Parts markup

[Roddor]

I am starting out new in a specialty Jeep offroad small shop. I am working on a parts markup matrix and am looking for input and experienced info. At past jobs I have mostly done the labor and am not as savy on the price management. After reading posts here I have found several stressing the importance of the bussiness / financial management in ownership and I am needing assistance and opinions. First I am a small based garage that doesn't have a lot of overhead. I do mostly appointment work and revitalize and sell jeeps in between jobs. I have plans to in the next 4 years work up to full time employees shop and I will then step to the full time management.

 

I have put together this parts mark up matrix so far and was looking for input.

 

1) items that come with list or MSRP price I subtract my cost from list then split the difference and add that to customer price.

 

2) Regular items with no list or MSRP than have no shipping I add 20%.

---I often get items used or from yards on build-ups.

 

3) Regular parts that include shipping I add 15% plus customer pays shipping.

--- lots of shipping to AK.

 

4) Supplies and misc parts items without list I add 10%

 

I was also thinking about how to deal with bigger items say + $1000 , $2000 range. I want to get a reliable matrix that others in my business can use and give better more consistant quotes and billing.

 

Thanks Rod

[Joe Marconi]

Here are my thoughts…

 

You need to create a parts matrix that allows you make 50-60% gross profit on parts, overall. That means that small items you purchase for around $10.00 you need to sell in the range from $20-$30. Smaller items like hardware or bulbs that cost you under a dollar, you can sell for $4 or more. Items you buy at $50.00, I would sell for a minimum of $110.00.

 

The higher the cost, the less you can charge. If you buy a used rear diff for $500.00 you can’t sell for $1,100, but you can easily sell it for $800.00.

 

The idea is try to get into that 50-60% overall gross profit. You need to track your profit and adjust until you achieve your target goal.

 

Your overhead might be low now, but if you want to grow you will need to charge accordingly.

 

Systems like Mitchell Manager can set this up for you.

[Roddor]

One of the problems I run into is parts pricing. Many of my customers are parts cost savey. Often times they save up for a known cost say for a lift or something then they want to pay the labor to have it shop installed instead of them doing it themsleves. Talking with other specialty shops they say up the labor and run less with parts mark up to not turn away customers. I do see you point as many jeep 4x4 shops come and go. It is hard for them to pull a profit when they usually have more savey customers who do alot of the small work themselves. Is 50-60% mark-up the industry standard so to speak? I have been told by others to try and target around 35%. Do you customer charge MSRP on your parts?

[Joe Marconi]

For my business, 35% is just too low. I’m not sure how the people are where you are, but for me, I’m not really concerned if a person knows how much the parts cost. If I go to home depot and buy a faucet for $25.00 and installing myself, that’s my choice. But if I call a plumber to install the same faucet, he will charge a markup on the part and labor. The plumber has overhead and has to insure it. It doesn’t matter at that point if I know how much the faucet cost, does it?

 

One of our responsibilities as business owners is to make a profit and to put away money for the future and for reinvestment into our business. Too many of us give away too much and too many give away their entire career.

 

I try to stay in the range of 50-60% gross profit on parts. I don’t really go by anyone’s list. I know what I need to stay in business, so I charge accordingly. When I sell a job I sell value and benefits and sell the entire job. I don’t focus on parts or on labor, but sell the entire job as one.

 

This is the way I do things and have been doing it for nearly 30 years.

[TireChamp]

I find that savvy customers will bring their own parts for us to install. I have no problem with this option because I want the profit from the labor, but I clearly write on the ticket: "customer parts/no warranty". In other words, if the part is bad, they must pay for the labor again. If we supply a faulty part, we eat the labor for fixing it. With this in mind, most informed customers don't mind paying a premium for parts.

[Joe Marconi]

Just remember, for every dollar of labor sold, usually equals a dollar of parts sold. So, when you allow customer to bring in their own parts you are giving up a lot of needed income. Plus, you may be attracting the wrong kind of customers.

 

Remember the old saying...You wouldn't bring a steak to the restaurant and ask the chef to cook it up for you? Would you?

[Roddor]

Remember the old saying...You wouldn't bring a steak to the restaurant and ask the chef to cook it up for you? Would you?

