E427 Home Service Expert: Journey of an Automotive Expert with Aaron Stokes

Yep, we sure did. And it is Franklin, Tennessee, not Franklin, Texas. I got to correct that.

Yeah. Hey, you're not telling the pilot where to go. You're just like, "Just get me there." [laughter]

No. Yeah. The event went awesome. We had a great time.

What's that?

Yep.

Almost 2,000.

Oh gosh. Um, I have, I'm roughing it here, 800 service advisors, about 1,800 technicians, 1,200 owners, 1,600 locations, and I think we're tickling 3.6 billion in revenue that we're coaching now.

Yeah, I'll give you kind of the short Reader's Digest, but yeah, I'm eighth grade education, no high school education, never went to college. Went to work full-time. Did remodeling, did construction like a lot of your people do and knew how to work on stuff and found myself buying and flipping cars, doing it in a little barn behind my single-wide trailer. Had recently got married and was there with my wife, you know, having babies and doing the deal and 21 years old when I got started. Eventually got to work in town, got my second location and then got my third location, then got into car sales, then had a car sales manager steal from me, lost over a million dollars that set me way back. Taught me a lot and then people started asking me to help them. I started giving some advice here and there and then before you know it, I had people started asking me more aggressively. So then I shot my first course on a cell phone and I think that first course, it's still out there. So I mean, yeah, that first course made me millions just teaching that. It was crazy and made a lot of other people millions. And then the coaching came and then the systems came and then everything kind of came together and built it into what it is today. I've got multiple businesses on the automotive side. I got the coaching side and then a bunch of other accessory businesses all around that. All in probably, I don't know, 75, 80 million and then 340 employees and contractors now working for me. And then, you know, and I met my... I need to say this part. I met my wife on the internet in 1996. It did not exist back then. I was on CompuServe in a chat room. And so yeah, I met my wife back then. So a lot of weird just, you know, little one-off stories around this that kind of got me to where I am today. But very thankful and, you know, it's God's grace that we haven't burned it down yet. So, yeah, that's the super, super short version. There's a lot more detail to it. But I will say anybody out there who's been stolen from, I know how you feel. That's a special feeling of violation that cannot be described. And I think just about every small business owner, including you and all of us out there, if you don't have your business ran tight, you don't have your financials tight and your systems tight, you are being stolen from. Either a lot or hopefully very, very little, but we are all at some point being stolen from.

Number one, my ability to speak. I'm good on stage. And I think any leader who wants to lead a fast-growing organization needs to be able to speak. Yourself included. You can speak, you know, and if you can't get in front of your team and say, "Look, it really sucks out there, but we're about to go knock that wall down and we are going to overcome. We are going to figure this out. We are going to pull together. We are going to be a team." And loan out confidence at 0% to your team. I don't think that you can grow. I think you have to be able to orate. You have to be an orator. You have to stand up, speak the future as it is as if it is the truth today, right now, like it's happening right now. And I've seen you do it. And every successful business owner I know who's been through hard times has had to master that. So, I think that was the number one thing that drew people to me. As far as systems, 2008, we had the Cash for Clunkers hit. And Cash for Clunkers, you know, while it didn't affect a lot of other people, the automotive industry, it really screwed up because it forced in a down economy all of the new car manufacturers just to boom. For us, it took a massive amount of work off the streets. All these cars got trashed in and or, I'm sorry, traded in and crushed, which made no sense because then the used car market got in trouble because all the poor people had no cars to buy. And then on top of that, all of us had a major downturn in auto repair. It was about a 25% average across the country. Mostly that's pretty conservative. Some guys fell at 10, 15%, some fell at 40, 50%.

