Learning from my Many Mistakes

As I state in many of the articles, blogs, and classes I write and teach, I have learned most of my lessons in life and in business from making mistakes and comparing those experiences to better ways. I have probably made every mistake you could think of when it comes to employee relations and compensation.

For example, back in the ‘70’s I had a crew of 12 full-time and part-time employees in my 3-bay Texaco station. At the end of one of those years my bookkeeper sent out 102 W-2’s. It would be difficult to cover all of the ways in which I had a poor grasp of how to hire, lead and compensate team members here in one blog, so let me focus on what works and why relative to incentive pay.

Better Employees Start with Better Pay Plans

In a recent blog I detailed the principles of Hiring and Retaining Quality People. Making the transition to better, more capable employees changed my business and my life forever! But this change could not have been sustained without applying true incentives and compensation plans that worked!

I suspect some of you are still resisting this idea.

Why?

Could these be some of the reasons? Maybe it’s that…

• You have been taught by someone that incentive pay plans cause too many problems.
• You tried it and it failed.
• You have concerns that your measurement systems are not accurate enough to sustain this type of plan.
• You might believe plans like this can become a source of misunderstanding because they are complicated.
• You think incentive pay plans are too much work.
• You’re not sure what to put incentives on for each type of position.
• Certain employees have resisted or even threatened to quit if you take them off salary or hourly (and isn’t it always the case that these are the same employees who don’t follow the rules or who “own you” in other ways?).
• You’re afraid you’d have to pay your people too much.
• As a shop owner who is or was a tech, you’re afraid your techs won’t make enough to pay their bills.
• You feel like an incentive pay plan will create motivation for your employees to over-sell.

The list could go on, I’m sure.  There’s always reasons not to do something, so let’s change focus…

Why should you install the right incentive pay plan in your shop?

• Producers thrive on incentives. High-quality, responsible employees thrive not just on motivations like incentive pay, but also on other incentives, like: the chance to be heard and have a say; the possibility for training and advancement; recognition by management, peers and customers; and even the opportunity to fit in with the rest of the team. In other words, they want an opportunity to grow in every way using a clear career path set forth by company leadership.
• High-quality people want to excel. They love competition and want to know if they are winning or losing the game each day. Keeping score and having targets are important to them.
• Incentives create team enthusiasm. There is no better way to promote team enthusiasm than through team incentives.
• Incentives sustain high production. Unless your team is on a good incentive program you cannot sustain high production over time. Without incentive, your team simply will not go the extra mile when you need them to do so like on big days or during the summer months.

In other words, using incentive pay plans in your shop can make a huge difference when it comes to hiring and retaining quality employees, and for growing your shop all year long.  But an incentive pay plan isn’t without its pitfalls.

Here’s what to watch out for…

• Don’t make the plan too complicated. Each employee should have a very good understanding of where they stand each day and exactly where they stand each week. You must have simple daily reporting that allows them to know this within a couple of minutes of review.
• Only incent people on what they can control. Don’t pay them on things they cannot control or on things you have not given them full authority to manage.
• Don’t set targets (bonus trigger points) that are too low. Doing this turns incentives into entitlements.  If it’s just part of their “regular wages,” an incentive pay plan will have little impact on their behavior or motivation.
• Don’t set targets that are too high (unrealistic or unattainable). This creates discouragement and resentment, which is exactly the opposite of what you want!

As with every other system in your shop, you must measure to see if you are getting the improvement and the results you want. There are many voices out there telling you “what to do” and “what not to do,” and it can get pretty confusing at times. Doubly so because the advice offered by “experts” often has some validity to it.  What it comes down to is this: if the expert you’re taking advice from does not teach simple ways to measure results or offer real life solutions for fixing things that aren’t working (in this case, your pay plan), then it doesn’t matter how valid their theory seems.  In the end, it’s just a theory that doesn’t work, and your sincere effort to follow it won’t ever make it work.

I have seen many, many pay plans that didn’t work. Some of them backfired and became disincentives, others were so weak or confusing there was no motivation to work. To develop exactly the right pay plan for every position in the shop is an involved, delicate and even dangerous proposition. If any piece of raw data is not considered correctly or is left out, it will cost you money and production, and can wreak havoc with your team.

