Automotive service shop profitability is really just a numbers game. Yes, you have to have customers coming into the shop to generate revenue, but you must also know how to accurately price your services to generate a profit.
In a recent blog (“Must-Have Skills for Automotive Shop Owners and Managers”), we showed you a simple way to lock in your business’ success by setting prices according to a simple guideline:
The general rule of thumb is for a 60% gross profit margin (blend of 70% on labor, 50% on parts and 40% on sublet), which pays for the costs of doing business as well as a net profit.
This rule holds true for pricing maintenance and repair services.
Let’s continue the journey into learning about profitability. You’ll need to know the difference between these two terms when measuring your business’ potential for profitability:
The amount of money the business owner takes away after paying all bills, including your own salary. If you are the shop manager, calculate what you would pay someone else to do the job, and then deduct that amount from the net profit. It’s pay for the work you do, day in and day out. You might be tempted to futz with this number, but don’t. Creating a line item for your pay will helps you create an exit strategy.
Down the road, when you’re thinking about selling the shop, investors will put a lot of value in this little line item. That’s because most investors are looking for a profitable businesses that has been successfully managed by others.
Business costs include fixed and variable costs.
Fixed costs are the costs you pay out every day, even if you don’t have a single car in your shop. They can include rent, utility bills, office staff, and so forth. Even if you play the role of office staff (or receptionist), you need to know the cost to pay for this position, and then pay yourself for that business cost.
Variable costs are beyond fixed costs, like what you pay for parts or labor when you work on a vehicle.
It’s possible to learn the skills you need to grow a profitable automotive service shop, and one of eAutoClub’s goals it to help expert mechanics get a handle of shop-management basics like these.
With eAutoClub’s dynamic CRM, you get a service that—at drop off—provides both the service writer and vehicle owner with ultra-accurate service alerts, based on the shop’s service records, time elapsed and miles driven. Contact us for more information.
SI Auto Pro “Auto Care Made Easy”, previously licensed and distributed under the Mitchell1™ and Snap-On™ brands, is designed for automotive service and tire dealers using Mitchell1 Manager™/Shop Key™, R.O. Writer™, AllData™, MaxxTraxx™, Costar™, Lankar™, PACE Yes™, NapaTracs™, and other shop management computer systems. blog.AutoSI Auto Pro.com | Testimonials since 1999