Can bike shops pay the bills just off service?

[The Tip]

Bike shops are jamming doing repairs with the increase in people biking. But they are also out of bikes to sell.

So are they struggling because of no high ticket items to sell, or are they banking with the line out the door service demand? Or are they just treading water?

Curious as to the business model. 

 

 

Edited July 7, 2020 by The Tip

[mack_turtle]

I am not sure, but I used to work at a shop that sold a lot of high-end bikes and still made a healthy profit on service. we maintained a turnaround of two business days and just did consistently good work. They paid well (for a bike shop), shared profits when we met our goals, and paid to send their mechanics to training. Those Trek Red Shield (extended warranty) jobs paid off as well. I attended one of the yearly meetings for a company that had only two stores and they showed us all the numbers. the service department kicked ass. most of the money was made selling bikes and accessories, but service was a significant part of it. most bike shops do NOT think of it that way and it's a shame. maybe more of them will start to do better because of what they are learning from the current situation.

if anyone is trying to perfect the business model, the first step is a thorough diagnosis of the bike. it sucks for the mechanic and the customer to find out half-way through the work that the bike needs something else that will bring up the price and stop the work until parts are ordered. I would also spend quite a bit of time making sure I know exactly what the bike needs, where to get the parts, hours needed to do the work, and what work on the bike is optional, then call the customer with two options.

on the back end, keep records of when you call a customer to tell them their bike is ready to pick up and when you speak to someone or leave a message. the worst, constant problem was people leaving their bikes in the shop for weeks or months because they were just too lazy to pick them up, or getting calls from angry customers asking "is my bike done yet?" when the bike has been done for weeks and they didn't listen to the voicemail you left them one time. call again and again and threaten to charge them "storage fees" if necessary.

Edited July 7, 2020 by mack_turtle

[RedRider3141]

No Experience in Bike Shops but I know in Automotive, Motorcycle and Commercial Truck Profits from Service is always a big part of their overall income. During "down times" it usually becomes a much bigger part of the pie. For example, during the 2008 downturn the average age of a Commercial Truck (think 18 wheeler/long haul truck) went from 3-5 years to 6-8 years. This means alot more maintenance on truck that probably already had 300,000 miles on it by year 3 or 4. However, it's lower capital investment by the fleets. I think the volume of cobweb filled, dept.store 26rs coming out of the woodworks speak for themselves. 

[mack_turtle]

what I remember from my previous shop's data and my knowledge from the Park Tech Summit I attended, many bike shops lose money in the service department, or barely break even.  it does not have to be that way, but most shops have resigned themselves to having a service department as a kind of necessary evil rather than leveraging it to make money.

[notyal]

I would have guessed that the internet forced shops focus more on profiting from service. For one thing, it's a pretty good way to sell components at full price when the internet is flooded with discounted parts. 

[mack_turtle]

24 minutes ago, notyal said:

I would have guessed that the internet forced shops focus more on profiting from service.

you'd think that, but too many bike shops have their heads up their butts. the ones that all went out of business in the past few years probably had some degree of a lack of forward thinking.

[The Tip]

I'm not trying to get shops to raise their rates, but I just had a thought. I'm guessing that shop rates for bike repair is about half of car repair. Why? Does a car mechanic go to school a lot longer than a bike mechanic?

Or is it because; It's hard to pay $300 to fix a $1000 bike (more typical than our bikes) when you don't blink twice about $600 to repair a $30,000 car?

[mack_turtle]

I think you're onto something, @The Tip, but almost no bike mechanics "go to school" to learn. I was fortunate to go to a three-day seminar with industry reps teaching mechanics from all over the country, but I had to pay my way into that. a few go to Barnett's or something like that. there are no requirements for credentials to work on bikes in the US that I know of, but I think there is in the UK. bike shop mechanics, no longer how long they have been at it or what their credentials are, make a lot less than car mechanics.

I think the main reason is, yes, the car costs a lot more and requires more specialized tools and knowledge than bikes, but mostly because cars are a necessity for most of us while a bicycle is for sport/ leisure.

Edited July 7, 2020 by mack_turtle

[crazyt]

I would think of it as two main cost factors -  utilization of square footage and utilization of resources.

A reasonable retail location probably costs about 30-45/square ft/year (utils included).  How many square feet do you need for service bays? Lets say you need about 100 square ft for a service bay and you can operate 8 hours/day (if you can run in shifts you can be a lot more efficient). A typical charge would be around $60/hour and pay rate would be $20 hour + about 20% benefits (payroll taxes etc). So the gross margin is $35/hour.

2 Bikes in storage need about 15 square ft (racked above each other). Lets say on average a station can turn around 8 bikes/day (1 hour on average per service ticket) so you need about 60 sq ft of  storage per station, maybe a little more depending on how fast customers pick up bikes. If they pick up bikes right away then you dont need as much storage. If the pickup time averages 3 days, then you would need 180 square ft of storage per station.

