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Parts mark-up and advertising


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I am in a small market and our only real competition is a shop that charges $70 an hour and marks up their parts an average of 100%. What is a fair percentage on parts mark-up? I was thinking 20% was fair and profitable. Also the average labor rate in the area I am in is $60 an hour so we are planning to go in at $58. We do all our head work in house with our county's only ASE master certified machinist who is also our lead tech. The shop has been in business for a year now and has reached the point where we either expand or fail. We are moving into a better location(we were out in the country and are moving in town). My main question is since we have a good reputation already how do we bring in more customers once we move? Should we hit radio ads hard or do mailers or just kind of do everything. I was kind of tossing around the Idea of a 9.95 oil change on opening day. Any ideas will be greatly appreciated.

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I do not know what your overhead is but my overhead is such that if I went to a 20% parts markup I would soon be out of business. In my opinion that is too cheap. For example on dealer parts shops are usually able to buy at a 25% discount over the general public. In my mind that is a bare minimum that should be charged on any part although on most things we try to do much more. The way our shop pay is structured at 25% I am breaking even on a part. I think one of the biggest mistake that small shops and start ups make is to not charge enough. This leads to a lot of issues. The owner has to work way to many hours to be profitable. You establish a reputation for being cheap and attract a clientele that are all price shoppers. The whole pricing structure is not profitable enough to allow investment in technology, equipment, more qualified personnel, better buildings, and locations. You do not have a great enough return on your investment. We have been working on our pricing because we have just not been profitable enough.

 

As far as the $9.95 oil change it will attract a customer you may not want in the long run. While you are doing the $9.95 oil change the shop at $70 an hour will be fixing the cars of people who want their car FIXED. The $9.95 oil change customer is often the one who says just change my oil and DON'T look at anything else. How about offering something like an oil change and tire rotation for $25.95. That is the promotion I favor. It is not too cheap but it is attractive to someone who wants to take care of their tires. This is a customer more than likely to take care of the car.

 

thank you so much we are getting into selling tires also so the $25.95 idea is way better and i did some math and figured that 35% easily covers our lease payment based on an slow month.

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Oh by the way I forget to welcome you to the forum :wub: . WELCOME! Tell us a little more about yourself and where you are located!

 

 

Martin, TN and I have worked in a ford dealership both as a tech and parts manager, several independent shops, and retail parts management. I am not the shop owner but have the option to buy in which i am strongly considering. The shop owner has been my best friend since diapers and we have worked well together in the past. We both got our automotive educations from NADC. He is an ASE master certified machinist and holds six other ASE certifications.I was in a car accident that ended my technician career so I only have about 4 years of experience as a tech. My role at this shop is primarily a service manager and business manager. The building we are taking over is a old semi truck shop with three huge bay doors in front and back with plenty of room for a machine shop and large office. Also there is a loading dock and storage room that has enough room to stock plenty of tires and common parts. We are waiting to find out if the bank loan for the expansion is going to go through and still waiting on the building owner to decide what he wants for the building so hopefully we will be fully functional by April first. Thanks for the welcome and help xrac. I wish I had found this site sooner it is the most helpful resource Ive found.

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Welcome and good luck to you on moving to a new location.

 

I want to cover a few things. Try not to fall into the trap by setting your prices and labor rate by what other shops are doing. I know you need to be competitive, but you also need to know what it will take to be profitable and nit just merely survive. You need to sit down and find out what your breakeven is and what return on investment you need to make. This may take a good accountant to calculate.

 

Xrac mentioned that a 20% mark up would drive him out of business. I would bet that there aren’t too many shops that can survive on that. Parts mark up should be in the 40 to 55% range and labor needs to be the 70% for the average shop. Again, sit down with your accountant and do the math.

 

I know firsthand a few shops that went out of business because they either beat of matched the price of the cheaper shops in their area. The reality is that the other shops never did their homework and they all suffered.

 

I like to be a leader and set the tone in my area. I worry about my bottom line, not the low-ball shop down the road.

 

As far as new business; I did very well when I expanded and built my new shop by using radio, TV, direct mail and getting involved in local business organizations.

 

One last thing; market to the customer you want, never try to be everything to everybody.

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I am in a small market and our only real competition is a shop that charges $70 an hour and marks up their parts an average of 100%. What is a fair percentage on parts mark-up? I was thinking 20% was fair and profitable. Also the average labor rate in the area I am in is $60 an hour so we are planning to go in at $58. We do all our head work in house with our county's only ASE master certified machinist who is also our lead tech. The shop has been in business for a year now and has reached the point where we either expand or fail. We are moving into a better location(we were out in the country and are moving in town). My main question is since we have a good reputation already how do we bring in more customers once we move? Should we hit radio ads hard or do mailers or just kind of do everything. I was kind of tossing around the Idea of a 9.95 oil change on opening day. Any ideas will be greatly appreciated.

 

WOW, where do I start. Do yourself a favor and ditch the 9.95 oil change idea. If cheap customers are what you are after this kind of promotion will get you just that. I just returned from the Vision High Tech Expo in KC this evening. I attended 3 days of some fantastic management and marketing training. The first thing I can advise you is this, get some training. It is available through your parts vendors. I know for a fact that NAPA, Carquest and Oriellys have training available for either free or at very reasonable prices. These training options are usually in CD or Tape form and on the internet. Check out this link for some great training options Automotive Management Institute (AMI) Join BNI, http://www.bni.com/ and participate, Join ASA, Automotive Service Association Automotive Service Association ( ASA ) and get involved. You will surround yourself with sharp business people and make some great friends at the same time.

By the way, as I told you earlier, I just returned from management training this evening. After 25 years as a shop owner I still try learn and better myself.

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I strongly suggest that you read the E Myth. It seems like you run your operation as a technician and not as a business man. You should calculate for yourself what profit you want to make and what your goals are. With a 20% parts margin you will end up like many shop owners, you will have a business that is only worth the equipment when you are ready to retire.

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I strongly suggest that you read the E Myth. It seems like you run your operation as a technician and not as a business man. You should calculate for yourself what profit you want to make and what your goals are. With a 20% parts margin you will end up like many shop owners, you will have a business that is only worth the equipment when you are ready to retire.

 

GREAT suggestion, great advise, I have the read the E Myth twice and actually took the E Myth Master Course. It helped me understand that we need to build a business that runs on its own and one that can grow with the right people in place and by creating systems and polices.

 

The beauty of the E Myth is that it applies to all types of business. When the owner of the shop is nothing more than the hub of the company and everything is dependent on him/her, the business will suffer.

 

The bottom line is that shop owners need to be more than just technicians tied down to the day to day operations. Remember, just because someone is a great chef, does not mean he knows how to run a restaurant. The same holds true for mechanics.

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