Steps to improve your bottom line
Editor’s note: The following article is part one of a two-part series on steps auto glass retailers can take to address declining profit margins. Look for the next article in the March/April 2008 issue of AutoGlass.
Shrinking margins are top of mind for many auto glass replacement businesses today. I have no doubt that every company involved in AGR has suffered reduced profitability, and that is most unfortunate. The good news is there are steps you can take to improve your bottom line. First, be objective in your review and assessment of industry conditions. Then, commit to taking positive action. If you do not follow these two steps, nothing good will come of your efforts.
Just a few weeks ago, I was at a seminar where a number of retail glass business owners indulged in name calling, screaming and blaming others for all the problems they face. It was the insurance industry, the networks, the national chains, NAGS, the manufacturers, the wholesalers, net pricing and the guy sitting next to them that had ruined the industry and cost them their profitability. For many retailers, this attitude is all-consuming. They spend all of their energy blaming others, with little to no resolution. While decreased profitability is certainly a legitimate concern, it is not right to put 100 percent of the blame on other industry participants. Choose to see the reality of the situation and focus your attention and energy on taking positive action. Your profitability can and will improve.
Supply and demand
Let’s look at some basic economic principles and apply them to our industry. The law of supply and demand is at the foundation of every business and impacts the sales volume and profitability of all goods and services. If supply exceeds market demand, prices erode. This negative situation tends to compound itself. When the price of a service falls, the supplier must sell more to make the same amount of profit, and employees must accomplish more in shorter periods of time. Consider, for example, the number of jobs today’s technicians must perform compared to years gone by. This
workload often results in comebacks, which in turn raises costs and further erodes profit.
There are two ways to correct this situation: increase demand or decrease supply. To increase demand, we must pull together and embark on a mission to educate and motivate motorists to replace their broken windshields, whether through state inspections or the efforts of individual glass shop owners. Education causes customers to take value-based action.
In most industries, decreasing supply takes care of itself, with non-profitable companies closing or moving on to other business opportunities. This self-correction has largely failed in our industry because of a lack of barriers to entry. It continues to be too easy for people to enter the AGR industry. As soon as one company leaves, three new companies take its place.
These companies often employ people with used pickups, who lack insurance, money, business license or training, and have an a open account with the salvage yard. They are willing to install used glass with butyl for just about any price the insurance companies toss out for consideration and acceptance. This often results in auto glass installations that fail to meet the Auto Glass Replacement Safety Standard; a wrong and intolerable situation.
We must support AGRSS compliance as a minimum requirement for entry to the AGR industry. While I hope that all companies will comply with AGRSS, the reality is that a significant number will choose not to. This further contributes to the supply surplus.
Every company has to spend money to make money, but as the owner of an AGR business, you must be prudent with expenses. Spend your money wisely, confident you will receive a positive return on your investment. Examine your expenses closely to determine the return on investment for every dollar you spend. I recently spoke with an owner of five retail glass locations who told me that he spent $200,000 per year on Yellow Page ads. When I asked how it was working, he said he didn’t know. Since then, he has reduced his ad costs to $17,000 per year and put a plan in place to track how his investment pays off. This is key.
If you’re not sure how to calculate such returns, get help. Good salespeople will provide you proof of the financial benefits associated with using their products or services.