Gross Profit

[jfuhrmad]

Everywhere I look I see that I'm supposed to target 60% gross profit.  Am I supposed to include tires in this?  I have no problem getting 60% on repairs, but when I include my tire sales then it just tanks it.  About 15% of our sales is tires.  Is anyone getting 60% GP including tires?  If so, I need to make some adjustments.

[jaybazzi]

I won't concider tires part of my gross profit with repairs 

[Wheelingauto]

While many trainers slice the pie differently the numbers at the end still come out the same. You should be tracking gp on all income sources. Parts @50% minimum, I think 55 should be the target. Labor at 70%, tires at 30% and sublet @50%. Blended you should end up at 60% overall at a minimum. From what I've seen tire gp is one of the harder ones to maintain unless you include the backside money. 

We have consistently achieved 62%average gp for years and years so it is attainable. 

[tyrguy]

IMHO, If you are selling a substantial amount of tires you should keep the numbers separate. Our mix is 55/45 service to tires in sales dollars. But our GP is 75/25 service to tires. Our GP in service is 78% vs 30% in tires. Remember though as I've stated on other threads, we state our GP the traditional accounting way which is sales minus the cost of the product, not including labor. No matter how you define GP though, you can see that including tire sales in your total GP calculation kills the numbers. Our total GP including both service and tires is 56%.

[Joe Marconi]

On ‎7‎/‎11‎/‎2017 at 9:51 PM, jfuhrmad said:

Everywhere I look I see that I'm supposed to target 60% gross profit.  Am I supposed to include tires in this?  I have no problem getting 60% on repairs, but when I include my tire sales then it just tanks it.  About 15% of our sales is tires.  Is anyone getting 60% GP including tires?  If so, I need to make some adjustments.

Great question. Most shops attain a much lower profit margin on tires.  I have seen anyway from 15 to 25% on average.  For this reason, most shops do not include tires in their overall part margin.  Many shop management systems, such as Mitchell1 have two matrix's, one to markup parts, and another to markup tires.

Labor is another story. If your target is a 60% GP overall, you need to set your sights on a 70% GP on labor and an overall GP on parts at around 50%. It's attainable, but it also depends on your tire sales mix.  And if you do a lot of tires, you most likely have Tire techs which are paid at a lower rate than Master Techs, which means your labor spread will be better.

As you can see, there are a lot of variables here.

[jfuhrmad]

Thanks for the great answers.

[Jay Huh]

I am struggling with GP. My master tech gets paid $28/hr plus bonus and he hits bonus every week. He is the only one that is really producing at my main shop - hit 72.25 hours last week. My labor rate is $80 but we have a $60/hr option for friends/family. Waaay too many people are becoming friends/family.... also with flushes and canned jobs, some equal out to be $50/hr labor rate. With some customers, we give $50/hr bc misquoted labor times and such or giving away discounts.

Started with my techs making $17/hr.... now minimum they make $22.50. I have to raise my prices.... again

[kars]

Try cutting way back on your discounts first. There is no reason to give away work. $80 sounds more than reasonable. I would start with the friends and family. If they are really friends and family they should be coming to you regardless.

[Joe Marconi]

There is a lot more information needed before I can really determine what is going on with your business.  However, we can draw a few general conclusions.  

It's not so much your prices or labor rate that is the problem, but how efficient and productive you are. In other words, how much labor is being produced per hour by your techs?  You could have a $150.00 labor rate, but if a tech only produces $300 in labor in an 8 hour day, that translates into $37.50 per hour for that day, for that tech.   

You need to look at production, the type of jobs you are selling, you customer base, your profit on parts.  And too much discounting is a sure way to go out of business.

By the way, EVERYONE of my customers are family and/or friends, but I don't discount a dime. 

Good luck and I hope this helps.

 

 

[AndersonAuto]

12 hours ago, Jay Huh said:

I am struggling with GP. My master tech gets paid $28/hr plus bonus and he hits bonus every week. He is the only one that is really producing at my main shop - hit 72.25 hours last week. My labor rate is $80 but we have a $60/hr option for friends/family. Waaay too many people are becoming friends/family.... also with flushes and canned jobs, some equal out to be $50/hr labor rate. With some customers, we give $50/hr bc misquoted labor times and such or giving away discounts.

Started with my techs making $17/hr.... now minimum they make $22.50. I have to raise my prices.... again

Like Joe said, more info would be needed to make a full diagnosis, but there are a few things we can glean from your post.

First, your labor rate on your master tech is low. If he's producing most of your hours, you need to base your labor rate on his pay. You should be targeting 70% GP on labor, so divide his pay rate by .3.