Now that would be hilarious. I suppose you could tell them I also brought my own silverware to use.

[davidlee]

Remember the old saying...You wouldn't bring a steak to the restaurant and ask the chef to cook it up for you? Would you?

 

Now that would be hilarious. I suppose you could tell them I also brought my own silverware to use.

 

 

Did you know that in a court of law, if you put on a part that "savy customer" brings into your establishment & it fails-you will more than likely be the one replacing it?? How fair is that? We don't do it. I agree with Joe.

You will get people leaving & you will get people calling you a #$^%^^ when you charge properly for parts but that comes with the job, or at least for a while until you build the relationship with your customers.

[Joe Marconi]

Right on target. No matter if it's your part or the customer brings it in, you are the Pro and responsible.

 

I agree, build relationships and don't be everything to everybody.

 

Joe

[xrac]

I find that savvy customers will bring their own parts for us to install. I have no problem with this option because I want the profit from the labor, but I clearly write on the ticket: "customer parts/no warranty". In other words, if the part is bad, they must pay for the labor again. If we supply a faulty part, we eat the labor for fixing it. With this in mind, most informed customers don't mind paying a premium for parts.

 

As a general rule we do not install customer supplied parts. Occasionally we make exceptions if we are exceptionally slow or if there are extenuating reasons. We are busy enough that we do not have to do this. The people with their own parts are not the people we want. I turned a guy down today who had his own brake parts. If we make an exception we usually up the labor.

[autoguy]

As a general rule we do not install customer supplied parts. Occasionally we make exceptions if we are exceptionally slow or if there are extenuating reasons. We are busy enough that we do not have to do this. The people with their own parts are not the people we want.

 

Same here.

[BUDDY]

I RAN AN A/C SHOP YEARS BACK,COMEBACKS WERE KILLING US.I REALIZED EVERBODY HAD

FOGOTTEN A/C 101

PLEASE WE NEED A FORUM ON COST OF DOING BUSINESS 101 !!

 

YOUR OVERHEAD WILL INCREASE FASTER THAN ABILITY TO FORSEE IT !!

[xrac]

I RAN AN A/C SHOP YEARS BACK,COMEBACKS WERE KILLING US.I REALIZED EVERBODY HAD

FOGOTTEN A/C 101

PLEASE WE NEED A FORUM ON COST OF DOING BUSINESS 101 !!

 

YOUR OVERHEAD WILL INCREASE FASTER THAN ABILITY TO FORSEE IT !!

 

You make a good point. Having a wide enough profit margin helps insure that comebacks and warranty items can be handled without stressing the business. Prior to opening our shop eleven years ago I spent about 10 years working in environmental consulting and contracting. Part of my job was estimating. We bid on literally hundreds of private and Federal, State, and Local governmental jobs. After all costs associated with a job were totaled we did 25% markup to cover overhead and we did 10% markup for profit. We were very competitive and while we made some money we never got rich. Where you tended to make your money was with change order and unit price items. In my opinion a shop that only charges 25-35% markup on parts will always struggle and it will never be much more than a job for the owner.

[BUDDY]

XRAC WHAT HAVE WE DONE ? ITS SATURDAY !

 

MANY NEW COMERS OPENING SHOPS .

 

FIND YOU A CPA AND LISTEN !!

[HTI.WERKSTATT]

I as well in the begining would agree to install customer owned parts. Then, the customer got me the wrong part, the customers car was stuck tying up my one and only bay at the time. I was outside in 100 degree hot sun working on the ground on other customers cars waiting on him to take his time to pick up the wrong part, return it, bring it back and I lost a whole days work. This line usually works well for me, but I may come off a little gruff when I run it by the customer:

 

"I charge 55.00 an hour labor, this is extremely affordable compared to 90% of the shops in the area. If you want me to install your parts I will, BUT, You will pay 75.00 an hour, AND if you get me the wrong part, or bad part, I am not going to call you, tell you, wait for you to return / exchange, take the kids to soccer practice, stop for lunch, and show up the next day appologizing something came up, HERES THE PART, AND CAN YOU HAVE THIS DONE TODAY!?!?