When that happened, I had to sit down and come up with formulas. And those formulas that I now teach today, I had heard about gross profit per hour, but I didn't really understand it. And so, for example, like for you and anybody else who's operating out of a truck or van, I know it's not all home service guys. You know, maybe somebody who builds a deck, you know, they're at a job for a week, but if you're doing small jobs and you're driving, I need to know my gross profit per hour, my overhead cost hour, my net hour, and my sales hour. In my overhead cost hour, I've kind of nicknamed that OUCH. O-C. OUCH. Overhead cost hour. I want to know what every hour when I'm in front of a customer cost me. And so that means if I'm driving, if I'm one of your techs, Tommy, between houses, I'm not getting paid, right? You're not getting paid. But when I'm at the house, I'm getting paid. But that overhead that you just paid me to drive the van, drive the truck for 20 minutes to get to Mrs. Jones's house has to be allocated somewhere on the P&L. You know, there's insurance, there's gas, there's wear and tear on the tires. So, that is all pushed onto Mrs. Jones's appointment. So, Mrs. Jones's appointment doesn't just pay me for standing there and working. It also pays me for driving there, right? And pays the girl who's in a booth, who took the call that booked it, etc., etc. So, I need to know that overhead cost hour so I know that my gross profit per hour is always above that at all times. And so what'll happen is a lot in auto repair the term 60% gross profit is kind of the standard. The problem with that is it doesn't account for gross profit per hour. So let's, I'll do an example and try to relate it to maybe HVAC or plumbing or garage doors. So, let's say that a guy shows up, fixes something in an hour in your world, and he has a part, whether it is a garage door motor, a panel, a disposer for a plumber or a compressor, you know, for an HVAC guy or whatever. But they show up and we can't do a compressor. Let's just say maybe it's a board or something, something that doesn't require, you know, evac. They show up and they do the deal and they leave. They're only there an hour. Well, let's say we're paying the tech $30 an hour and let's say that we're charging the customer $100 an hour for just easy math. That's $70 in gross profit dollars on the labor side. But we might dig into it and find out that your overhead alone was 150 bucks. So the 70 bucks of gross profit that came in doesn't get close to covering that. So then we have to look at the parts. What did we sell the customer? Well, if we sold the customer something that we bought for $100 that we resold for $500. Now, that's a lot of markup, but I'm just using it for an example. That's a $400 parts gross profit or materials gross profit. So, what I tell people is what is the gross profit in total? And they go, well, it's 400 bucks. Well, plus the hourly that we paid the technician, that's 70 bucks. So, $470 is my gross profit. And you did that with one hour. And they're like, "Yeah, one hour." I said, "So let's imagine you got a camel walking across the desert. My goal is to load that camel up. He represents one hour with as much crap as I possibly can, parts, materials, because if each technician is a storefront, we have to make sure that we are selling through that technician for every hour he's working." So he gross profited 470 bucks. Our overhead cost was 200. That means our net should have been $270 bucks. So in one hour the company net profited $270.

But let's flip it. If we stop and think about it, the gross profit on that job may have been high, may have been low, but what if it hit the minimum 60% GP, at least in automotive that we shoot for? You might say, "Dude, that was awesome." Well, there's some jobs that'll fool you. For us, if I have a Dodge, you know, diesel roll in, it's a head gasket, or if I have a guy roll in and, you know, he wants to do a rear main seal and it's eight hours of labor and $150 an hour and it's a $30 part, you know, something like that. I'm selling tons of hours, tons of camels, right, that are designed to carry a load with no parts. So, these camels are walking across the desert carrying nothing. So, this technician's working all day carrying nothing. I got a bay right next to it with a technician and he's going to do a job and he's going to go, "Listen, man. This customer, Mrs. Jones, she needs a computer for her Camry. She needs a ECM." And so, this ECM is going to run, you know, 1,400 bucks and we're going to pay $1,000 for it. One hour labor to install and program it. And we're like, "Okay." So, we're only making 400 bucks in gross profit. But if you do the math, if I was to stop and think about it, if I pay $1,000 for something, so a thousand bucks and I divide that by 1,400, I've got a 29% gross profit. That's low. And even with some labor gross profit, it's still low. So, we're all going to ask everybody, would you do this job? Would you do this job? Most will say no. But this is where gross profit in total, if you take P&L math and apply it to this, is lying to you because gross profit by the hour, he just made me 400 bucks. Bought the computer for a thousand, sold for 1,400, made me 400 bucks. And if I paid him one hour and he cost me $30 an hour and I made 70. He made me $470 and he did it in one hour. So, while the gross profit on the job may suck, gross profit, you know, maybe the whole thing with even labor, maybe it's 34%. But gross profit by the hour is amazing. And what I see is most business owners confuse P&L math with repair order math. P&L math is when you lump all of your materials, all of your sublet, all of your labor into those three categories. And then we take all of the revenue that came in and we get to keep the difference. But when it comes to just the actual repair order, each job must stand on its own and you don't treat it with normal gross profit. You actually have to do it by the hour. And when I came in and started doing that, it revolutionized everything. I started telling people, you don't have to hit 60% GP. Guys went and this dude went and wrote a six-page article on me in a entire monthly magazine saying how I had destroyed the auto industry and I was the most harmful thing and broke down all his math of why I was wrong. He didn't understand what I'm telling you now. He didn't have a clue. And so when you really stop and think about it, it doesn't matter if you're a plumber. It doesn't matter if you're an electrician, a garage door repairman, a mechanic, a body shop guy. It doesn't matter. A doctor even. Gross profit by the hour when you're doing the job is the only way you measure profitability.