Also, I would be looking at what your Effective Labor Rate is with your current sales mix. Divide your labor sales into the labor hours flagged. Divide your ELR into your door rate to determine what percentage you're off. If your ELR is 85% of your door rate, then when you adjust your door rate to reflect your desired labor GP, increase it by 15% more to compensate for your ELR. This will compensate for the low labor rate on flushes etc. You might find this a little strong for your taste, but get something, a few bucks goes a long way.

Friends and family are a real problem. In my shop the only friends are my friends. And I mean friends. People I actually do things with on the weekend. I've found over the years that there are a lot of people who want to call themselves your friend when it's time to get their car fixed. Those are acquaintances, not friends. Your employees friends are not your friends. There's no reason for your employee's friends to get a discount from you. Family is family. Family includes your parents, and anyone who lives in your house. Cousins don't count. Sister in laws don't count. If they aren't your parents or they don't live in your house, they are extended family, and they get no discount. Been down that road way too many times.

Hope this helps.

Edited July 28, 2017 by AndersonAuto

[Jay Huh]

3 hours ago, Joe Marconi said:

There is a lot more information needed before I can really determine what is going on with your business.  However, we can draw a few general conclusions.  

It's not so much your prices or labor rate that is the problem, but how efficient and productive you are. In other words, how much labor is being produced per hour by your techs?  You could have a $150.00 labor rate, but if a tech only produces $300 in labor in an 8 hour day, that translates into $37.50 per hour for that day, for that tech.   

You need to look at production, the type of jobs you are selling, you customer base, your profit on parts.  And too much discounting is a sure way to go out of business.

By the way, EVERYONE of my customers are family and/or friends, but I don't discount a dime. 

Good luck and I hope this helps.

 

 

Thanks Joe! Love the way you put it about friends and family. Looking forward to seeing you in person in Sept!

[Jay Huh]

7 minutes ago, AndersonAuto said:

Like Joe said, more info would be needed to make a full diagnosis, but there are a few things we can glean from your post.

First, your labor rate on your master tech is low. If he's producing most of your hours, you need to base your labor rate on his pay. You should be targeting 70% GP on labor, so divide his pay rate by .3.

Also, I would be looking at what your Effective Labor Rate is with your current sales mix. Divide your labor sales into the labor hours flagged. Divide your ELR into your door rate to determine what percentage you're off. If your ELR is 85% of your door rate, then when you adjust your door rate to reflect your desired labor GP, increase it by 15% more to compensate for your ELR. This will compensate for the low labor rate on flushes etc. You might find this a little strong for your taste, but get something, a few bucks goes a long way.

Friends and family are a real problem. In my shop the only friends are my friends. And I mean friends. People I actually do things with on the weekend. I've found over the years that there are a lot of people who want to call themselves your friend when it's time to get their car fixed. Those are acquaintances, not friends. Your employees friends are not your friends. There's no reason for your employee's friends to get a discount from you. Family is family. Family includes your parents, and anyone who lives in your house. Cousins don't count. Sister in laws don't count. If they aren't your parents or they don't live in your house, they are extended family, and they get no discount. Been down that road way too many times.

Hope this helps.

Thanks, i will do some calculation tonight. But you are right. I have people coming out of woodwork calling me a friend when it's time to get their car repaired. You and Joe have been doing this a long time and I appreciate the advice on the discounting - might not be able to stop it completely but I will try and nip it where I can

[gandgautorepair]

For you to get 70% GP on your master tech, the way I figure it, take the 28x1.25 for payroll tax etc, then figure 70% based on that which comes out to a labor rate of $116.67. You can go lower than that because your other techs are a lower rate so it will average out, but your labor rate definitely needs to be higher. Don't be afraid to raise your rate, nothing will happen. I was afraid to raise mine for too long, then I raised it $10, nothing happened, so a few months later I raised it another $10, nothing happened. In an 18 month period I went from 89 to 125 and still grew by 30% each year. Don't be afraid.

[HarrytheCarGeek]

Family pay full price, no discount, they are time sinks that complain too much. "Friends" the same too, full price. Good customers? Yes, they get compted, once in a while.

 

I will give you my best tip that was passed on to me by my best mentor, -when you quote a job, quote it with the tax and eveything else, when they come to pay take a dollar and a few cents off, those customer will keep coming back to you. For example the whole job with tax is $108, quote $110 and when they come to pay charge the $108, leaving the customer $2. With practice you will come to master this, customer will choose you over the shop that quotes $99 and end up charging $108.