New Series: FBO Survival - Survival Tip #2: Avoid the “Ready, Fire, Aim” FBO/MRO Syndrome
/By Ron Jackson and John Enticknap, Aviation Business Strategies Group
Welcome to the second installment of our new AC-U-KWIK FBO Connection Series: FBO Survival. This series focuses on the various strategies needed to survive the daily rigors of running a successful FBO operation.
As a follow-up to our first survival tip, ‘Keep Your Customers Close…and Your Margins Closer’, let’s examine a syndrome that has been occurring with FBOs that also run an MRO business.
It’s called the “Ready, Fire, Aim” syndrome. It affects FBOs and MROs and its symptoms are:
- Lack of communication between the ‘business end’ and the ‘factory’
- Job bidding that has no ‘real cost’ basis
- Over-promising and under-delivering
- A slow but sure drag on bottom-line results
Lack of Communication
Often times, MROs are primarily focused on keeping the factory busy. By factory, we mean the direct labor side of the business. All the technicians, inspectors and supervisors whose responsibility it is to inspect, modify and fix a customer’s aircraft.
However, the indirect labor, or the business side, is often guilty of not managing the workflow properly - which is the acquiring, scheduling and managing of aircraft that come into the factory. This mismanagement often results in extreme highs and lows in terms of work cycle.
Thus, it’s often “Ready, Fire, Aim”. It’s a lack of communication between the business side and the factory. It’s a perfect example of the right hand not knowing what the left is doing.
Inefficient Job Bidding
Another symptom is job bidding that has no real cost basis. This action typically results in underbidding a job. We find many MROs don’t really know the true cost of labor when developing a bid.
Every FBO and MRO should have an idea of what their actual cost is for an hour of labor. Whether you’re pumping a gallon of Jet A or turning a wrench on a Hawker, you should have a total grasp on what the actual cost is for each hour of service expended.
As we all know, it’s not just the cost of hourly wages or salary we pay our team members. Also, we have to include the mandatory taxes, social security, FUI, SUI and possible state taxes. In addition, we have to figure in optional benefits. Medical plans and other employee benefits also must be included. This can be 25 to 35 percent of the base wage.
Many firms stop there! What about your overhead costs? You should collect the information on your basic overhead costs such as:
- Rent
- Utilities
- Communications
- Workers Compensation
- Insurance
We have talked to many medium sized FBOs who have told us their insurance is $1,000 per day! So these values become part of your labor cost.
As an example, if you pay an employee $15 an hour you need to add $5 for taxes and medical. When you add another $7 for overhead you have a real labor cost of $27 per hour. For a technician, you can have a labor cost of more than $40 per hour with a basic hourly wage rate of $25.
Once this is done, then you have to add extra to cover administrate overhead, sales costs, unproductive labor cost, overwork on jobs, the “free stuff” you give away, advertising costs, contingencies for insurance deductibles, etc.
Then you need to add a reasonable percentage in order to make a profit. Why else are you in business? As we often teach in our NATA FBO Success Seminars, we love the aviation business, but you can’t give it away. We’re not in this business for a hobby.
Dashboard Reports
Rely on your Dashboard Report. You should have a system in place that produces a reliable Dashboard Report. Here is a brief explanation of what they are, and how you should use them.
There you are, flying or driving along and you take a look at your dashboard. What does it tell you? In one quick glance you can tell your speed, direction, condition of your engine and the amount of fuel that remains.
The same goes for when you want to check on the condition of your company. You need a daily report – a Dashboard Report – that tells you what is happening with your business. You need to know:
- How much fuel you pumped the day before
- How much you pumped for the month to date
- Value of the parts sold
- Value of the work orders billed
- Charter hours sold and dollar amount
- Other sales information
This information tells you how you’re doing and you can compare the information to your budget. You did do a budget … right?
Collect this information from your accounting system or develop your own report.
Over-Promising and Under-Delivering
Often, the result of the first two parts of this syndrome is promising the customer something your FBO/MRO can’t deliver. Whether it’s when you can deliver an aircraft, the true cost of the job or both.
Yes, there are a lot of factors that can disrupt the delivery cycle including unforeseen extra work that needs to be done to the aircraft. However, by being positioned as a partner and communicating with your customer on a regular basis, many cost over-runs and delays can be mutually worked out.
What you don’t want to do is surprise your customer by underbidding and over-promising on delivery times. If you are pro-active with your customer from the start, you stand a better chance of getting a good recommendation and ultimately a loyal, satisfied customer.
Drag on the Bottom Line
Needless to say, lack of communication, inefficient bidding and over-promising can be devastating to your bottom line. The FBO/MRO business is challenging enough. Margins are extremely thin in this business and anything an owner/operator can do to create more efficiency and value in an operation has a positive impact on the bottom line.
Before you start a new job, get with your factory in order to properly schedule the work. Make sure they are comfortable with the terms of your proposal. Then, calculate your true costs before you add in your profit margin - and remember to keep your customers close.
If you like this article, please click on the “Like” icon below. Also, if there is a comment you’d like to make, please email us at:
John Enticknap: jenticknap@bellsouth.net
Ron Jackson: rjacksongroup@earthlink.net
About the authors:
Ron Jackson
Ron Jackson is Co-Founder of Aviation Business Strategies Group and President of The Jackson Group, a PR agency specializing in FBO marketing and CSR training. He has held management positions with Cessna Aircraft and Bozell Advertising and is the author of “Mission Marketing: Creating Brand Value” and co-author of “Don’t Forget the Cheese!” the ultimate FBO Customer Service Experience. Ron co-developed NATA’s acclaimed FBO Success Seminar Series and writes an industry blog for AcUKwikAlert.com titled: The FBO Connection.
John Enticknap
John Enticknap founded Aviation Business Strategies Group in 2006 following a distinguished career in aviation fueling and FBO management, including President of Mercury Air Centers network of 21 FBO locations. He is an ATP and CFI rated pilot with more than 7,800 flight hours and is the author of “10 Steps to Building a Profitable FBO”. John developed NATA’s acclaimed FBO Success Seminar Series and writes an industry blog for AcUKwikAlert.com titled: The FBO Connection.