The 28% Conundrum

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The 28% Conundrum

Percentages. What does it all mean? Sherlock Holmes had his 7% Solution – of Cocaine. Our industry’s own drug of choice, is an accepted “loss” in a garage as a percentage of the gross revenue. Most operators or owners would tell you, informally and off the record, that a 5% loss factor was just about “as good as it gets.” After all, we have a cash business and there you go…The operators try try TRY and simply can’t get better than 5%. It’s the industry standard.

Of course there are garages where the loss rate is as near “0” as is possible, and there are others that show losses much higher.

I was talking to a buddy (no that THAT buddy) the other day who audits garages and he told me that the 5% number was laughable. His firm has audited hundreds and hundreds of garages over the past few years and the numbers simply belie the “Industry Standard.” He says the number is 28%. That’s “twenty eight percent.” Yes – on average, in garages across the fruited plain, over ONE QUARTER of the money that should have been collected, isn’t. Since this is my personal experience I tend to agree.

Most owners would say “Sure, but that’s an average. Some might be 56% and other perfect. I’m sure mine is among the perfect.” Right.

He says that less than 5% of the 28%, or about 2% of the total loss, is from theft. Most of it is from incompetence, mismanagement, and simply not caring.

Some examples he gave me was access cards turned on, and in use, that were not invoiced on a monthly basis. He said he would go in to a garage, run an active card list, and find 1000 cards “on” but only 650 being billed.

Another problem deals with leases. When a tenant signs a lease, they may get a special “deal” on parking, say a 50% discount, for the first couple of years with an escalation clause that kicks in in year three. Very often, the garage neglects to “kick in” the clause and the tenant goes for years, often the life of their lease, paying the original rate.

A third problem deals with validations and other “deals” cut between the garage and local merchants. These deals are often perfectly legitimate, but, over time, their intricacies and codicils get lost in the mysts of new managers, owners, and operators. The information is passed from person to person and like the children’s game of whispering a phrase in an ear, by the time it’s passed a few times, it bears little resemblance to the original deal.

And of course there’s the rate structure itself. My experience has been that there’s the rate structure that’s on the sign, the rate structure that’s programmed in to the fee computer, the rate structure that the customer believes they are paying, and the rate structure as understood by the manager or the attendant. In many cases all are different.

The list is endless.

How does an owner sleep at night knowing that so much of their bottom line dollars are not being collected? That’s a topic for a different blog. My concern now is just how to communicate that fact to the owner, and just what they should do about it.

Any ideas.

 

JVH

John Van Horn

John Van Horn

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