Marking up parts

[carbtech72]

what is the best way to mark up parts. When i worked for someone else i always went by the list price and cost price. But now that im on my own. I'm not sure what way to do it. So many people call autozone and advanced so i have to hear "they only charge me this price". I want to keep my customers happy but i need to make a living as well

[Joe Marconi]

what is the best way to mark up parts. When i worked for someone else i always went by the list price and cost price. But now that im on my own. I'm not sure what way to do it. So many people call autozone and advanced so i have to hear "they only charge me this price". I want to keep my customers happy but i need to make a living as well

 

Common question and a big issue with all of us. We have Adanced Auto around the corner and they sell to walk-ins the same as they sell to us. It's for that reason I will not buy from them.

 

There is always a balance between being profitable and being competitive. With that said, you need to charge enough to remain in business. You also need to do a Cost of Doing Business Analysis, which will determine the needed money you need to bring in to break even and to make a profit.

 

Generally, most shops that I have spoken to try to get 45-55% on most parts, maybe a little less with dealer parts.

 

Many shops use a matrix system where the lower cost price items are charged at a higher percentage and the higher the cost the less markup. In other words; a part the cost $11.00 may sell for $31.00 or more, but a part that cost $500 may only sell for $650.00.

 

By the way I don't worry too much about people calling around, they are not my customers and I don't want them. (But that's me)

 

Hope this helps, let me know...

[xrac]

The biggest mistake new owners in this business make is not charging enough for labor and not marking up parts enough. People just do not understand how high the cost of doing business and overhead can be. We have been in business 12 years and my biggest concern right now is my margins are not good enough. I do not just want a job but also a return on my investment. If people want to pay the prices that Auto Zone or Advance charges for parts they are not going to be my customer. Most of the time we do not install customer supplied parts. However, we do make occasional exceptions especially in dead times.

[CARMandP]

I agree with both of the guys above. I can tell you personally (as a tech gone shop owner) I was a little nervous about charging what I thought was too much for parts. Since I have moved to a bigger building with a LOT more overhead, I am quickly realizing that the 45-55% is what you will NEED to be able to pay the bills and make any money. I personally use a matrix like Joe said. The Mitchell1 manager system that I use allows me to easily do this.

[Joe Marconi]

Great points everyone. I just want to emphazise what xrac said, We don't just want to pay our bills and survive. That's not the point of being in business. We are not being fair to ourselves or to our customers if we are not making a return on our investment. We do no one any good if we do not generate enough profit to continue to grow our lives and our business. We want to be around next year, right? Well we won't unless we make a profit.

[xrac]

When we don't charge enough we find ourselves working 6-7 days per week at 10 hours or more per day. When we are doing this and just scrapping by we find ourselves tired, exhausted, and burnout after a few years. We suffer and our families suffer because we are selling ourselves and services too cheap.

[FROGFINDER]

In hard times our upkeep becomes our downfall. Get debt free ASAP. Work six days a week and rest the seventh. Too much idleness and gossip will dress you in rags.

[Joe Marconi]

When we don't charge enough we find ourselves working 6-7 days per week at 10 hours or more per day. When we are doing this and just scrapping by we find ourselves tired, exhaust, and burnout after a few years. We suffer and our families suffer because we are selling ourselves and services too cheap.

 

Could not have said it better. With three sentences you summed it all up!

[opsrex]

What are your margin targets? I look for 80% before mechanic labor and 65% after mechanic labor is factored in. To achieve the 80% before labor, I teach my writers one very important rule: When Ticket Total equals Cost of Goods times five, then Gross Profit will always equal eighty percent. (TTL=COGS*5,GP=80%). This is an immutable law of math. If a part cost $10 and you charge $20 for the part and $30 for the labor, then your gross profit is 80%. If the part cost $10 and you charge $0 for the part and $50 labor, the gross profit is still 80%. Yes, I know, you can't always apply this formula. If you go by a labor guide (we use Mitchell) the labor is what it is and you cannot ethically alter it without solid grounds. It also becomes a problem when you have an expensive part such as an alternator. If an alternator costs $150, you can't very well charge $750 for parts and labor and expect to stay in business. But what I teach my writers is that you can take the rule and use it as a guideline and then look at add-ons. In the case of the $150 alternator, I would expect to sell the part for $250-300 and usually about 1.5 hours labor. So if I sell the part for $250 and my labor is $150 (1.5*$100/hour), this is a total ticket of $400 which gives me a gross profit of 62%. This is well down from what my target it. If that is the case, they need to thoroughly inspect the vechicle and see if there are other services that they can legitimately recommend without raising the COGS. An alignment and balance ($125) has no COG but will bring my GP up 9 points to 71%. Still down from where I want to be, but it is much easier to make up the nine margin points between 71 and 80, than the 18 margin points between 62 and 80.