On the other hand, in my years of trial and error, I’ve developed a handful of pay plans that do work well, and have continued to work well over several decades. I am still proving and improving them in my shop and in dozens of client shops today.  In other words, it is well worth the time, effort, trial and error you spend working on a pay plan that works for you.

One Final Word of Caution

You must develop incentives and incentive pay plans for your entire team and install them together (or at least within days of each other). Otherwise, the different positions or departments may work against each other. This will create production bottlenecks and chaos, and will kill morale. Be careful not to install personal production incentives that create too much competition between each tech or between service advisors. You must also install checks and balances to insure integrity and honesty in every job position so that over-selling does not occur and is not rewarded.

I could go on and on, covering topics like when to and when not to install minimum guarantees and how long they should remain in place; or how to address the timing and method of resetting targets as your business grows over the years; or how to keep your total payroll cost in correct proportion to total sales as monthly sales fluctuate or as they grow over time.  But really, there isn’t enough space here to detail everything you must consider.

You Can Do It!

Let me leave you with a word of encouragement: I can tell you from years of experience that these and dozens of other “unseen” hazards or disincentives can be avoided so that your pay structure protects you, your profits, the business and your employees.  If done correctly, an incentive pay plan can transform your shop, grow your profits, build an incredible team, and change the way your do business!  It’s an exciting thing, once your hard work creating an incentive pay plan starts to pay you back!

As I’ve said, there’s not enough space in this or dozens of blogs to write about everything there is to know about incentive pay plans.  If you want to know more about what I’ve learned about creating good incentive pay plans, leave me a comment below or drop me an email over on the contact page!

OK…you’re still here and so am I! 2008 and 2009 are now behind us. Are you in better financial shape than you were in 2006-2007? Or just treading water? Or are you slowly sinking?

I am no renowned economist, just a business owner and turn around specialist who has been making payroll, paying bills and living within my means for over 35 years. I’ve survived six recessions, and I’ve seen this scenario play out time and time again. Can your business take what is coming? Can you take it?

You’ve heard the news reports about the deficit, maybe even heard that Congress recently voted to allow themselves to go even deeper into debt. This isn’t the first time that Congress has done this, and certainly won’t be the last, but this has always had consequences. We’ve never been this deep in debt, however, and never faced consequences so grave.

The consequences that a steeply growing Federal debt brings include (but are by no means limited to): higher taxes, less available credit for loans, higher interest rates, devaluation of the US dollar and increased inflation (perhaps the most relentless tax of all). Left unaddressed all these will increase your cost of doing business and lower your take home pay. When it’s all said and done, the times we’re living in make it almost impossible to imagine that small business will survive.

So, what will you do?

What Will You Do?  Your Three Choices

• Give up now. Try to sell your business for enough to cover part of your debts, and get a job that pays your bills (if you can find one).
• Keep doing what you’ve been doing. Hold off making a choice for as long as possible.
• ATTACK! Do what we’re doing in our shop and beat this recession!

What do I mean?  I mean we’re going to…

• Continue to improve our internals (by that, I mean execution of shop systems, customer service, product and service value, and production and profit numbers)
• Dominate our market and drive the kind of new, quality and value focused customers we want into our shop
• As we improve #1 above, we will retain a higher percentage of our customers and beat the attrition game!

We have no other acceptable choice! The business environment dictates that we must follow those 3 keys! These keys brought big time growth and profits for my shop in 2008 and 2009 despite it being the worst recession I have ever experienced. I expect more of the same as we continue to apply and fine tune those keys!

Ready to Fight?

Recovering from the crippling debt we’re seeing on the Federal level (and even in some States!) can’t be fixed overnight.  Things won’t get better quickly.  This isn’t a game for the faint of heart. You have probably tried to make some changes with moderate to little success. I experienced the same thing for the first 25 years of my career as a shop owner. People say change is hard – for many it is impossible without the right kind of help!

