Are Part Margins getting too hard to achieve?

[Joe Marconi]

Premium Member Content 

This content is hidden to guests, one of the benefits of a paid membership. Please login or register to view this content.

[dfrisby]

Currently customers gauge the cost of one shop vs. another entirely on labor rates.  I wouldn't mark up any parts if I could charge the labor rate required to accomplish that. In Minnesota only the parts are taxable. The labor is exempt as long as it's repair work. The customer would pay less sales tax if I charged cost on my parts, but I'd have to just about double my shop labor rate.  The total cost to the customer would be close to the same either way, but I'd have to have customers that had as much schooling on economics as they did algebra in order to get them to understand.  The other benefit would be that I just wouldn't care if the customer supplied their own parts anymore.  Wouldn't affect me or my bottom line.

 

[tomkatv10]

When I mentioned this exact thing on a Facebook auto shop owners group, I was basically ganged  up on by an angry mob fueled by one idiot shop owner who said I was a you tube mechanic newbie idiot. His words, not mine. Actually I’ve had a successful shop for over twenty years, but have always been forward thinking. As long as dinosaurs such as that shop owner exist in this industry we’ll never move forward. Face it, parts margins are shrinking and it’s time to adapt. I’ve been looking at ways now to get more labor out of the job and not worry so much about the parts. Any ideas would be welcome as I’m just starting to experiment with this. 

[Joe Marconi]

Premium Member Content 

This content is hidden to guests, one of the benefits of a paid membership. Please login or register to view this content.

[southendautocare]

This is an old discussion around our shop.  Our best answer is: wholesale on parts & whatever labor rate it takes to reach your gross profit goal is what is charged to customer.The challenge is we are too fearful to think about stating that actual dollar amount per hour for mechanical labor & diagnostic labor that it would take to take to a customer. Mostly due to the perception (or fact) that consumers really don't care about why; they just want to compare a number.  Many assume a good warranty, customer service, and value is standard.  We may age out before we can ever get on the same page together on this as an industry.

[tomkatv10]

That’s the exact formula I’m looking at, but worry about the high labor dollars too. I like to be a disrupter, but I don’t want to disrupt myself out of business. Do we charge $29 for brake pads and $250 to install them? Does the consumer adapt to that and say they have great parts prices but their labor is ridiculous? Has anyone tried this approach?

[Joe Marconi]

Premium Member Content 

This content is hidden to guests, one of the benefits of a paid membership. Please login or register to view this content.

[rpllib]

Yesterday I had a conversation with an investigator for the sales tax division in my state. I ask her the following questions:

If I stop charging a mark up on parts and roll all the charges into my labor rate, would I be flagged for an audit by the sale tax division, because my overall sales would remain the same but the sales tax that I report would be cut in half. She did not think so and she had been asked the question before by other owners. Labor is not taxable in Michigan.

I then asked her "what if" I stopped charging markup on parts and started charging a "shop rate" (in lieu of a markup on parts), and that "shop rate" was a variable of (and based on) the cost of the parts used on the invoice.  She wasn't so sure how that would be received by sales tax division, by she would ask a compliance officer and report back to me. 

Personally, I would rather just have a shop rate that covers all controllable costs to the customer. Unfortunately in Michigan we are mandated to have parts & labor charges, plus billed hours, clearly called out on our estimates. It is unlikely, in my opinion, that the BAR would allow a "shop rate" other than as an additional charge on top of parts and labor, which is no less confusing to the consumer than our current scenario of marking up parts. I am currently in the middle of a friendly audit by the BAR and I will ask the compliance officer his thoughts on this. 

Maybe the first thing we need to agree on is that our true charge to any and every customer(consumer), by every and any automotive service facility, is typically:

"Our normal charge for the job minus our cost on the parts "   We control all other charges on the job, except parts cost. Regardless of what quality of part we use, there will be a parts charge and we did not set that cost.

This whole mess became much clearer to me, when I figured out that the price we charge a customer that wants to supply their own parts, is as follows:

Our charge when a customer wants to supply their own parts is whatever our normal everyday charge for the job is, less our cost on the parts required.

Once we agree that is exactly what we charge our very best customers, in every shop model, we will be one step closer to a solution, Imo. 

[alfredauto]

We charge by the job but we do breakdown parts and labor on the ro. Once in a while someone will question the markup I reply "the Amazon price is if you do it yourself" end of story we don't put in your parts I need to buy groceries like everyone else. Some people complain about the 8.5% sales tax i tell them to call Albany it's not up for discussion. 

I suppose we could just raise the labor rate to compensate but I'm afraid its going to be a race to the bottom once everyone starts wholesaling parts