Quantcast
Jump to content

Flash Sale + Social Proof


Flash Sale + Social Proof


Flash Sale + Social Proof

Tougher to make a profit


Recommended Posts

It is harder to make a profit nowadays so my question is if anyone knows what the breakdown of percentage spending should be on your shop? This is what we have been told in the past when taking management classes. We are finding hard to stick with the 20% on cost of parts, it's more like 25% to 28%. We are $92hr so we can't really raise our prices anymore.

 

Any input would be great!

 

Here is breakdown we have:

 

Cost of parts - 20%

Cost of labor - 20%

Office Admin - 10%

Expenses - 30%

Owner Salary - 20%

Link to comment
Share on other sites


Flash Sale + Social Proof


Flash Sale + Social Proof


Flash Sale + Social Proof

It is harder to make a profit nowadays so my question is if anyone knows what the breakdown of percentage spending should be on your shop? This is what we have been told in the past when taking management classes. We are finding hard to stick with the 20% on cost of parts, it's more like 25% to 28%. We are $92hr so we can't really raise our prices anymore.

 

Any input would be great!

 

Here is breakdown we have:

 

Cost of parts - 20%

Cost of labor - 20%

Office Admin - 10%

Expenses - 30%

Owner Salary - 20%

 

 

I don't see how you can have a set a percentage of overall spending using this method. Part and Labor are costs of sales and will increase according to sales volume. If you have a phenomenal year, you will have to spend much more on parts and pay more for the labor to do the work while your overhead will remain basically the same. The will skew these percentages as you have them laid out here.

 

I think you are looking at this in a overly simplistic manner. You need to at least divide your expenses into Cost of Goods Sold (COGS) and overhead. You need to know your break-even number. What do you have to make every year/month/week/day to keep the doors open. You then adjust your gross profit (money left from sales after deducting cost of parts and labor) to cover your overhead and provide the owner with a salary.

 

Rather than looking at what you are spending on parts and labor as a percentage of expenses, you need to be looking at what your gross profit is on your parts sales and labor. That is the important number.

 

I don't know if this clears anything up for you.

Link to comment
Share on other sites

It is harder to make a profit nowadays so my question is if anyone knows what the breakdown of percentage spending should be on your shop? This is what we have been told in the past when taking management classes. We are finding hard to stick with the 20% on cost of parts, it's more like 25% to 28%. We are $92hr so we can't really raise our prices anymore.

 

Any input would be great!

 

Here is breakdown we have:

 

Cost of parts - 20%

Cost of labor - 20%

Office Admin - 10%

Expenses - 30%

Owner Salary - 20%

 

I have to agree with Southeast tires. Those percentages are not looking at your numbers the way you should be. You need to do the math and understand your break-even. You also need to check shop/tech productivity and overhead expenses. In addition, you need to find out what your capacity is: Number of techs, number of bays, number of days open and potential labor hours. knowing what your potential is will give you a true goal to shoot for. From these basic number you can put together a plan to become profitable.

 

And remember, break-even means paying your bills, not making a profit. You goal is to make above break-even.

 

There is a lot more to know about your business, this is just a basic starting point.

Link to comment
Share on other sites

Yes, you are absolutely correct about knowing your breakeven and in looking at what your gross profit is on your parts sales and labor etc.

 

But what I am talking about and I appologize maybe I wasn't clear enough, is that I am looking at my profit and loss statement for 2010, the previous year and looking at what percentages have been spent in those specific catagories that I stated, parts, labor, admin, expenses etc.

 

I look at this as a tool to see where maybe we overspent in one area, so now I can take a look and say, "Wow! it cost me 28% on parts for the 2010 year when really it should be at 25%" or "I'm only spending 15% on labor rather than 17%." So now I know or maybe need to do some tweaking for the following year. That's the percentage breakdown that I was talking about. Looking back to make any needed adjustments for current year. I hope that I am making sense?

 

Wondering if anybody knew that percentage formula.

Link to comment
Share on other sites

Yes, you are absolutely correct about knowing your breakeven and in looking at what your gross profit is on your parts sales and labor etc.