 

ABSOLUTELY NOT... I AM GOING TO GET THE PART MYSELF, YOU ARE GOING TO PAY MY (40% MARK UP) PRICE ON THE PART, I AM NOT GOING TO CALL YOU AND LET YOU KNOW THAT THE PART IS WRONG, I WILL CALL YOU LET YOU KNOW YOUR VEHICLE IS READY TO PICK UP AND FAULTY PART IS READY TO BE RETURNED ON YOUR OWN TIME. HERE IS YOUR BILL, IF YOU DONT LIKE IT STORAGE WILL START IN 72 HOURS AT 18.00 A DAY.

 

 

I usually know at the point of which this conversation starts that I don't want to do business with this person. ( You should see and hear speak some of the people I have to deal with on a daily basis!) Although some are understanding and compassionate enough to say that makes sense. At which point I try to reassure them that they aren't paying 350.00 for a starter from AutoZone that they could buy for 175.00 themselves. But peace of mind, old fashioned honesty, and accuracy that they won't be able to find anywhere else.

[xrac]

You are absolutely correct as to how the customer often has the wrong part. When the consumer goes into AutoZone on a weekday evening or weekend they do not realize that the manager isn't there or any commercial sales account people. There is a $7.00-$8.00 person behind the counter that doesn't know anymore about cars than they do. The combination of the consumer not knowing even basic information about their car (is it a 3.0, 3.3, or 3.8 6-cylinder) with a counterperson who is not knowledge results in the wrong part at least 40% of the time. Often I get someone wanting me to install their $50 water pump on a $400 timing belt/water pump job or their $40 heater core on a $600 heater core job. I always tell them that we do not installed customer supplied parts and that who ever did this job they should let them supply the part so they can have a warranty on the whole job. Some get it and some don't. Here is someone with a liftetime warranty on a $50 part and no warranty for the several hundred dollars of labor.

 

The general public also doesn't get the fact that our shops buy parts at a discount to what they pay. Recently I quoted a fuel pump job at around $600 parts and labor. From the guy's wife I found out that he eventually changed the fuel pump himself but wound up telling her he didn't really think he saved anything. I found out that he paid more than $125 more than we would have paid for the fuel pump and it took him a whole day to get it done. At least he wasn't the guy who paid to have his fuel pump installed only to find out the problem was not the fuel pump but the fuel pump regulator. A job that should have cost less than $300 parts, labor, and diagnosis wound up costing him over $850 because he was trying to save a buck.

[Joe Marconi]

You are absolutely correct as to how the customer often has the wrong part. When the consumer goes into AutoZone on a weekday evening or weekend they do not realize that the manager isn't there or any commercial sales account people. There is a $7.00-$8.00 person behind the counter that doesn't know anymore about cars than they do. The combination of the consumer not knowing even basic information about their car (is it a 3.0, 3.3, or 3.8 6-cylinder) with a counterperson who is not knowledge results in the wrong part at least 40% of the time. Often I get someone wanting me to install their $50 water pump on a $400 timing belt/water pump job or their $40 heater core on a $600 heater core job. I always tell them that we do not installed customer supplied parts and that who ever did this job they should let them supply the part so they can have a warranty on the whole job. Some get it and some don't. Here is someone with a liftetime warranty on a $50 part and no warranty for the several hundred dollars of labor.

 

The general public also doesn't get the fact that our shops buy parts at a discount to what they pay. Recently I quoted a fuel pump job at around $600 parts and labor. From the guy's wife I found out that he eventually changed the fuel pump himself but wound up telling her he didn't really think he saved anything. I found out that he paid more than $125 more than we would have paid for the fuel pump and it took him a whole day to get it done. At least he wasn't the guy who paid to have his fuel pump installed only to find out the problem was not the fuel pump but the fuel pump regulator. A job that should have cost less than $300 parts, labor, and diagnosis wound up costing him over $850 because he was trying to save a buck.

 

It’s truly amazing how some people view our industry. What other business allows this to happen. I never hear my plumber, oil burner service man or carpenter complain about people wanting to install their own parts.

 

Is this a “left over” vestige of times long ago? Or are there still a lot of shops out there that are so desperate or ignorant that they think they need to take in every type of customer?

