March 23, 2018

How to Boost Profit Margin and Maximize Earning Potential in Auto Repair

Your service calendar is booked and wrenches are turning, but month after month you continue to miss your revenue goals. You’re not alone. From incorrect labor costs to an abundance of low-margin parts, there are a myriad of issues that repair shops must address to get out of the red and into the black.

To make your repair business more profitable, it’s imperative you deploy matrix pricing for parts. Firstly, let’s clear up a common misconception. Profit margins are not the same as a markup. A markup is the percentage, or multiplier, applied above your cost. Markup percentage is the difference between the shop cost and the list price. Margin, on the other hand, is the gross percentage difference between the selling price and the profit. Here’s an example.

Many shops have a base margin calculation, often calculated off the top of their head, but successful ones know where every penny is being expensed and where they can afford to make the those margins a little bit thicker. If you notice a large historical difference between labor sales and parts sales, it’s time to make some adjustments. Below is a standard flat markup percentage matrix for parts.

As shown above, a part that costs $3.99 results in a 75% margin with $15.96 in total revenue and $11.97 profit. Not bad. Once you’ve determined the correct parts pricing matrix for your business, set it up in your shop management system and let the numbers do the rest. With that settled, you can concentrate on streamlining other aspects of your business.

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