Gross profit totals are done only in a monthly profit and loss format. That's it. You know, I was on a podcast probably eight years ago and this guy from Australia sent me this form and it was a really outdated one, but he had the yellow book, he had all the pagers, he had like kind of archaic stuff, but he goes, "Look, I figured out this is the most you could get a guy working. If he's driving to the shop to get his truck, he's driving to the job, then you got to figure out his lunch break." And this was very old. It was late 90s the math. And he goes, "To make a profit, you need to charge $400 an hour labor in the home..."

Yeah, that was in the home. Because a lot of people are like that. I see these Facebook groups and these guys that are still working out of their house and they're like, "Well, shoot, if I only paid $70 for the part, like if I paid $30 for a capacitor and I charge 400, I'm making, you know, 370 bucks." But they don't, they never figure out the insurance, the wear and tear on the vehicle, the CRM, that, you know, your wife's working for free, your son's the job guy that you're paying 10 bucks an hour to. And the argument I always had is most companies, they argue that you might be charging too much, but the most they pay is $55,000. They don't have any benefits. And I always say, you screw your employees over to give your customers a good deal, and you're really only making a living. You're not building enterprise value for your business.

So, you have to be able to say yes.

That's the thing. It's a double standard. People don't understand that they are literally holding themselves down and the business is fighting trying to grow without even any marketing. That's the crazy part. And then when they do market and don't increase staff to handle what they are honestly every time shocked by, which is customers calling like, holy crap, the marketing actually worked, because they don't have any more staff. They have to tell everybody no. It's just another tax in the business and it just makes him more broke.

We share the profit and loss with the managers and then the managers explain it to the staff.

They always believe that. But you know, to your grass is greener comment, dude, people don't understand grass is only greener where they water it and astroturf exists. And people will claim the grass is greener and they get there and they realize it's astroturf and it's not what they thought. What we have to make sure that our team members understand is that we are giving them our all to create an amazing workplace. And when they do go over there and then they come back for you, Tommy, you want that guy telling everybody, "This is the best. This is the best. I've been somewhere else. I've come back. I know." And I will tell everybody out there, it's going to happen. You can't stop it. People are going to leave. They're going to come back. You can't stop it. However, you can do the best job you can be in the best workplace you possibly can. So, if they do leave, they desperately want to come back. And be mature. Don't give them attitude when they walk out. Don't say a bunch of crap. You treat them with respect because at the end of the day, you do hope they return. You do hope that that ends up working out. I've had some very, very bad experiences with people that have left and I've had some great ones. I'm sure you as well.

Yeah, I get that every day, five times a day.

