Cutting Expenses without Impacting Quality

Every dollar of expenses reduces your Net Profit by the same amount. Conversely, every dollar of expenses that is reduced increases Net Profits by the same amount. Are you struggling to be profitable? Increase profit by reducing expenses. How can I reduce my expenses without sacrificing quality of service to my customers? Let’s dig into that question and see what can be done.

Recurring Bills

Each of us have recurring bills that we simply pay out of ‘habit’ each month. I’m talking about bills from you YMS Provider, a third-party software solution, a utility bill, and lease payment, and rental agreement, etc - you get the idea. There are certain bills that get paid each month without reviewing them - simply because of who they are from. It’s time to review these bills. Look for increased fees or increased rates that you did not agree to. Pull out the same bill from 12 months ago - is this year’s bill higher? Did you authorize them to charge you a higher rate? Spend the time, make a call, and ask them to remove any increases that you did not authorize. A single phone call that may result in a $100 reduction in a recurring monthly bill is a $1,200 savings per year. If you only account for one year, that call may be worth $7,200/hour (10-minute call that is worth $1,200). You have the time to make $7,200 per hour - Do It. Make the call, save the money, add to your bottom line.

Leeches

In a similar light, we have bills that we pay that are fair for what service is being provided, but a better service exists that is cheaper - and you are unaware of it. This is a little more challenging to identify. You almost need ideas from others to find these types of savings. I was helping a facility the other day and the owner asked me about a monthly bill from a local third-party for Google administration that was roughly $700 / month. The company was not doing anything for them that they could not have done by themselves after ‘claiming’ their business on Google and adjusting their business settings. However, they had been paying this bill for 10 years. Do you have a bill like this? $700 is another car that you could have bought - each month - for 10 years. At a conservative 50% Cost of Goods over a 10-year period, with reinvestment at break-even, that $700 could have increased their Gross Sales over that 10-year period by $333,200 and increase their Gross Profits in that same period by $165,900 while reducing their expenses by $84,000, if it had been invested in additional cars. By shifting a $700 monthly expense to car-buying money, they could have seen an increase in their total net profit of $250K over the 10 years - That’s a $25K in increased net profit per year by shifting a $700 expense to car-buying. The numbers are staggering - spend the time now to find these ‘leeches’ that are sucking the profit out of your business.

There are several areas where these leeches may exist. Look for service-providers that you are paying. What is the return-on-investment for the service provider? In the example above, the service-provider was not adding sales for the yard - it was easy to make the decision to stop that service and divert those funds to car-buying. In other cases, it may not be quite as easy. You may have to do some research to determine the ROI for the provided service. If your ROI is higher for car-buying compared to what it is from your service-provider, then discontinue that service.

Automation

Labor is the highest expense that we have. Start looking for ways to reduce labor by streamlining your operation (running more efficiently) or by automating some processes that require a lot of labor. I recently learned of an operation that has three full-time employees to handle PartsTrader requests. These employees are dedicated to simply responding to the requests that come in through PartsTrader - they are not answering inbound calls - simply focussed on their computers. This particular company was unaware of the existing software tools that can fully-automate the PartsTrader process for yards. By automating this process, the company could easily reduce the PartsTrader-dedicated labor by ⅔ - eliminating 2 of the 3 people that are handling PartsTrader requests. Assuming a salary of $50k / year for each employee, the company could save $100k per year on labor while increasing their third-party software expenses by roughly $3,600. Again, this is a simple decision - but it was happening. Are you doing something like this? Can you automate a process and eliminate an employee? Do you have duplicate processes that could be simplified?

Conclusion

Many of us are too busy working within our operations to have time to step back and evaluate why we do some of the things that we do. However, that time could be much more valuable than the value that you are adding by inventorying a car, pricing parts, or buying a car. Take some time and review your expenses, processes, and policies - looking for ways to run more efficiently. Find a mentor and share ideas - each of you will gain insight from the effort. As iron sharpens iron, one man sharpens another man.

Chad Counselman

Chad@WiseCounselGroup.com