Absorption rate – the most powerful tool to take control of your business

In my last post I presented you how to calculate the Dealer and Workshop Absorption rate and why do I follow this figure. Do you remember I mentioned three reasons to follow it:

1. The benchmark is easy to read: 100%.
2. It shows if the Dealer can survive a major crisis and for how long;
3. It gives a good image about the business focus: getting more revenue or lowering costs?

In this post I’ll present in more details my last two reasons because I want you to understand why this KPI calls for action as well as it gives a very good image about the business.
Before I start to dig in, have you measured your Dealer & Workshop Absorption rate for the first five months of 2013? Are you over 100%? If yes, congratulations, you run a healthy and sustainable business! If no, what do you think and feel about your business? You might have a profitable business. Is it easy for you to keep it this way every month?
Now, with the figures in front of you, let’s dive in and see what you can find about your business, more than what you are aware of.
Basically, for the Dealer level, if the After sales gross profit, Workshop and Spare parts, covers all the Dealer costs, then your Absorption rate is over 100% and this means that even though you don’t sell vehicles you can survive and still make profit. How long you can do it? This depends on how much over the 100% level is your Absorption rate or, in other words, it depends on how strong have you built the After sales business.
At the Workshop level, we apply the same philosophy: if the Labour + oils and small consumables gross profit covers all After sales costs, the Absorption rate is over 100% and this means that Workshop operations are independent from spare parts sales. The gross profit on spare parts becomes net profit.
If the value of the KPI is lower than 100% I attributed this to two main causes: pricing and capacity utilisation. In this post I’ll take care about pricing. For capacity utilisation I’ll present you two more KPI’s in the next post.

How do you rate the labour? There is a clear paradox when it comes about the labour rate elasticity: on one hand every customer asks about the labour rate and is sensitive about it, on the other hand this is where you, as a Workshop, can make the difference. In the Workshop there is no other area where you compare oranges with bananas like comparing labour rates. Because everything is related to the end customer costs with maintenance & repairs. It doesn’t matter how much you charge per hour for exchanging a clutch disk, but it does matter how many stops, especially the unplanned ones and how big is the customer’s downtime.  What are you doing to increase the customer’s uptime and to help him to have only planned stops? Of course this is the ideal world, where customers come to the Workshop only with the Maintenance occasions. How close are you to this ideal? I met one Workshop that is over 90%.
The answer to the last question is included in the Workshop Absorption rate, because we added oils and small consumables in the calculus. Which is the only planned customer’s stop? The maintenance! That’s why every Workshop is, in this scenario, aware they should perform as much maintenance as possible and not be cheap with exchanging  o-rings, gaskets, screws etc.
So, if you are below 100% of Absorption rate, I ask you to look on:
-          Labour rate: do you stay with the market or you find a way to promote your quality?
-          Maintenance jobs percentage from the total performed jobs: our customer expects to come to the workshop only for maintaining their vehicles. What is your strategy to fulfil this expectation?
-          Is your spare parts pricing and sales strategy in line with the two above strategies?  

By the next time when I’ll talk about capacity utilisation, leave your comments on what actions do you intend or you already implemented to increase your Absorption rate.

 

Next in the series: 2 proven ways to make profit in your Workshop

 

 

The 3 key performance indicators that tell you how healthy is your automotive business

When I ask a Workshop manager if his business is profitable I received a broad range of answers, from rising the shoulders and spinning globular eyes in a try of saying why do you ”torture” me with this kind of questions to a minimum 20 PowerPoint slides presentation in a try of saying I am in full control of the business.

If I would ask you the same question, what is your answer? Is it easy for you to offer a simple and accurate answer? What if I add another question: How sustainable is your profit?

In this post I’ll introduce the 3 key performance indicators – KPI’s – I follow every time I want to measure Workshop profitability and its sustainability.

