Tougher to make a profit

[Vegas14]

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%

[Southeast Tire Co.]

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.

[Joe Marconi]

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[CARMandP]

Watching this with interest. I am still trying to get this figured out as well.

[Vegas14]

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.

[Southeast Tire Co.]

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?

[Joe Marconi]

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