[Joe Marconi]

It’s truly amazing how some people view our industry. What other business allows this to happen. I never hear my plumber, oil burner service man or carpenter complain about people wanting to install their own parts.

 

Is this a “left over” vestige of times long ago? Or are there still a lot of shops out there that are so desperate or ignorant that they think they need to take in every type of customer?

 

I believe the only way to become successful is to slowly work yourself out of the bays. It’s hard for some, I know it; it was very hard for me. But when I was tied up all day long to the day to day operations, I did not grow. I reached burnout in my 30’s. I was a slave to my own business. I did not realize that I was not a business man but merely owned a job.

 

When I finally realized that I needed to run my company and not just work in it, my company began to grow. Find the best techs; find ways to increase shop production and provide the best service you possibly can. Eventually I hired enough people to take care of every task and operation my company performs. This freed me up to do what I need to do…and that’s to continue to grow my company and look for other business opportunities.

 

I may have switched gears a little on the topic, but I feel that this needed to be said.

[HTI.WERKSTATT]

A funny story on parts mark up from today. 99 K1500 4X4, my best friend from high schools truck, so he qualifies for my friends and family rate. Needs RF wheel bearing my cost apx 65.00, walk in price at Autozone b/c I did the research for him 89.99 So I quote him 75.00 for the part, and 1.7 hours labor at 30.00 an hour (family rate).

 

He tells me, " I can get the part through car quest on our shop account at work, and pay for it in small payments by payroll deduction at his fathers pallet building shop, so how much for just the labor?"

 

I tell him, "Your my best friend Jeff, do what you want to do. But just remember that my part has a warranty with labor coverage, and I will get you the right part, if you bring me the wrong part, and you will pay my price on the right part no if ands, or buts about it. But since you are supplying your own part, and I'm willing to help you out since your my best friend you'll be paying 40.00 an hour due to supplying your own part, and you better hope its right, because the labor rate won't change when I have to order your correct part, and you tie up my rack longer than the allotted 1.7 hours it books for due to a wrong part!"

 

I reiterate once again, " If your part fails within warranty time, you'll pay me twice for labor. With my part you won't, are you sure you want to go this route?"

 

He tells me, "I've got no choice, I've got to save a buck right now."

[Joe Marconi]

A funny story on parts mark up from today. 99 K1500 4X4, my best friend from high schools truck, so he qualifies for my friends and family rate. Needs RF wheel bearing my cost apx 65.00, walk in price at Autozone b/c I did the research for him 89.99 So I quote him 75.00 for the part, and 1.7 hours labor at 30.00 an hour (family rate).

 

He tells me, " I can get the part through car quest on our shop account at work, and pay for it in small payments by payroll deduction at his fathers pallet building shop, so how much for just the labor?"

 

I tell him, "Your my best friend Jeff, do what you want to do. But just remember that my part has a warranty with labor coverage, and I will get you the right part, if you bring me the wrong part, and you will pay my price on the right part no if ands, or buts about it. But since you are supplying your own part, and I'm willing to help you out since your my best friend you'll be paying 40.00 an hour due to supplying your own part, and you better hope its right, because the labor rate won't change when I have to order your correct part, and you tie up my rack longer than the allotted 1.7 hours it books for due to a wrong part!"

 

I reiterate once again, " If your part fails within warranty time, you'll pay me twice for labor. With my part you won't, are you sure you want to go this route?"

 

He tells me, "I've got no choice, I've got to save a buck right now."

 

This is a friend?

 

Let me tell my story. When I started my business in 1980 I had tons of friends. I gave them all super discounts because I thought they were like family. I thought they were special. Well, after a while I realized most of them wanted too much from me. They were killing my business and tying up too much of my time. When I changed my policy and told them that I can give them a 10% discount across the board, and that I would supply ALL PARTS, I lost most of my friends.

 

The bottom line is: if they truly are like family they don’t want you to fail and will support you business, not drive it into the ground. You are in business to turn a profit, you can’t please everyone. Look out for yourself and take of the people that appreciate what you do and are willing to pay what you deserve.