 

But what I am talking about and I appologize maybe I wasn't clear enough, is that I am looking at my profit and loss statement for 2010, the previous year and looking at what percentages have been spent in those specific catagories that I stated, parts, labor, admin, expenses etc.

 

I look at this as a tool to see where maybe we overspent in one area, so now I can take a look and say, "Wow! it cost me 28% on parts for the 2010 year when really it should be at 25%" or "I'm only spending 15% on labor rather than 17%." So now I know or maybe need to do some tweaking for the following year. That's the percentage breakdown that I was talking about. Looking back to make any needed adjustments for current year. I hope that I am making sense?

 

Wondering if anybody knew that percentage formula.

 

 

I see what you are saying but maintain my position that you cannot look at your overall spending in this way. What if your sales doubled this year? You would obviously have to spend more on parts and labor while your overhead expenses would remain largely static. Looking at it using your method you would have spent a much larger percentage on parts and labor. This would not be a bad thing though, it means you made more money.

 

You need to monitor what you are making on the sale of those parts versus what you spent on them. What you are spending on them as a percentage of total expenses is unimportant.

 

What is your Gross Profit percentage on parts sales?

Link to comment
Share on other sites

I see what you are saying but maintain my position that you cannot look at your overall spending in this way. What if your sales doubled this year? You would obviously have to spend more on parts and labor while your overhead expenses would remain largely static. Looking at it using your method you would have spent a much larger percentage on parts and labor. This would not be a bad thing though, it means you made more money.

 

You need to monitor what you are making on the sale of those parts versus what you spent on them. What you are spending on them as a percentage of total expenses is unimportant.

 

What is your Gross Profit percentage on parts sales?

 

I maintain my position too. Unless I miss the point, I really don't look at what I spend in ratio to my sales. BUT, I do look at the gross profit precentages and gross profit dollars I make on parts and labor. If that is what you are asking that's different. NOW, every shop is different, so numbers will be different. But I try to make 48-52% GP on parts, 65-70% on labor. Again these are my numbers....I did the math.

 

When you factor in you cost of doing busines, you will come up with a number you need to obtain in order to turn a profit. So the more I sell, the more parts I buy, the more labor I sell, and the happier I am.

 

I hope I am helping here and not confusing the issue. To sum up: I know what my breakeven is, I know what my cost of tech labor is and I know what my goals are. I creat a plan to turn a profit.

 

PLEASE, let me know I this is helping...

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
  • Similar Topics

    • By Joe Marconi
      The Summer is in full swing, a time when many people take vacations and also spend time engaging in their favorite hobbies and activities. 
      How do you spend your free time?  
    • By Transmission Repair

      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.

    • By Joe Marconi
      I will never forget the day when a customer, who didn't like the price, took cash out of his pocket, crumbled up the cash, and threw the money at me. 
      This customer clearly crossed the line, in my opinion. 
      Before I tell the rest of this "true" story, I would like to hear from you: How would you have handled this situation? 
       

