Big builds. If your shop handles them, you know the accompanying struggle of managing timing, customer expectations, and cash flow. You tell your customer one month, but parts get delayed or lost, and you lose the time you had budgeted for the car and it starts collecting dust in the corner. And costing you money.
Now you have to buy more fittings and hoses that broke in the teardown, but you don’t want to dip into your shop’s operating cash flow. You have to go back to the customer to get an additional “progress payment” because you already spent their whole deposit on parts.
This is a dilemma shop owner should never have to face. Solve the problem by creating a payment plan that is easy to explain to customers and gives you a comfortable buffer of cash to fund the build throughout the process.
We’re all familiar with the 50% due on drop off, 50% due on pick up model, but this does not necessarily provide the cash that you require to get the job done. In addition, sometimes your initial estimate is a “bare minimum” figure. While the customer is prepared to pay more than that, your initial deposit is based on that low number, which doesn’t cover the unforeseen parts and labor that end up increasing the bill.
Depending on what type of build your shop does, different payment plans will best suit your shop and customers.
Big power builds
If you’re building a 1JZ swapped Audi TT with a target for 600whp, you’re going to need to build a custom setup. As you go through the project, you’ll do some trial and error to figure out what is compatible with the system, what fits, and what will help you reach the goal. You can give the customer a base figure for the install and sourcing parts, but you can’t give them a due date or a final price because there is some experimentation required.
You can therefore tell your customer that you will require progress payments during the course of the build. In order to do this confidently, you’ll need to set yourself a schedule for the work to get done, ensuring that the customer can expect when these progress payments will be due.
The progress payment schedule should aim to get sufficient cash to pay for all the parts required, plus a 20% buffer for additional unforeseen parts. If necessary, this amount can be broken into two payments – one on booking the appointment and one on drop off, or one on drop off and one after two weeks, allowing you to stagger the purchase of the engine and trans, followed by all the auxiliary parts two weeks later. The remaining bill can be paid on pick up.
Give the customer some confidence that you will not just spend the money unnecessarily, you can give them assurance by giving them authority to authorize every part purchase before you buy, provided they respond within 24 hours so the build isn’t held up.
Restoration (and modernization)
Restoration projects are harder to plan and anticipate than performance builds. Customers can appreciate this – it’s impossible to know everything that needs repairing or replacing before you start the tear down. Nevertheless, you need to structure the payment plan for the build to ensure that the shop has sufficient cash to finance the build in process.
Ask your customer for an upfront deposit, a completed teardown or “phase 2” progress payment, and a payment on pick up. The phase 2 payment is obviously the most important for your shop’s cash flow and must be calculated properly. This payment will include roughly half of the original parts budget (the other half was paid on drop off), the supplemental parts budget for new required parts, and a 20% margin to account for any remaining, unforeseen parts needs.
In this payment plan design, the payment on pick up should be close to 100% profit, rather than the customer finally paying you back for all the additional parts you bought.
Put some thought into your payment plans to ensure you make your profit, your shop’s cash flow is protected, and your customer is confident that their large build will be done right and with transparency.
Driven Performance Advisors
Driven Performance Advisors helps shop owners increase efficiency and improve profitability through our ShOptimizer services. Our ShOptimizer Finance Package includes pricing and payment plan review and optimization to maximize your shop’s profitability and cash flow. Schedule a consultation at drivenperformanceadvisors.com.