It will be a mini series of five posts, this one designed to get you into the topic, by introducing the main KPI and by answering to two questions: why I follow it and how it is calculated. The second post will explain in details how measuring the main KPI help you to keep the full control of the business. The next two posts will show you how you can strengthen a pro-active and continuously improved business by measuring the other two KPI’s in real time. And the last posts will give you the big picture: how do you relate these 3 KPI’s and understand how the business is working.

The main KPI, Absorption rate is a comprehensive one and it can be followed on a monthly basis on two levels: Dealer and Workshop. Even though we are talking only about After sales, I prefer to measure the Absorption rate on both levels.

Why do I follow it?

There are three reasons:

1. The benchmark is easy to read: 100%. If the value is under the benchmark the Dealer and/or the Workshop either are running on loss, either the profit is not sustainable in the long run;
2. It shows if the Dealer can survive a major crisis and for how long;
3. It gives a good image about the business focus: getting more revenue or lowering costs.

How do I calculate it?

 

Where:

-          Gross profit on After sales means the gross profit made on labour, oils, small consumables and spare parts sold on a monthly basis

-          Dealer cost means monthly operating expenses for the whole Dealer: Workshop, Warehouse, Sales, Administration & Support

-          After sales cost means monthly operating expenses for Workshop, Warehouse and its Administration & Support

 All the needed data come from the P&L account and it is very easy to read.

  There is one way to go: make profit in a sustainable way!

 

Next in the series: Absorption rate, the most powerful tool to take control of your business

How do you build up organizational routines?

On my previous post I tried to highlight the importance of engaging Technicians on performing the Maintenance jobs. And I presented you a question list which could help you to map the current situation in your Workshop. I did it because this is the first step of building a success routine: understanding the current one. On his excellent book The Power of Habit: Why We Do What We Do in Life and Business Charles Duhigg talks about habits and how to change them.

Basically a habit has three elements: a cue, the trigger, a routine, the way we act and a reward, the concrete result or the state we achieve by performing the routine. (see Charles Duhigg )

Let’s dig a bit on how the habit loop works on a Maintenance job. In my opinion in a customer centric organization the cue is the customer maintenance planning board, the routine is what all involved people are doing in order to get the vehicle in the Workshop and to return it in a reliable state to the customer and the reward is the customer satisfaction.

How it works in your own Workshop? Who initiates the Maintenance appointment? How well is defined the work to be performed before the vehicle pops in the workshop? How do the reception people work with the warehouse ones? What is the Technician’s main focus: finish the job in the standard time or vehicle reliability until the next maintenance occasion? Does the customer receive all explanations about the performed jobs, including a hard copy of the Maintenance protocol and about the invoice? Is the customer asked about his satisfaction level?

How do you want to be perceived by your customer? What objectives do you have?

What image fits more with your operations?

A way to achieve the wanted destination is to find the answers of the above questions by mapping the maintenance process. The routine can be changed when you understand the cue and the reward.  Next post I’ll present you a case study and ask for your help: what would you do to change the organizational routine? By then I invite you to share your own experiences: on a scale from 1 to 10 where 1 is organization centric and 10 is customer centric, how would you rate the Workshop you are working for?

 

Next in series: The 3 key performance indicators that tell you how healthy is your automotive business

How do you engage yourself in a routine job?

On my previous posts I shared with you my opinion on WHY shall we sell Maintenance to our customers. Now, put yourself into the Technician shoes: HOW will you engage yourself in this kind of a routine job? What kind of professional satisfaction can bring you following a checks sequence and replacing vehicle filters or oils?

In my opinion the answer stays in two factors:

·         How Maintenance goes beyond the current technical skills.