    • By Joe Marconi
      I thought this article from Ratchet and Wrench was an interesting perspective. Let me know what you think?  Joe Marconi 
      Is It Time to Raise Your Labor Rates?
      May 27, 2022   Nolan O'Hara   No Comments With increasing costs and rising inflation, many shop owners realize it may be time to raise their labor rates. But it’s always a battle. 
      There are several factors to consider, including customer satisfaction. Every shop owner needs to keep their pulse on the industry and make sure they're running an effective business, but when do you know, and what steps should you take when you’re considering raising your labor rates? 
      The Backstory
      Andy Massoll, founder and CEO of The Detroit Garage, has been working in the auto industry for over 20 years. His father opened their first store, Curt’s Service Center, which Massoll still operates as part of The Detroit Garage auto family. 
      Massoll understands the battle shop owners go through when considering raising their labor rates. He also knows there’s a misconception in the industry that gets a lot of shop owners into trouble: the difference between a door rate and an effective labor rate. 
      The Problem
      It’s difficult to run a shop, and it’s certainly not easy to find and keep professional technicians. It’s vital to know your numbers. Massoll bases his labor rates on his effective labor rate, analyzing his wages and costs. 
      Massoll says understanding your effective labor rate is critical and provides a better insight into your true costs, including the costs of obtaining and keeping your skilled labor. 
      “If I can’t obtain or retain (professional) talent … that is when, clearly, I need to pay more,” Massoll says.
      Shops need to control rates to balance customer expectations and run the business.
      The Solution
      Massoll keeps a close eye on his shops’ productivity. That means understanding how many billable hours your shop is producing and comparing the number of hours worked. 
      Understanding where your productivity is at is crucial in determining raising your labor rates. 
      “You can’t begin to make an educated guess on what (the) labor rate you should charge is until you truly know your labor costs,” Massoll says. “And it’s hard to know your labor costs if you don’t understand and know your labor proficiency or productivity.” 
      Close supervision is key, but you don’t need to write it all out on a whiteboard. Massoll uses a software program to make sure he has a keen understanding of his shops’ productivity. Their goal at The Detroit Garage is to always be at 100 percent productivity overall. That helps Massoll understand when it’s the right time to raise his rates. 
      Additionally, Massoll is on top of his numbers. He spends time in the weeds, analyzing his total number of labor hours and the labor dollars they sell per store over a month, comparing that to his employees’ wages, and understanding the true costs of his business.
      Massoll knows when it’s the right time to raise those rates because he’s spent the time analyzing his numbers, working to keep on top of a gross profit goal of 70 percent to 72 percent on labor. 
      The Aftermath
      Eventually, there comes a time when it’s necessary to increase those rates, and Massoll has done so fairly recently. 
      Economic factors are also important to consider—factors like rising parts costs and inflation. As inflation soared to around 7 percent in 2021, Massoll gave all his employees a 7 percent pay rate increase to counter that economic influence. Because of that, he increased his labor rates.
      The Takeaway
      With prices going up everywhere, Massoll’s biggest piece of advice for other shop owners is to charge appropriately for your work. 
      He says too many shop owners think of the decision emotionally, wanting to help their customers. Massoll acknowledges it needs to be a factual and calculated decision. 
      Massoll notes that he once had a long-term customer come in, who, when he paid for his bill, asked, “That’s it? That seems too cheap.” 
      Massoll explained to him that he was a good customer, and Massoll wanted to take care of him. The customer told him, “If you don’t charge me appropriately and be profitable in your business, and you go out of business, how does that help me the next time I need your service?”
      That’s a lesson that’s stuck with Massoll through the years. 
      “This industry is full of very good people; our business is in helping people. People have car problems, and we help them,” Massoll says. “But we do that for a monetary exchange. And too many business owners run their business with their heart, and when it comes to business, you have to be profitable.” 
       
       
       
    • Heavy Duty Parts Fleetcross
    • By carmcapriotto
      Daniel Griffith, Wally's Precision Auto Care, Las Vegas, NV
      Key Talking Points
      Finding, identifying, and connecting with the ideal customer and naming them (Jennifer and Clara)- what books are they reading? Who are they following on social media? What are their expectations?  Build out each phase of the customer experience process, and look at the highs and lows What parts of the process are easy and what parts are hard? Simplify that down as much as possible If something's not working, change it. It's that simple Hiring new employees- asked his current employees what they like about their job, then used their words on the job descriptions “Culture eats strategies for breakfast.” The average tenure of his current team is over 12 years  
      Connect with the Podcast:
      Aftermarket Radio Network
       
      Subscribe on YouTube
      Visit us on the Web
      Follow on Facebook
      Become an Insider
      Buy me a coffee
      Important Books
      Check out today's partners:
             
      Set your sights on Las Vegas in 2022. Mark your calendar now … November 1-3, 2022, AAPEX - Now more than ever. And don’t miss the next free AAPEX webinar. Register now at AAPEXSHOW.COM/WEBINAR.

      More Time. More Profit. Transform your shop at getshopware.com/carm


      Click to go to the Podcast on Remarkable Results Radio


  • Our Sponsors



×
×
  • Create New...