[xrac]

I dislike working on cars for people I know who expect favors. I dislike working on cars for preachers who are always looking for a deals. Joe is correct. The thinking I am your friend, you should give me a deal is not a friends thinking. A friend will think I am going to bring my business to you and you charge me a fair price because I want you to succeed. My guys are always complaining because a friend or family member wants them to do a 4 hour repair on their day off and pay them with a 6 pack of beer.

[Joe Marconi]

I dislike working on cars for people I know who expect favors. I dislike working on cars for preachers who are always looking for a deals. Joe is correct. The thinking I am your friend, you should give me a deal is not a friends thinking. A friend will think I am going to bring my business to you and you charge me a fair price because I want you to succeed. My guys are always complaining because a friend or family member wants them to do a 4 hour repair on their day off and pay them with a 6 pack of beer.

 

Well Said!!!

[DewayneP]

Hello. This is my first post on this site (great site, by the way) and I thought I should share what little experience I have. I have my own part-time one bay shop with me as the do-everything guy. I started out my first 2 years being concerned that someone would look online and see what a part costs and complain about my price so I always charged the same or slightly less than the customer-accepted lowball Autozone price (I have a master-installer account with the local NAPA so I get better prices than even Autozone). I have realized now in the last few months that I can't and won't survive with little or no parts markup. I've started with a modest (in my opinion) 25% markup on all parts regardless of price. I only have a couple of exceptions to that rule: oil filters; if my cost is under $5.00 then the price is $5.00 if my cost is over $5.00 then I mark it up 25% (that is because I charge $26.95 for an oil change with specific pricing on parts and labor). The other is small items like light bulbs. I have a standard price on general light bulbs of $2.48. All of my generic bulbs are under this price by a lot but if they aren't (like a headlight bulb, for example) then it gets the 25% markup. I lost way too much money by trying to be nice and I don't even have any overhead (I work out of my father-in-laws garage and he pays for electricity and heat). I already have the lowest labor rate in the area and I had the lowest parts price too. I'm only in it part-time but will be going full time in about 6 years when my oldest son can start to help me. I think the lowest markup you can do without losing money is 25%, no less. I have also gone to using the flatrate for labor no matter how much I can beat it by, and if it takes longer to do a job (I live smack dab in the center of the rust belt) then I charge actual clock hours. Those are my limited experiences, so take them with a grain of salt.

Oh, by the way, a lot of my customers are friends and even they tell me "You NEED to mark up your parts, I expect it. If I wanted to go to Autozone and buy the parts to fix it myself I wouldn't be in your shop. What I don't expect is when a shop quotes a price on a part and it is 2 or 3 times what I can buy it for over the counter"

[xrac]

.....Let me tell my story. When I started my business in 1980 I had tons of friends. I gave them all super discounts because I thought they were like family. I thought they were special. Well, after a while I realized most of them wanted too much from me. They were killing my business and tying up too much of my time. When I changed my policy and told them that I can give them a 10% discount across the board, and that I would supply ALL PARTS, I lost most of my friends......

 

Joe the nice thing is that those "friends" who were looking for something for nothing or nearly nothing have been replaced by paying customers and now a lot of them have became friends. I think it was Carnegie who said that "A friendship based upon business is better than business based upon friendship."

 

I still think 25% markup is way too low.

[Joe Marconi]

Joe the nice thing is that those "friends" who were looking for something for nothing or nearly nothing have been replaced by paying customers and now a lot of them have became friends. I think it was Carnegie who said that "A friendship based upon business is better than business based upon friendship."

 

I still think 25% markup is way too low.

 

I like that quote from Carnegie.

 

Once shop owner realize what it cost to be in business and to earn a profit, the fear of charging goes away. Why are so many shop owners afraid to charge what they are worth? Is it really the fear that "some" people may complain? SO WHAT if someone can get it cheaper from Pep Boys or AutoZone. I truly don't care.

 

My mark up is a reasonable markup at 50% on parts and 70% on labor. That's needed to pay my bills, pay my people, put food on my table and put a little aside for the future. Don't I owe that to myself?

 

I am not ashamed of what I charge and when I person says to me; “I can get that part cheaper”, I reply and say, “YES YOU CAN, DO YOU HAVE ANY OTHER QUESTIONS FOR ME”?

[xrac]

I like that quote from Carnegie.