So 160 sq ft/station that costs 45/sq ft so $7200/year for the station. At $35/hour gross margin, you can expect revenue of about 70k/station/year at full utilization. At the longer pickup time you need 280 sq ft per station and a station costs 12,600/year.

Startup costs are maybe $500 per station for a full set of tools and a full set of common inventory of parts. Perhaps 50K for inventory of common wear items of average cost $50.

Your breakeven point for a station is only 205 hours of labor, not including markup on parts.

If you can keep a station utilized at 50% and only pay people for the hours they work, you can still make a solid gross margin and profit/station. A fully utilized station can support the entire inventory and 2 additional stations for growth

Obviously marketing will be a big expense, but from a gross margin point of view it seems like it could be a reasonable business.

 

 

 

Edited July 7, 2020 by crazyt

[mack_turtle]

13 minutes ago, crazyt said:

A typical charge would be around $60/hour and pay rate would be $20 hour + about 20% benefits (payroll taxes etc). So the gross margin is $35/hour.

hold up, are you saying that bike shops would pay a mechanic $20 an hour?

before leaving the industry after six years, I worked briefly at a shop where I talked the owner (reluctantly) into paying me $15 an hour in ... an affluent part of town. no benefits whatsoever.

at REI, I think I was making $13.75 and the hours were often not full-time. the benefits were relatively generous, though, for a retailer.

Edited July 7, 2020 by mack_turtle

[crazyt]

7 minutes ago, mack_turtle said:

hold up, are you saying that bike shops would pay a mechanic $20 an hour?

before leaving the industry after six years, I worked briefly at a shop where I talked the owner (reluctantly) into paying me $15 an hour in ... an affluent part of town. no benefits whatsoever.

at REI, I think I was making $13.75 and the hours were often not full-time. the benefits were relatively generous, though, for a retailer.

they could pay you more per hour but only when you worked on bikes or they could pay you less per hour just to be there.  Did you work on bikes the whole time?

[mack_turtle]

At REI, I was hired as a bike tech but I took shifts on the sales floor to boost my hours. I felt that they work under the assumption that having a service dept. was a necessary evil and scheduled me for 20 hours a week while customers waited 3-4 weeks for their bikes.

Before that, I worked at shops in Atlanta where I was paid $8, then $9, than a whopping $12 an hour just wrenching full time.

Some of the better shops in Austin probably have to pay more than that for qualified mechanics. IME, $20 an hour is laughable and "benefits" are an even bigger farce. Maybe it's gotten better in the few years I have been gone.

Edited July 7, 2020 by mack_turtle

[The Tip]

The employee might be only making $15/hr but that is not the bottom line to the employer.

The easiest additional cost to peg is for FICA. They pay 7.65% on top of that $15 for FICA. So that's $1.14. The employer also pays worker's comp insurance based on hours worked. That rate is based on how likely an injury will be for each class. I would guess a mechanic rate is higher than an office workers. Vacation pay? Even the smallest business will give something. So that cost is amortized over a year into an hourly cost.

So we are creeping very close to that $20/hour employer cost. And this is not including any traditional benefits like health insurance And your rate was six years ago. AND when the demand for wrenches was not what it is at this particular time.

Oh, and you probably weren't very good.  JUST KIDDING!!  😄

Edited July 7, 2020 by The Tip

[AustinBike]

1 hour ago, The Tip said:

 

Or is it because; It's hard to pay $300 to fix a $1000 bike (more typical than our bikes) when you don't blink twice about $600 to repair a $30,000 car?

Your numbers are off. A repair $300 On a $1000 bike is the same As a $9,000 repair on a $30,000 car. I took a $30,000 car to the shop and saw a $5,000 repair bill. Paid $700 to get the check engine light issue fixed and ditched the car. Fast. 

[The Tip]

2 hours ago, AustinBike said:

Your numbers are off. A repair $300 On a $1000 bike is the same As a $9,000 repair on a $30,000 car. I took a $30,000 car to the shop and saw a $5,000 repair bill. Paid $700 to get the check engine light issue fixed and ditched the car. Fast. 

No, my numbers are not off.

My point is the consumer is unwilling to spend the less money on a bike repair than more for a car repair.

The $300 represents 30% value of the $1,000 bike. Your personal example makes my point. An exorbitant bill of $5,000 still is only 17% of the value of your car. Did it take the car shop any longer to fix your car than it did for the bike mechanic to change out the drive train (just a guess of a $300 job) of that $1000 bike? Probably not. But somebody faced with that $300 bill is going to think long and hard before pulling the trigger. But here you paid mostly because you had to. Not much choice if you want your required car to run.

[ATXZJ]

This makes me so glad I do all my own wrenching on both bikes and autos.

