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Marking up parts


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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

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Great Tire Deal

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.

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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

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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.

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  • Have you checked out Joe's Latest Blog?

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      It always amazes me when I hear about a technician who quits one repair shop to go work at another shop for less money. I know you have heard of this too, and you’ve probably asked yourself, “Can this be true? And Why?” The answer rests within the culture of the company. More specifically, the boss, manager, or a toxic work environment literally pushed the technician out the door.
      While money and benefits tend to attract people to a company, it won’t keep them there. When a technician begins to look over the fence for greener grass, that is usually a sign that something is wrong within the workplace. It also means that his or her heart is probably already gone. If the issue is not resolved, no amount of money will keep that technician for the long term. The heart is always the first to leave. The last thing that leaves is the technician’s toolbox.
      Shop owners: Focus more on employee retention than acquisition. This is not to say that you should not be constantly recruiting. You should. What it does means is that once you hire someone, your job isn’t over, that’s when it begins. Get to know your technicians. Build strong relationships. Have frequent one-on-ones. Engage in meaningful conversation. Find what truly motivates your technicians. You may be surprised that while money is a motivator, it’s usually not the prime motivator.
      One last thing; the cost of technician turnover can be financially devastating. It also affects shop morale. Do all you can to create a workplace where technicians feel they are respected, recognized, and know that their work contributes to the overall success of the company. This will lead to improved morale and team spirit. Remember, when you see a technician’s toolbox rolling out of the bay on its way to another shop, the heart was most likely gone long before that.
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