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Gross Profit Percentage or Gross Profit Dollars?


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Due to increase competition and our modern global economy we have seem prices on many parts fall (brake parts, steering, etc). Many shop owners see this as a way to compete and satisfy the consumer. But, working on a 50% margin with reduced prices can be putting less dollars in your pocket. If you can sell more services by reducing prices that’s one thing. To sell the same amount of work on less gross profit dollars may hurt your bottom line.

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  • 1 year later...

I’m going to be very careful here. Why? Because I like to track profit dollars and not profit percentages. For example if I buy a brake rotor for $20.00 and sell it for $40.00, that’s a 50% GPM, right? But if the part's supplier lowers the rotor to $15.00 and I sell it now for $30.00, it’s still 50%, but I make $10.00 less!

 

I look at profit dollars. I calculated what my entire expenses are to maintain the business. That becomes my breakeven. After I arrive at that number, I add a percentage for return on investment. My goal is make a 20% overall return after all expenses are paid.

 

Now with that said, I do shoot for a labor goal of 70% and a parts goal of 50%. For tires, it varies from 17 to 25%.

 

We also use a matrix, as most people do.

 

Hope this helps and not confuse the issue. Remember, you pay your bills with dollars, not percentages.

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