We got a lot this weekend. So, here's the deal. I'll give you an example. Let's just use garage doors. So, let's say you're coaching me and I'm saying to you, "Man, you don't know the Nashville market. You don't know Tennessee." And you go, "Aaron, it's working in Phoenix and I heard Nashville's got money." I go, "Oh, you don't know. It's different. It's different." And so, I'm giving you this BS excuse, right? And what's the excuse for? It's I'm a victim ultimately. You know, I'm probably a crappy boss and everything else, but whatever. [laughter] So, I'm giving you this excuse. And you can tell anybody who's personally developed, by the way, when you're coaching or giving advice to another operator, you can tell the type of person they are as a boss. Like, you can talk to them and go, "This guy's not very sharp. This girl is not on it. They need some personal development. They don't know people." And so, I can tell that a lot of times or I might say they are developed, but they've lied to themselves. And I'm saying this to myself in my head, and I look them right in the eye, and I go, "The principles do not change, but the details do." They go, "What?" I go, "The principles do not change, but the details do." And so, let's think about it for a second. Let's say that garage doors are more expensive there than they are here. And it's because, let's just say your labor is more expensive. Well, then you might look at me and go, "Aaron, you're going to buy the same, you know, Clopay door from so-and-so and you're going to pay the same price I'm going to pay." Now, ignoring the fact that you might get volume discounts. Let's just say two similar sized operators. And so, okay, I'll pay the same price. However, Aaron, and you're also... I'm going to run Ford trucks. You're going to run Ford trucks. Okay. But you're, you know, maybe in Phoenix the median income is higher and I got to pay my tech more, but it also means I get to charge more and so it's working out. And then in Tennessee, my tech, you know, you're paying $40 an hour. I'm paying $30 an hour. And you might look at me and go, "Aaron, holy crap, you're getting an extra 10 bucks an hour. You're going to leverage that." And I go, "Oh, there's no way my customers won't pay it. There's no way." Well, let's stop and think for a second. Let's go to the home office of these two garage places. Your home office in your garage place, let's say my market is just awful and your market is great. You might be paying 20,000 a month for your warehouse with all your equipment, all your stuff. And mine, I'm out in the country. It's a poor market. Let's pretend it's not even Nashville. And I'm paying 3,000 a month. And I got twice the space you do because it's dirt cheap. You're paying $40 an hour for an operator to answer the phone and be really slick and sell appointments. And I'm paying $15 an hour. We can just keep going down the list. My insurance is less. Everything's less. So technically, you could run a higher gross profit and I could run a lower gross profit, but your bills are more. And so you might say, "I want to clear my 20% net." And you clear your 20% net after you pay all your stuff. And for me, let's say that I'm not able to get as high gross profit. Let's say you're getting a 50% gross profit. I'm only getting a 45. But if you're getting a 50 and your overhead's 30% of your revenue, what if my overhead's only 25% of my revenue? If I'm only getting a 45% GP and my overhead's only at 25% of my overhead, then I can step back and go, wait a second. So, if I'm doing 100 grand a month, if I gross profit at only 45,000, Tommy gross profit 50 at 45,000, if my overhead was only 25,000, I still made $20,000. Tommy had 50,000 of gross profit. His overhead was higher. He had 30,000 of overhead. He still net profited $20,000. So, holy crap, the principles are the same.

And so, I get frustrated with people like AdWords in your industry and my industry, they work in cities, they don't work in a small town. Direct mail though kills it in the suburbs, kills it in the country, does not work well in a downtown market. And we can go down radio, we can go down TV, we can talk about billboards, we can literally go down all this stuff. So what does it all come down to? The principles do not change. It's just the little minor details. And what happens is you're talking to some guy, he's trying to not just throw the details out, he's trying to throw the principles out the window. And you can't throw the principles out the window. Sales is sales, marketing is marketing, finance is finance. Understanding how an organization comes together to get the appointment, to get the guy there to be organized. That's all the same. Doesn't cost any different. In fact, in some markets, people need to understand that while they may have more expensive rent, they might be getting their materials cheaper because there's a warehouse in their town or some dude out in the country is having to pay shipping to get his materials. And that's the thing a lot of people I think miss. The principles don't change. It's just the little minor details and they keep throwing the principle out the window and it's honestly, it's not right. They're throwing the baby out with the bathwater and they need to slow down and pace themselves and just look at the little things to go, okay, you're right, Tommy. It's only this little thing that's different. The rest of it pretty much is all the same. I need to take your advice and do what you said.

Scripts are for people who cannot sell. People who can sell, scripts are guidelines. That's my first. But everybody who can or cannot sell must know the script. Second, curb selling. Number one, if I can't get that car over the curb and if you guys can't get your van over the curb into their driveway, we don't have anything either.

One of us. So, we got to sell the appointment first. So, that means we say yes. If a customer calls one of my shops and they said, 'Hey, man. How long for an oil change? Like to get over there right now with my wife's car.' And I turn around and my shop's blown out. I mean, I got cars under cars on the lift, cars in the parking lot on jack stands, cars everywhere. I tell my clients, 'Listen, listen, Tommy, it's just one more car. If you tell Mrs. Jones no right now, she's going to go down to so and so, some national franchise, have them change her oil, and then she'll never come to you again.' It's about not just collecting, but keeping customers.

