Most aftermarket installation shops have humble beginnings in a personal garage. Then it grows to inhabit a formal location and may scale up or move a couple times. At some point, the desire to complete more work may warrant hiring the first employee. While this may seem like the logical next step, it can spell disaster for the business if the conditions aren’t right.
Growing your performance shop can be an extremely satisfactory experience! It allows you to take on larger builds, generate more revenue, and have more widespread notoriety within the community. But, with this grown can come more complications, more time commitments, and more headaches. It is critical to know when is the right time to take on additional employees.
Your first employee will be your single biggest percentage jump in man hours. If you are working a 40-hour week (probably wishful thinking), an additional full-time employee will double the available billable hours for the business. The reality is that the first month with a new employee will probably be your most inefficient month ever.
This is because your business model is probably not prepared for the extra capacity. You will need to take time from your normal operations to train the employee, you will have to watch what they do, and they will have to learn to work alongside you.
If you are not prepared, this growth step can backfire. Hiring your first employee may become a very costly and frustrating experiment on how not to expand your business.
“Busy” is not a good reason to hire somebody
Many shop owners feel the right time to hire somebody is when they are too busy to get all the work done. This may be the worst reason to hire an employee.
If you are busy by yourself, you will only be busier when you have to manage another technician. More employees usually lead to more customers, calls, visits, invoices, parts orders, emails, messages, and so on.
As a general rule for a 1-man shop, you shouldn’t consider hiring another technician until you are at least 80% efficient. This means that for every 10 hours you spend at the shop, you bring in 8 hours’ worth of labor revenue. In dollar terms, if you charge $100/hour and work a 10-hour day, are you generating $800 worth of labor income each day? If you answer is “no,” you are not ready for another technician.
As mentioned in the preface, your first month with a new employee will probably be your most inefficient month ever. If you are 40% efficient working by yourself, having to manage another person may bring the shop efficiency down by half (to 20% in this case). So, if you bring on another employee while you are already struggling, it will only make things worse.
That’s why we stress getting your efficiency up very high before hiring your first employee. Factoring in all of the people who work at the shop, a service efficiency of 40-50% is a good benchmark. If you are higher than that, chances are the shop is doing well and rather profitable. Any lower than that and you are probably struggling to pay the bills and keep the doors open. If you are curious on how to determine this efficiency number, check out this video.
Notice how this does not factor in income from parts sales. We do this on purpose because the core competency of an installation shop is the installation labor. Parts pricing and margins are pretty much set and you don’t have much ability to change them. For labor income, it is totally in your hands and your efficiency is the perfect measure of your ability to get quality work out quickly.
So, what can you do to prepare yourself and the business for another employee?
Steps to improve efficiency
You accounting system is the life blood of your business. While most people dread opening up their QuickBooks (or other accounting system), it must be well organized and maintained. This means having an excellent list of Tasks and Parts to reference. Our rule of thumb is “If you will ever repeat the install again, make a task for it with a price and description.” We even wrote a separate blog post outlining why this practice is so important.
You should also stay on top of imputing bills and parts orders into your QuickBooks. If you take the time to add in the part information immediately (name, description, part number, price, cost, vendor), it is very easy to create a purchase order or a bill when you need the parts again. Otherwise, you will have to research the info each and every time you install it on a customer’s car. So, pick one morning, evening, or day on the weekend to input all of your bills.
2) Project Management
Obviously, we are going to recommend that you use our My Shop Assist software to manage the projects (cars) at the shop. Doing so allows you to schedule each job, track parts orders, log your time, and communicate the progress to customers.
We developed the system to take place of whiteboards for parts orders, online calendars for scheduling, printed invoices for time sheets, and texting for progress updates. Having all of the information stored in My Shop Assist means that you don't have different bits of data scattered in different areas.
My Shop Assist includes all of the reports necessary to determine if you are at that magical 80% efficiency mark before you hire your first employee.
3) Shop Organization
It is very lucrative to spend some time to reorganize and optimize your shop’s layout. Often times, tools and equipment are just thrown into a space without consideration of their most efficient placement. While lifts can’t be moved easily, there are several steps you can take to improve the layout and flow of your shop.
Racks! Racks everywhere! Hardware stores sell inexpensive and sturdy racks that you can scatter all over the shop to hold parts, organize supplies, and use as work benches. Each lift should have a rack in front or near it to lay out all the parts being removed or installed on a car. You can string up LED lights underneath to illuminate the work space.
When you disassemble a car, divided bolt organizers are an excellent way to keep track of which bolts go where. You can pick them up at your local hardware store for under $15 each and then you can mark the bolts’ location on the lid. No more guessing which 10mm bolt you need for the water pump compared to the one needed for the intake manifold. This will greatly decrease the amount of time required to reassemble pretty much anything!
4) Raise your prices
The simplest way to increase your efficiency is to raise the install price. Here is how it works:
Let’s say your benchmark hourly rate is $100. If it takes you 5 hours to do a clutch install, you should charge at least $500. This will give you a service efficiency of 100%. But, you need to factor in your skillset, knowledge, and the tools needed to do the job quickly. So, you increase your price to $600 for the same service. Your efficiency is now 120% simply by raising the price.
We want shops to charge according to their skillset and knowledge. If you have been around for years and built up a reputation for quality work, you should not be the cheapest option out there. So, don’t be afraid to raise your prices to get paid for your skills.
Change your role
When you hire an employee, your role changes from owner/operator to manager. This is a big shift that many people do not expect. You are now responsible to keep them busy throughout the day and must ensure that they do the work properly. So, you need to prepare yourself mentally for the shift.
This means that you will be spending a greater percentage of your time building estimates/invoices, talking with customers, and ordering parts versus actually working on cars. For some people, they may not like the change. And that’s perfectly OK! There is nothing wrong with having an extremely efficient 1-man shop if that works best for you.
If you are comfortable in the management role, you will find that the business will grow. Your daily goal is to ensure that the employee is as efficient as possible. So, you must schedule enough work each day, ensure they have all the parts needed for the job, and know how to do the installations properly. When the work is complete, you must check over each task to ensure it is done to your standards. With any extra time left over, you can also be working on cars and generating revenue.
The main point of this blog post is to have you concentrate on efficiency, not revenue, as the driving factor for adding employees. If you chase revenue, you may actually take home less money.
Just remember to focus on working on your business, not in your business. This mindset will allow you to build a profitable and enjoyable business!