[Big_papa_nuts]

It's hard for me to comment on "average" shop pay because I have 20 years experience, a business management college education, and industry certifications but I have been at  roughly $20/hour for my last 3 jobs.

 

Generally speaking, shops are poorly run, mechanics are undertrained (and customers don't care), and the hourly rates reflect that.

 

Honestly I think operations such has Velofix or Austin Bicycle Union will start to do a lot more business, and big boys like Sport Shop will (unfortunately, because they are a terrible company) never go away.

[crazyt]

4 hours ago, The Tip said:

The employee might be only making $15/hr but that is not the bottom line to the employer.

The easiest additional cost to peg is for FICA. They pay 7.65% on top of that $15 for FICA. So that's $1.14. The employer also pays worker's comp insurance based on hours worked. That rate is based on how likely an injury will be for each class. I would guess a mechanic rate is higher than an office workers. Vacation pay? Even the smallest business will give something. So that cost is amortized over a year into an hourly cost.

So we are creeping very close to that $20/hour employer cost. And this is not including any traditional benefits like health insurance And your rate was six years ago. AND when the demand for wrenches was not what it is at this particular time.

Oh, and you probably weren't very good.  JUST KIDDING!!  😄

 I was including fica, workers comp, unemployment insurance etc. For a typical company with salaried employees, I use 30% benefits on top of pay.

[Cafeend]

 
Generally speaking, shops are poorly run, mechanics are undertrained (and customers don't care), and the hourly rates reflect that.

Curious.. with your experience what would you do differently if you could?

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[AustinBike]

9 hours ago, Big_papa_nuts said:

It's hard for me to comment on "average" shop pay because I have 20 years experience, a business management college education, and industry certifications but I have been at  roughly $20/hour for my last 3 jobs.

 

Generally speaking, shops are poorly run, mechanics are undertrained (and customers don't care), and the hourly rates reflect that.

 

Honestly I think operations such has Velofix or Austin Bicycle Union will start to do a lot more business, and big boys like Sport Shop will (unfortunately, because they are a terrible company) never go away.

While BSS may not be everyone's favorite, they do hold a spot in the overall bike ecosystem here in Austin. 

Every market needs a "big name" that handles the top name bikes and has staying power. It is hard to get the average consumer to pay $2,000 for a bike if they a.) don't have confidence that the shop we be around and b.) don't feel like they can have a decent service experience afterward.

Honestly, I don't use BSS much, rarely, if ever buy anything from them. Their service on Guadalupe is convenient to me and they have always taken care of me.

They are akin to the big car dealer in town. Yeah, you may overpay but at least you don't have to worry that they will be out of business in a few months. Everyone loves to bash BSS (and I have had some issues with their service in the past) but they are far from horrible and they serve an important role in Austin. If you look at the number of "great shops" that are no longer in business, you can start to see why some people want a little bit of confidence when buying. I am that way with bike brands. First few real bikes were Trek and Gary Fisher. Great warranty work. Then I had a Hammerhead. This was a niche bike and generally I had no issues. The Knolly I bought after that was a niche and I went through 3 chain stays in 18 months. Practically spent more time taken apart than riding. Got rid of that and bought a Santa Cruz, which is still knocking around Austin almost 10 years later. I learned that big brands have a benefit for service and warranty. Yeah, there are better bikes, but one of my primary drivers is being able to actually ride the bike, so warranty is important. BSS helps fill this role (they've been great on warranty.)

[Big_papa_nuts]

15 minutes ago, AustinBike said:

While BSS may not be everyone's favorite, they do hold a spot in the overall bike ecosystem here in Austin. 

Every market needs a "big name" that handles the top name bikes and has staying power. It is hard to get the average consumer to pay $2,000 for a bike if they a.) don't have confidence that the shop we be around and b.) don't feel like they can have a decent service experience afterward.

Honestly, I don't use BSS much, rarely, if ever buy anything from them. Their service on Guadalupe is convenient to me and they have always taken care of me.

They are akin to the big car dealer in town. Yeah, you may overpay but at least you don't have to worry that they will be out of business in a few months. Everyone loves to bash BSS (and I have had some issues with their service in the past) but they are far from horrible and they serve an important role in Austin. 

I have more of an issue with them on a professional level then a concept level. Big shops make a lot of sense, for a lot of reasons, but BSS is a shady business hiding behind a nice facade. 

[Big_papa_nuts]

8 hours ago, Cafeend said:

 

 

Curious.. with your experience what would you do differently if you could?

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Where do I start...

[The Tip]

17 minutes ago, Big_papa_nuts said:

Where do I start...

[Barry]

1 hour ago, AustinBike said:

First few real bikes were Trek and Gary Fisher.

From my personal experience 15 years ago, and with my observations with other's bikes in the last couple of years, Trek/Garry Fisher has had one of the slowest warranty responses in the industry. 

[taco_junkie]

8 hours ago, Big_papa_nuts said:

Where do I start...