·         Build up the willpower to provide continuous improved quality

 Courtesy to: http://www.vakil.org/tag/purpose/

According to Tony Robbins each human being has 6 psychological needs:

1.    Certainty: my comfort zone where I have everything under control

2.     Variety: the “spice” of my life

3.     Significance: I want to feel unique, special etc.

4.     Connection/Love: it makes me feel less scary

5.     Growth & Contribution:  it makes me feel fulfilled

Have you encounter Technicians who are just focused on the technical details of the Maintenance job? Who are complaining about the boring routine of performing it? And, because of this, they perform it in their own way? Have you found 16 ways of performing Maintenance in a 16 Technicians Workshop? If yes, what did you think about them? Did you start a blaming game or you tried to answer to:

What kind of psychological need they fulfil by behaving like this? How can I break this behaviour and lift the Maintenance to Growth & Contribution needs fulfilment? How can I link this to the customer satisfaction? One solution comes from Tony Robbins: How to get through to others?

I invite you to use this platform to share your comments about it: What do you think and how do you feel reading my series of questions? Is the Maintenance the only routine job where this kind of thinking applies?

 

Next in series: How do you build up organisational routine?

Maintenance: why to sell it - supplier perspective

On my previous post,” Maintenance: why to sell it – customer perspective”, I shared with you my opinion on how to identify the customer needs on a deeper level.  As you saw I just let the topic open by avoiding giving you a selling recipe and by offering you a relevant opening for a question list. My opinion is only behaving like this, being genuinely interested on the customer business you may play a consultant role and offer a customised service solution.  

Today I propose you to debate the answer to the WHY question from the supplier perspective.
Let’s structure the supplier needs on 4 levels:
1.       Customer relationship
Maintenance supposes a frequency based relationship, you meet the customer on a regular basis, at least once/year; do it in a proper way and you will:
·         discover early new purchase needs;
·         give the customer peace of mind, by showing him the current vehicle status and by preventing major breakdowns;
·         strengthen the relationship and your image by supporting the customer to operate his fleet in the most effective way – praise him for the good things he does and offer him optimizations solutions on improvement areas
2.       Employee satisfaction
We have here the biggest barrier to overcome; technicians usually see Maintenance as a low level job; help them understand the impact of their job. When I was school principal I faced the same issue with the cleaning personnel. Until I told them their job is not to make hallways or classrooms shining, but to keep the kids healthy. That was the moment they stopped asking me how to do their job; they knew how to do it because they understood why to do it. Follow my next post for more about how to motivate technicians to perform the Maintenance job.
3.       Business operations
 Maintenance helps you:
·         plan the operations better, because it’s a routine job with clear time & parts reservation
·         sell more services, because you may find additional jobs
·         develop more services, because you identify new needs on an early basis
4.       Cash flow:
Being a frequency based relationship Maintenance helps you control the cash in either by pre-planning the jobs, either by signing Maintenance contracts.
What else would you add in order to be able to offer the best tailored Maintenance program for your customers?

Next post:  Maintenance: how to perform it – lean perspective

 

Maintenance: why to sell it - customer perspective

On my previous post I shared with you my personal opinion on how to sell B2B services. And I took the automotive services as support.

Today I propose you to debate the answer to the WHY question. I take the Maintenance program as the most important After Sales service and I’ll start from the customer perspective. Because everybody knows “it takes two for a tango!” J

Let’s structure the customer needs on 4 levels:

1.       Emotional: what kind of feelings or states do you want the customer to experience while he benefits from your Maintenance program? Is it about the peace of mind given by minimising the risk of breakdowns or fuel consumption? Is it about the joy of fulfilling the contracts and achieving high levels of customer satisfaction? Is it about the excitement of growing opportunities or of leading image in the region and/ or business sector?

2.       Attractiveness: what makes your offer and/ or the Maintenance program shinning into the customer’s eyes? Is it about an unique feature/ benefit you can promise and offer – for Mis-matchers? Is it something the customer is looking for on each offer (i.e. discount, a similar price/km etc.) – for Matchers?  How do you move the customer focus from the price matching filter to the received value matching one? See Tony Robbins: Matchers vs Mis-Matchers

3.       Convenience: how easy is for the customer to benefit from your Maintenance program? What kind of comfort do you offer him? How do you solve his administrative issues relating to fleet management? What about the daily challenges/ stress?

