What Vulnerabilities Can Prevent Shop Business Growth?

with Mike Anderson

This month, we “ASK MIKE” to share his thoughts on the common vulnerabilities that can slow or prevent shop business growth. We at Hammer & Dolly hope you find the following exchange useful, and we encourage you to reach out to us if you have a question for Mike on this or any industry-related matter that he can answer in a future issue.

Hammer & Dolly: Fortunately, the industry weathered the storm of COVID-19 and is now positioned to consider the future. As shops plan for the next five to 10 years, what do you see as some of their major vulnerabilities that may prevent their growth? What should they be doing now to ensure that those vulnerabilities don’t drag them down over time?

Mike Anderson: Too often, shops don’t start looking for new technicians early enough. If you have a tech who’s 57 years old, it’s inevitable that they’re going to retire within the next five or six years. We wait too long to find someone to replace them, because we’re looking at how doing that could affect our bottom line. Shop owners think, ‘If I hire this person, it’s going to cost me money’ or ‘I don’t have enough work to keep everybody busy.’ But the industry needs to be more long term and strategic in its thinking. Yes, you may suffer some bottom-line profit because you’re paying extra people while you’re training them, but if you wait until somebody retires or leaves the industry – which we saw a lot during COVID-19 – now you’re stuck with nobody. 

I always tell people that they need to build their bench. A sports team only goes to the Super Bowl or another major game because they have a strong one. You need to build your bench and upgrade your team constantly. That needs to be top of mind every day. Don’t just focus on the short-term cost – be prepared if someone on the bench gets injured or leaves. You can’t think, ‘This person’s going to retire in a year, so I’ll hire someone then.’ You need to be more of a long-term visionary with that. 

H&D: For years, some shops have viewed partnering with insurance companies as one way to grow their businesses. As shops look toward the next few years, do you see the shop/insurer relationship changing in substantial ways that can make shops more vulnerable than they may imagine at this point?

MA: People had an overabundance of work over the last two years, and some shops have left those DRP arrangements or reduced the number of DRPs they had. But now, a lot of shops are beginning to see their backlogs disappear. People who were once booked out for two months are now booked up for two days or two weeks. I don’t necessarily think they have to go back to being DRPs, but they need to continue to market their businesses. I look at a lot of shops’ financials, and many of them aren’t devoting enough money to getting the word out. Unfortunately, there are shops that don’t spend more than one to two percent of their sales on marketing – if anything at all. You really should spend about four or five percent on it. Market when you’re busy so that you stay busy. That’s the same whether you’re a DRP or a non-DRP. Claims for March of this year were down about nine percent from March of last year. That may not sound like a lot if you do 100 vehicles a month, but it’s still fewer cars at your shop. Marketing needs to be at the forefront of our minds. 

We also need to offer an extraordinary customer experience. Fixing the car properly isn’t enough anymore – you need to wow that customer. 

H&D: ‘Marketing’ means different things to different people. Some people consider marketing to be posting TikTok videos, while other people market their businesses by getting involved in community organizations. Are you seeing certain methods finding greater success than others?

MA: There are several cutting-edge marketing tools that can be used. Some people are doing ‘geofencing,’ which is where a business puts an internet ‘fence’ around specific GPS coordinates, and its ad pops up on a customer’s device when they’re looking for a body shop. Another method is called ‘over-the-top’ marketing. That’s when businesses advertise on streaming services like Netflix or Amazon Prime instead of on traditional cable television channels. 

We need to do things like that, but even hosting an open house for area car clubs is a good way to market your business and let potential customers know who you are before they wreck their vehicles. 

On the flipside, nothing beats providing an excellent customer experience. As work slows down, doing a good job fixing the vehicle isn’t going to be enough – we also need to build trust with that customer. There’s a term called ‘social proof,’ which is when customers have a ‘trust and verify’ mentality. They can verify that they can trust you by reading what other customers have said about you online, or they can find you through an OEM-certified shop locator. Those things provide ‘social proof’ that a third-party source verifies that your shop is a good one. 

Want more? Check out the July 2024 issue of Hammer & Dolly!