A 10% Drop in Revenue Doesn't Mean a 10% Drop in Profit. It's Worse.

Your Overhead Amplifies Every Revenue Decline

A 10% drop in revenue does not mean a 10% drop in profit. It's worse than that.

On Tuesday I talked about fixed cost leverage. Why your overhead doesn't shrink when your car count does. Here's what that actually looks like on a P&L.

Take a shop doing $200K a month. After cost of goods, you're running about $56K in monthly operating expenses. Most of that doesn't move much when volume drops. Rent, office staff, insurance, software, utilities, property tax. Some of it flexes a little. Very little of it flexes a lot. At full production, you're netting about $30K a month. Not bad.

Now total loss rates climb, volume shifts, and your car count drops. Revenue falls to $170K.

Your variable costs drop with it. But most of that $56K? Still there.

Your net income drops to $19K. That's a 37% hit to your bottom line on a 15% revenue decline. And if you're carrying debt (SBA loan, equipment financing, line of credit), your bank coverage ratio just went from comfortable to tight. At a 20% volume drop, most shops are brushing up against the threshold where their lender starts paying attention.

This Is Sales De-Leverage

Your overhead amplifies every revenue decline straight into your profit. The higher your fixed cost base, the harder it hits.

Right now, with total loss rates at a record 22.8% pulling repairable volume out of shops, a lot of owners are feeling this without knowing what to call it.

Two Numbers to Look at This Week

The fix isn't to panic. It's to know your numbers. Two things to look at this week:

1. Your fixed vs. variable cost split. Go line by line. Most shop owners have never done this. It takes 15 minutes and it changes how you think about every slow month going forward.
2. Your break-even car count. For most shops I work with, it lands between 30 and 60 cars depending on the cost structure, volume, and average job size. Below that, you're bleeding. Above it, every car is profit.

I built a free worksheet that walks you through both of these exercises.