 

Once shop owner realize what it cost to be in business and to earn a profit, the fear of charging goes away. Why are so many shop owners afraid to charge what they are worth? Is it really the fear that "some" people may complain? SO WHAT if someone can get it cheaper from Pep Boys or AutoZone. I truly don't care.

 

My mark up is a reasonable markup at 50% on parts and 70% on labor. That's needed to pay my bills, pay my people, put food on my table and put a little aside for the future. Don't I owe that to myself?

 

I am not ashamed of what I charge and when I person says to me; “I can get that part cheaper”, I reply and say, “YES YOU CAN, DO YOU HAVE ANY OTHER QUESTIONS FOR ME”?

 

The best thing that ever happened to me was when I wound up in the environmental contracting/consulting business. Before that time $100 look like a lot of money to me. In that business some job of less than $2,500 wasn't hardly worth messing with. The environmental business I started with grew from sales of $80,000 to $8,000,000 in about 5 years. The dollars we turned and the business was phenomenal. Myself and one man with a trackhoe went on a job for 5 days and after all the bills were paid we had $21,000 profit. Those were the good ole days that are now gone but that experience helps me not to be afraid to charge a fair price. These days we often present repair estimates in excess of $1,000. There is no hard sell. We tell them what we found and what is needed. If there are repairs that can be postponed a few days we let them know that. We will even put the items in order priority wise. If a car isn't worth fixing we will also advise them of that. It is amazing how many $1,000+ tickets we sell. We had one for $1,300 today.

[TTP]

This is a friend?

 

Let me tell my story. When I started my business in 1980 I had tons of friends. I gave them all super discounts because I thought they were like family. I thought they were special. Well, after a while I realized most of them wanted too much from me. They were killing my business and tying up too much of my time. When I changed my policy and told them that I can give them a 10% discount across the board, and that I would supply ALL PARTS, I lost most of my friends.

 

The bottom line is: if they truly are like family they don’t want you to fail and will support you business, not drive it into the ground. You are in business to turn a profit, you can’t please everyone. Look out for yourself and take of the people that appreciate what you do and are willing to pay what you deserve.

 

Well said, I closed a company for this very reason. Lots of "friends" no customers. You don't need the headache associated with that. And on top of that those "friends" will want everything done for either very cheap to free, and expect you to give them a big discount on parts. DON'T do it!!

JOE

[Exclusive Auto Care]

For my business, 35% is just too low. I’m not sure how the people are where you are, but for me, I’m not really concerned if a person knows how much the parts cost. If I go to home depot and buy a faucet for $25.00 and installing myself, that’s my choice. But if I call a plumber to install the same faucet, he will charge a markup on the part and labor. The plumber has overhead and has to insure it. It doesn’t matter at that point if I know how much the faucet cost, does it?

 

One of our responsibilities as business owners is to make a profit and to put away money for the future and for reinvestment into our business. Too many of us give away too much and too many give away their entire career.

 

I try to stay in the range of 50-60% gross profit on parts. I don’t really go by anyone’s list. I know what I need to stay in business, so I charge accordingly. When I sell a job I sell value and benefits and sell the entire job. I don’t focus on parts or on labor, but sell the entire job as one.

 

This is the way I do things and have been doing it for nearly 30 years.

What do you mean by "When I sell a job I sell value and benefits and sell the entire job. I don’t focus on parts or on labor, but sell the entire job as one" How do you sell the entire job as one? Could you specify a little more.

 

[phynny]

He's talking about the quality of the repair, customer service and warranty on all work done. And all this at less than the dealer price!

[Jeff]

I would also add I sell the job. It is $XX.oo for the repair. NOT xx for parts and xx for labor. Go to Outback and ask how much is the steak and how much is the cook?

[xrac]

I would also add I sell the job. It is $XX.oo for the repair. NOT xx for parts and xx for labor. Go to Outback and ask how much is the steak and how much is the cook?

 

I think Jeff has a good point. I don't break down the cost when I talk to the customer unless they ask. I tell them it is $XXX parts and labor plus tax. Then I give them the total with tax. It is not one in ten that asks for a breakdown. It is the total that concerns them most.

[Jeff]

Wat du I no I is jus a stoopd hillbilly!!