4.       Relevance: how well the Maintenance program fits with the customer operations? How it solves the cash flow issues?

What else would you add in order to build for your customers the best tailored Maintenance program offer?

Next post:  Maintenance: why to sell it – supplier perspective

How to rise up to the challenge of Selling After Sales Services

As I promised on my previous post, Develop your business in a sustainable way, today I want to bring to your attention the way we communicate with our customers. I want to share with you not an academic opinion, but one based on the experiences with the customers and the salespersons during my 5 years corporate training career and based on the recent readings that rose up to a conscious level all these experiences.

I chose After Sales Services Sales as support topic. Why selling After Sales Services is important? Many companies choose to strengthen their brand image through innovative After Sales Services portfolio. For example, Volkswagen’s developed Think Blue mindset, Toyota focuses on safety and mobility responsibility. In the heavy automotive area, Scania is focusing on sustainable transport.

For the end customers, especially on B2B, it may be related to fuel consumption, breakdown or safety risks, repair and maintenance costs, environment friendliness, corporate image in their own communities, the customers’ customer satisfaction. And the list is open.

Communication metaprogram #1 as is defined by Tony Robbins (see: The secret to communicating more effectively metaprogram #1 ) talks about the arguments that make us moving, either towards something –when we want to achieve it, either away from something – when we want to avoid it.

At the first sight it looks like we should play the “carrot & stick” communication game with the customer: dear customer if you want to have a higher uptime and the vehicles running our Maintenance or Repair & Maintenance program will fix this for you – the “carrot” or, dear customer if you want to avoid downtime and the expensive costs of being assisted on breakdowns our after sales services will be your best option – the “stick”. And then of course we may wonder isn’t this something like a “mambo-jambo” words game with a glass in front of us and trying to show to our customer either the filled, either the empty part of it.

And the answer is no, finding the customer’s drivers is the key of our relationship, because it is about the business ethics, too. When we find out what is really important for our customer then we should analyse if we have an offer that helps him achieving what he wants. And if the honest answer is no we will step back from that deal. Afterwards, either we use the reasons for losing the sale as customer segmentation criteria; either we start working with the Offering/Customer matrix. It is our choice. But don’t disappoint your customer by promising something you are not able to deliver. YET! See: Tim Brown's Offering/Customer Matrix

Getting back to the metaprogram #1, the customer answer to our “what keeps you awake during the night related to your business operations” question is “I can’t sleep until I know I am able to pay my people wages”. It seems we have a clear moving towards something case. Then we probe the first answer by asking “how do you know you are able to pay your people wages?” the customer answer is: “when I get my invoices paid in due time and I can sell 10 transports/week”. Again, it seems like a moving towards something case. But just to be sure, we probe again by asking “why invoices and transport selling are your big concerns?” and the customer answer is: “because I have a lot of problems with overdue invoices and my trucks stay a lot of time in my Workshop for repairs that I can hardly make 8 trips/week”.

How do we deal now? The last customer’s answer is a moving away one. He explained us about the problems he faces with on a daily basis. How can we apply the metaprogram #1 and show that we are genuinely interested on supporting our customer?   

The answer stays in finding the right customer’s brain area involved in taking the decision. Our brain developed from the Hunter-gatherer era, but our instincts for survival are there. Our Amygdala is there to filter out any potential threat. And it connects with Emotional Memory just to make sure that we recall every bad experience:”Repairs in the Workshop = Bad = Avoid it!” Which means, in our case, we shall talk to the customer’s Amygdala and explain him how a Maintenance or Repair & Maintenance contract will help him avoiding the trucks downtime & breakdowns.

How do we know when we shall talk to the “antique” brain? The answer to this question is related to the customer’s horizon. If the customer’s horizon is linked to short term goals and is looking like a closed space where he doesn’t have room for manoeuvres we understood the “antique” brain is in command. And our communication program is focusing on it by presenting moving away solutions.