If you’re not ready to give up, if you’re not willing to let your business die a slow death, then let me show you how to find some real answers…

• Do your homework. As hard as it is to study, you must commit to as least ½ hour per day on your business.
• Read our blogs (Click here to visit David’s blog, and click here to see the other entries in my blog)
• Review industry web sites for “How To” content – ours and others (click here to visit our shop’s website | click here to open the Auto Profit Masters homepage | click here to visit the Automated Marketing Group’s website)
• Access training material (like our podcasts, classes, CDs, DVDs, laser coaching, etc.
• Compare what you learn with what others in our industry are teaching.
• Compare credentials and shop ownership and management track records.
• Pick your horse. Pick someone to help you who knows today’s business environment and who knows first hand what you are up against.
• Follow their example. Don’t dilute your chances for success by dabbling in several different programs from many different trainers. Pick one that is comprehensive and that works in today’s economy. Pick one that’s right for you!
• Don’t let your ego get in the way of asking for help. No single person in business today has all the answers. That means you don’t either. It is not a sin to admit that. It takes a team with diversified background and experience, made up of individuals who have had their teeth kicked in several times by business, who know the dangers and pitfalls, who have risen above adversity and failure to help you avoid those same types of failures and learn their pattern of success.

What’s the Secret?

There is nothing secret about this stuff. After you have done your homework you will know what to do to prepare your business for the coming torrent of consequences the US economy is facing.

However, knowing what to do and actually doing it are two different things.  If you need the right system or greater discipline to turn knowledge into results, we will be happy to help you. How do we know our stuff works? Because we use it in our proving ground – our own successful shop and in dozens of clients’ shops every day!

Good luck with your studies. Let us know how we can help in the comments section below or via our contact page!

The Numbers Don’t Lie

Growing or shrinking profits and cash flow in your shop don’t lie. They are growing because you are doing enough of the things you can control right, or they are dropping like a rock because you aren’t. There should be no mystery in this. It’s science based on finite, predictable principles.

Formula for Success

I first became a certified master tech in 1974. That same year I bought my first shop. Prior to this in automotive school I discovered three of the most important things I have ever learned about repairing automobiles and about running a business. The principles are: 1) measurement; 2) comparison to specs; and 3) determining best corrective solution. Good techs know this process and instinctively use it in every repair they perform. When it comes to business the vast majority of owners do not understand or do not master this simple formula for success.

Real Life Examples

Many of us as techs learned to inspect a rod journal on a crankshaft and became aware that we must take several measurements at different points on the journal to understand its size, shape and condition. We immediately realized that this knowledge alone did not reveal all that was needed to determine serviceability or proper repair procedure. Comparing our measurements to the precise specs and tolerances was the only way to do this. Once the comparison was made the proper repair procedure could be selected and employed as indicated.

The same process holds true for diagnosing a bad fuel injector. After following proper procedure and you arrive at the point of testing the wave form of the injector, the pattern is observed. Then it is compared to the known good pattern. The comparative finding then determines the recommended repair or next step in the diagnostic process.

Applying This Process To Managing Your Shop

After running my shop for nearly 40 years and helping hundreds of other shop owners grow their business I am still in awe of the power of this simple process. I have been on a life-long quest to determine the most significant indicators, develop the easiest to operate measurement tools, find the most valid specifications and standards, and identify the best repair solutions. Here is an overview of my top recommendations on how to protect your shop and make it more profitable starting right now this month!

Comparing Apples to Apples

We all know that gross profit is important. It’s what we use to pay our overhead and ourselves. How do you calculate it? What categories should you measure? What percentage should it be to sustain a solid operating profit? How do you fix it if it’s off target?

You must determine how the benchmark or target you plan to use is calculated. For example, if you measure labor gross profit based on a “non-loaded cost” (not adding in other employee benefits) you’d better be sure the target you are trying to hit has been derived using that exact formula in all participating shops in the sample making up the average benchmark. Otherwise you are comparing apples to oranges. You must also use a sample of shops with similar sales mixes, markets and demographics. Comparing your small, general service shop numbers to a high-end European shop is pointless and could be dangerous.

Ease, Accuracy and Consistency of Reporting

The reports you use must be easy to read and analyze. We all have computer programs that produce reports. Which are most important to review regularly? What do they mean? How should you organize them to tell you what you really need to know?

Unless your data is displayed in a way that you can see the big picture and the trends, as well as easily discover a seemingly small bit of data that is a key indicator of a problem, pages of reports can lose their value very quickly. Comprehensive analytical summaries and graphing are the best ways to absorb and understand the data you want to review.

