doing selling enough alignments and all this.

38:34Get yelled at. Well, we've been slow. I don't give a fuck. So who do I sell this to? If I have 10 cars, that means you want me to sell 10 alignments? That's exactly what I fucking want. I don't give a fuck about them. I want the money. I'm the private equity group. I have a set of numbers to hit. So do you.

38:51I don't care how you achieve the numbers as long as I get the numbers. Pumped up to me. It's like the mob. Yeah, it's like you're going, you know, you're going to go and squeeze Mr. Scarpacci who just sells salami. You know, instead of 4 now, bitch, it's 8. Well, I don't even have nobody buying this salami. You better start fucking buying it.

39:08Don't care. I want 8. I want 8 instead of 4. Nobody coming into the store anymore. Don't care. Doesn't matter. You want your fucking legs broke? Yeah. Hey, that's literally how it's going nowadays. And they're turning good people into fucking crooks because of greed. Yeah, it blows my mind. So if you guys top your sheet, we're at $100 bill, we take $40 of that, we throw it out the window.

39:38That's what it costs us to do the job. That's our gross, right? Comes with our gross profit. Yep. Now we start the deductions. Remember, 35% we're going to aim for. As long as that 35% doesn't start creeping up, guys, that 25% doesn't start going down. Watch your costs. Watch your costs. Don't just willy-nilly have the marketing guy come in there and say, you need to do this.

40:04Oh, fuck yes, I do. More 3 weeks out. Don't waste your money. When the Little League comes in and says, will you sponsor baseball teams? Have a budget. Because you sure don't want to do 5 or 6 teams so you look cool in your hometown when you're fucking out of business. Yeah, he is. See, he, uh, that guy was a really nice guy.

40:22He sponsored 5 teams times last year or 5 teams last year. Now he's out of business. He's out of business. Yep. Okay. And if you are an hourly or salary guy, remember you have less room to screw up on your numbers. Your numbers have to be dialed in. The only way, if you're not making enough money, there's only one thing you can do.

40:43Freaking raise your prices because you got— or either get your guys to produce more. That's where the reactive— what would I call— variable comes in handy where these guys are making more and more money. So you're kind of— one last thing I think we should talk about is these guys. Okay, two things we talked about. So with the variable, who's taking the risk?

41:09You're splitting the risk between the owner and the employee, right? It's a risk game. Risk reward, big risk, big reward, right? Meaning you're getting paid X amount of hours. If I do a good job over here as the marketing, the bringing the customers in, the sell-through, the good service advisor training and stuff like that, I'm going to keep you busy. Now, gotta remember something.

41:32We're busy, everything's great. But when we get slow, You're going to take some of the risk too. Sorry. Okay. I did that model for a lot of years. Um, and it just became to the point where the outside problems are just caused too many. So I moved back to hourly. With hourly, the business owner's taking all the risk. Okay. So remember that guys, when he's getting his $200 an hour labor rate and you're making $40 an hour and you're saying he's killing it, that's a gross number.

42:00Gross. Hope everybody knows the difference between gross and net now. Okay. Your gross is what you're billing, what you, when you go ahead and estimate everything, your net is when you take all your costs out of it to run your business. That's what you end up. That's what sticks in the bottom of your bank account. I guess they say net. So you take a net and you catch it, right?

42:18Make sure the holes aren't too big. Make sure the holes aren't too big. Right. You know, cause what do they say? A bunch of little holes can sink a ship just as fast as a bunch of one big hole. Yep. In closing, let's repeat it. Net is what you get to take home. And when people tell you, oh, I did $3 million in your shop last year, that's great.

42:37That is your gross sales. The problem was your costs were $3.1 million. You lost $100,000. And a lot of that happens, guys. When I bought my shop from Steve, I was not running it for the first 3 years I owned it. I could take losses off of my taxes because 3 years prior to me owning it, It lost money. I was not in charge of the money.

42:58It lost money for 3 years. So me coming in for 3 years, owning the company, I'm taking these tax, taking these losses and taxes. I'm not paying taxes. Like this fucking business shit's easy. I'm making killer money. Then I ran out of fricking losses. Now I'm profitable. Holy fucking shit. Yeah. Not, not so much. Not so much. I paid taxes. You know what I'm saying?

43:19So, you know, so I hope everybody enjoyed it. And you know, if you have any questions, hit me up. I'm sure I made some mistakes somewhere. Somebody's going to fucking cruise crucify me on this, but this is for the guys who need help with their P&L. So I'm telling you right now, guys, you got to get QuickBooks. You got to get a good shop management program or you're going nowhere fast.

43:38The fastest you're— if you do not do this, you're just going out of business. That's just all there is to it. It's just not when, it's not if, it's when you go out of business, plain and simple. I've seen it and I'm seeing it now, guys. Like, you guys without QuickBooks, you better get fucking QuickBooks. You better get a bookkeeper.. 'Cause if you don't know what you're taking home, you're wasting your time.

43:57A lot of sleepless nights. All right. Have a good night. All right. That's gonna do it for this episode of Repair Shop Reckoning. If this helped you, please make sure to subscribe so you don't miss what's coming next. We drop real conversations, real systems, and real solutions every week. We'll see you back here next time on Repair Shop Reckoning.