And there are customers who have a horizon linked with long term goals. It looks like an open space where impossible is like a forbidden word (i.e. the customer wants to become the leader on his region, to setup a new business line, to set new standards in his industry etc.). In this case the brain area in command in Pre-Frontal Cortex. And when it connects with Emotional Memory it works like: “High uptime & wheels rolling = Good = Go for it!” For this kind of customers our communication program shall focus on Pre-Frontal Cortex it by presenting moving towards solutions. Our after sales programs help you to become the region leader because your trucks will roll almost 24/7 on the roads.

Now you may see there is a clear difference in customer behaviours & thinking as in the brain area in command as well. Be sure you address the right part of the brain; otherwise you are knocking on a door with no one behind it to open it for you. For more information about how our brain works and support us on achieving our goals I recommend you the Robert K Cooper excellent book, “Get out of your own way” (http://www.cooperstrategic.com/books/get-out-of-your-own-way/ )

Don’t try to find the logic when it comes to talk to the “antique” brain. There are only instincts and gut feelings. I had an example 2 weeks ago. One of my friends received a very good offer for car insurance from a well known company in B2B zone. It seems they want to expand their operations in B2C zone, too. The offer was too good to be true in my friend’s eyes. So, she asked on Facebook for an advice on what to do.  90% of the comments where to go for another company with a well known reputation in B2C zone.  And she took the advice and bought the insurance with the same level of offered services at almost a double price. We know that insurances business is moving away one. If you want to have another good example of why not to try to find the logic, but the deep fear I will recommend you the TED talk of Karen Thompson: What Fear can teach us 

Things are not as easy as it seems; a customer that is moving towards something may had bad experiences in some area and he is moving away from a particular thing. Let me give you an example: suppose you are in a deal of signing a Maintenance contract with a customer who wants to develop a complete new business line in transport services. Everything goes well and all our arguments are from moving towards are until you ask him to guarantee the payments by using checks. At this moment the customer says that if you insist on this issue, by working with checks, the deal will be off. When you search “behind the curtain” you find the he went almost in bankruptcy due to a check operation he didn’t authorise it. What would you do in this case? Are you flexible enough in your way of running the business to overcome this kind of barriers?

Next topic – Maintenance: why to sell it and its importance

Develop your business in a sustainable way

How do you intend to develop your business? Which is the most useful tool you work with?

I found an easy one - Offering/Customer Matrix - these days on Tim Brown, CEO of IDEO, website: http://www.ideo.com/by-ideo/change-by-design?cbd

It is a 4 steps development process:

1.       Manage your current business: find out why your current customers buy your current offer and promote these reasons as your core promise to the market.  Identify your core customers (I prefer to measure it by the amount of money spent for our services/truck/year – because it gives me a good image about our offer’s potential). Then invest your effort on transforming as many current customers as possible into core customers – they represent the low hanging fruit.

2.       Adapt your business: once you got the low hanging fruits think how you can persuade more customers to buy your offer. One of the effective ways is described by Tony Robbins , communication metaprogram #1: moving towards something  or moving away (http://www.linkedin.com/today/post/article/20121204003551-101706366-the-secret-to-communicating-more-effectively-metaprogram-1?trk=mp-author-card).  Address the right side of the customer’s brain – this will be the next topic I’ll address – and promote your offer in the most effective way.

3.       Extend your business:  use your core customers for developing new offerings. It will strengthen your relationship with your most important customers and it will help you to invest your creative resources wisely.

A business is successful when you find the optimum between pushing two pedals: short term results (keeps you in the market) and long term results (gives a clear direction to your employees and creates THE Image on the market). First three steps allow you to survive in the market.  The 4^th one will put your business on the top:

4.       Create new business line: use your creativity resource to the fullest. “Sky is the limit”. Push hard and enlarge your horizon as much as possible.

Where are you or the business your work for now? What do you intend to do?