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Tougher to make a profit


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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%

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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.

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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.

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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.

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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?

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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...

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