So, we tell her, 'Yes, absolutely. Is now a good time?' So, if you called me up and you said, 'Um, uh, hey, Aaron, I'm going to bring my dad's Chevy 1500 by. How much is it for a set of brakes?' Absolutely, sir. What makes you think you need a set of brakes? And you go, 'Well, you know, it's squealing when it slows down from what my dad's telling me.' Okay. Not a problem. I can absolutely give you a free written estimate at no cost to you. Is now a good time? Is now a good time? Is now a good time? He goes, 'Well, you know, can you just give me a price? I'd just love to get a price over the phone. Find out what I can do. You know, I got to tell my dad. I'm just helping him out.' Blah blah blah. Hey, totally. Totally understand. I need to have that checked out by one of my ASE certified technicians. Is now a good time? I'm always now, now, sense of urgency. Now, I'm in a hurry. Now, now, how can I take your pain away? I strike while the iron's hot. The check engine light's on now. The squeaking's on now. They're about to leave town now. It's about now. Now, now. And that customer then is like, 'No, man, I really, I need that price. You know, is there any way you can give me that price before I come by?' Absolutely. Absolutely. At no cost to you. I'll give you that price. Is now a good time? And so, I keep repeating this and then if he gets frustrated, I say, 'Listen, Mr. Customer, wouldn't you rather compare two opinions versus two prices?'

And he's like, 'Well, what do you mean?' Well, if so and so has told you it's this much and I tell you it's this much, you're just comparing prices. But what if it doesn't need brakes at all? The opinion is actually what matters more than the price.

When you show up at my shop, my shop's blown out because we are an honest, ethical shop. There's so many cars you're barely going to be able to get to my parking lot. The quality of my business is evident when you get here. I will take care of you, Mr. Customer, and I will be honest with you because I don't need your money, and you're going to know that when you get here. And so there's a whole approach to if they're trying to get you to meet somebody else's pricing, etc. Like if somebody's calling an HVAC guy and they're trying to get them to match a price on an evaporator coil or something, you don't want to get in that game. There's four ways to look at this. They're either calling you while the tech is at their house, right? And if you match that price or you give them a price, they're going to get that tech to just match the price and get the job. Or you're going to tell them the price and you're going to be higher and you're going to confirm they should go with that guy. And so then now you're the expensive guy. They're never going to call you again. Or you tell them that, hey, I can absolutely beat that price. You give them a price and then they show up and they look around and, uh, I'm sorry, they show up. You show up because I'm thinking about auto repair. So, in the service industry, you show up, you get there, you look at it, and you go, 'Holy crap, this thing's totally misdiagnosed.' You tell them what's really wrong, and it's four times as much. Now, they're mad at you because it was all based on the other price. They want you to now match what you said on the phone to that lower price. And then the last possible thing out of the four is that you were right. The other diagnosis was accurate. It was just an evaporator coil. Your price was cheaper. You showed up. You got the job. You fixed it. So if you get into that game on the phone, 75%, so three out of four times you are not going to win and get that customer. Only one out of, only 25% of the time are you going to win that. So why even go down that game? Train your staff. No prices over the phone. Always with an inspection in person, etc. Now, once I've got the car, or for your guys, once they're there, even if the customer goes to work, no big deal. We'll do that over the phone, but we've got possession of the job. No way when they just call in. And so, it is all about saying yes every time. And hey, I could also not say yes, but say yes. Like, if you call me for an oil change, I could go, 'Oh, man. Could you leave it with me? I'll squeeze you in.' That doesn't give a customer confidence that you can take care of them. If somebody's water heater blows out, you call and they call you up and you tell them, 'If you can get me to the end of the day, we'll get somebody over there.' That's not confidence. It'd be better to say, 'At 5:00 p.m. we'll be there. It'll be late, but we'll be there at 5:00 p.m.' You got to give them confidence that the appointment's going to happen. That is saying yes. And so the number one thing in my opinion besides curb selling is the ability to say and back up yes because so many shops and so many businesses say no without saying it and that's what's holding their business back.