Inaccurate measurement or misunderstood data most times results in a misdiagnosis. And if the measurement process is too difficult to sustain, it’s just a waste of your time and money to even begin and then let it fizzle out.

“The Present” – Having Instantaneous Knowledge

If you don’t know something is wrong today, or what to do about it today, how can you fix it today? Use of “To Date” numbers, “Averages,” and “Projections” are vital to understanding what is wrong – TODAY. The Present: If you think about it, the only time you can physically do anything to fix your business is in this instant called NOW! You can analyze and learn from the past and you can plan for the future. But you can take action only in the present. If you don’t have accurate current data in the present how can you determine or take the best corrective action today? This is the single biggest cause of procrastination to change by shop owners – the lack of reliable, up-to-date information when it is needed most! If we aren’t sure what to do, we do nothing!

What Does It Really Mean?

We have all been confused and maybe overwhelmed at the amount of data we can pull from reporting systems. But, what does it all really mean? You must have a way to instantly see what it will cost you on a monthly basis (at any point during that month) if you allow any profit or production area of the business to slide. I have seen dozens of shops lose thousands of dollars a month from ignoring even the most basic benchmarks due to not understanding what it was really costing them in hard dollars. Looking at some low percentage or number is one thing, but feeling the heat of a stack of $100 bills on fire is another!

Taking and Sustaining The Right Corrective Action

Once you have the most significant accurate data to date and have then compared it to benchmarks personalized to your shop, you can begin to understand where you are burning money and take the best corrective action. The only way to sustain change and improvement is through your team. Knowing “how” to fix something and actually fixing it for good are two different things. I know certified master techs who passed the tests but can’t fix cars – so do you!

If all of your team members are not engaged and genuinely enthusiastic about improving their performance and the profitability of the shop, you must empower them and get buy-in from them to do just that! Empowerment includes:

• teaching the “what,” “why” and “how” of every expectation;
• committing them to those expectations;
• ongoing training including instant access to self-coaching and solution tools;
• daily reporting of performance;
• accountability to return and report their assignments including any variances;
• regular performance reviews, incentives for hitting the targets you want;
• personal coaching as needed;
• and when necessary disciplining or replacing unacceptable employees.

An empowered team will want to sustain change and improvement.

Which Category Are You In?

Where are you in your own growth process as the leader of your business?

1. Don’t know how to fix my business and couldn’t fix it if I did.
2. Know how to fix some things but can’t make them stick.
3. Know how but have only been able to make a few things stick.
4. Know how and get ‘er done everyday!

From my experience with hundreds of shops, less than 1% fall into category 4! What you don’t know and what you don’t make stick can put you out of business!

Most Important Decision

The next decision you make could be the most important one of your business career.  It could determine whether you succeed or go out of business! Do you have the information you need to make it? Consider the following:

1. Am I measuring the right indicators in my business using the right formulas?
2. Do the benchmarks (targets) I am trying to hit match up with my type of shop, my market and my demographics?
3. Does my reporting system give me current, accurate data and easy to understand analytics so I can make adjustments and measure the results? Does it map out trends and projections so my team and I can learn from the past and see into the future?
4. Do we have instantaneous access to solutions and self-coaching tools that provide a step by step roadmap so we know the “what,” “why” and “how” of each needed change?
5. Is my reporting and solution system built on principles that create empowerment, buy-in and accountability within my team so they make solutions and new processes stick?

There are many old ways of doing business that have become so cumbersome it’s impossible for them to work anymore. And recently I have seen some new theories introduced into the auto repair market that are just plain dangerous under most circumstances for most shops. How do you know the right way to go? Who should you follow?

Whomever you choose to access or guide you must have hands-on, current experience in working with shops in similar markets and demographics as your shop is in. They must have extensive experience in the full spectrum of shop management and not just in some specialization or one-faceted area of focus – because they simply will not understand how all the other areas of the business affect each other. And if they don’t have any of their own money in the game, if they don’t currently own a shop and successfully remote manage it you have to wonder if they understand today’s problems and if they are teaching things that are effective in today’s economy and business environment?

It’s up to you to make good decisions and to make them stick. No one can do that for you. And you must quickly and carefully measure the effectiveness of all changes. How will you know if you have done the right things? How will you know if you’ve stopped the bleeding before it’s too late? The numbers don’t lie!