 

I don't spend much time worrying about what the parts markup is, but I obsess over my margin. As a franchisee who has to give 10% back to the mothership, margin targets are hugely important to me. A $72K month at 65% (after mechanic labor at 15% is added in) is $46800 in gross profit. The same month at 60% is $43200; $3600 that could go right into my pocket. For doing the same amount of work.

 

Anyway, my two cents.

 

phl

[xrac]

What are your margin targets? I look for 80% before mechanic labor and 65% after mechanic labor is factored in. To achieve the 80% before labor, I teach my writers one very important rule: When Ticket Total equals Cost of Goods times five, then Gross Profit will always equal eighty percent. (TTL=COGS*5,GP=80%). This is an immutable law of math. If a part cost $10 and you charge $20 for the part and $30 for the labor, then your gross profit is 80%. If the part cost $10 and you charge $0 for the part and $50 labor, the gross profit is still 80%. Yes, I know, you can't always apply this formula. If you go by a labor guide (we use Mitchell) the labor is what it is and you cannot ethically alter it without solid grounds. It also becomes a problem when you have an expensive part such as an alternator. If an alternator costs $150, you can't very well charge $750 for parts and labor and expect to stay in business. But what I teach my writers is that you can take the rule and use it as a guideline and then look at add-ons. In the case of the $150 alternator, I would expect to sell the part for $250-300 and usually about 1.5 hours labor. So if I sell the part for $250 and my labor is $150 (1.5*$100/hour), this is a total ticket of $400 which gives me a gross profit of 62%. This is well down from what my target it. If that is the case, they need to thoroughly inspect the vechicle and see if there are other services that they can legitimately recommend without raising the COGS. An alignment and balance ($125) has no COG but will bring my GP up 9 points to 71%. Still down from where I want to be, but it is much easier to make up the nine margin points between 71 and 80, than the 18 margin points between 62 and 80.

 

I don't spend much time worrying about what the parts markup is, but I obsess over my margin. As a franchisee who has to give 10% back to the mothership, margin targets are hugely important to me. A $72K month at 65% (after mechanic labor at 15% is added in) is $46800 in gross profit. The same month at 60% is $43200; $3600 that could go right into my pocket. For doing the same amount of work.

 

Anyway, my two cents.

 

phl

 

It was much easier to maintian that type of margin with Midas was strictly an undercar shop. Now that you do everything how has that affected your margins?

[opsrex]

It was much easier to maintian that type of margin with Midas was strictly and undercar shop. Now that you do everything how has that affected your margins?

 

 

I became a franchisee right before the economy collapsed in 2008, so I've never known any of the good times. I took over a franchise that had been horribly mismanaged for years. The previous franchise had managed to give both the shop and Midas a bad name. He had alienated the customer base because he had refused the recognize the changing demographics (shift from caucasion to African American with much lower disposable income). I've never known the good times that I've heard so much about. So, to answer the question, my margin target is 80%. Some things will swing it down. I will sell you tires if you insist, but there is a Costco down the road and they are welcome to the tire business. We don't hit 80% every month but we come close.

[Dennis R.]

what is the best way to mark up parts. When i worked for someone else i always went by the list price and cost price. But now that im on my own. I'm not sure what way to do it. So many people call autozone and advanced so i have to hear "they only charge me this price". I want to keep my customers happy but i need to make a living as well

 

 

You should go for about 53% on your parts margin which is just over double your cost on every part that comes in , some big items you cannot mark up that much so on the smaller stuff you need to sometimes triple your cost , Don't worry about the price shoppers just explain to them you use a higher quality part and warranty it both parts and labor, We have averaged about 51% parts margin over the last 3 years and now that the work is coming in steady we will shoot for that extra 2% on parts margin.

 

Above all else don't give that parts margin away it is the difference in staying in business or going out of business