bstewart

Industry standards state that 50:50 isn't good enough anymore to run a profitable shop. You should be shooting for 55:45 right now, and eventually 60:40 labour:parts ratio. It's a known fact that for many jobs, book hours are too low, but to mark all of them up by 20-30% might be a bit overkill. Consider maybe picking and choosing ones that are impossible to meet, and increasing them by a larger margin, but leaving a lot of the "good" ones alone. It sounds to me like your labour rates are too low, and like you said, you aren't billing enough hours. Do you make 70% gross profit on your unloaded tech's pay/60% on loaded tech pay? If a job goes over book time because of corrosion or excessive grime, you bill for your time? Do you have excessive comebacks or unbillable work? A good book to read might be Mitch Schneider's Managing Dollars with Sense. It shows 2 methods to calculate a suitable and profitable labour rate for YOUR shop based on YOUR numbers.

Congrats, Pete! Sounds like you got pretty lucky finding a suitable shop space, tools AND a mentor/coach all in one. A lot of starting business owners could only dream of being so lucky. What kind of work are you doing right now? You seemed to flip flop a bit before, going from restorations to autobody then high end. How busy are you at the moment? When do you project that you'll be able to work for yourself full time?

The link doesn't work, but if you go here: http://www.transmissiondigest.com/members1/online/tdmembers.php and click on the May 2014 edition, then find page 52, it will work.

http://www.motor.com/article.asp?article_ID=210 http://www.ratchetandwrench.com/RatchetWrench/February-2013/Paying-for-Production/ http://www.ratchetandwrench.com/RatchetWrench/June-2014/Finding-a-Better-Payment-Model/ Read all 3 articles and I'm sure you'll have a much better grasp on where to start with an incentive-based payment plan.

http://www.motor.com/article.asp?article_ID=541 http://www.ratchetandwrench.com/RatchetWrench/April-2014/Transitioning-Away-from-Fleet/ Those are two articles off the top of my head relating to fleet servicing. The motor.com article is about selling to fleets profitably, and how to go about doing it on the business side. The other one is a bit of a warning about what can happen if you focus too much on fleets, and what are some good proven methods of how to turn a good profit with them. This article states that 80% retail and 20% fleet is an ideal setup. I think one of the most important things with fleets, is to offer some kind of discount (maybe not the full fleet discount) to all of the company's employees who want to bring in their personal vehicles as well. This can be a huge car count booster, and if you do things right, it can still be quite profitable, and it's free advertising. If you do good work, word of mouth from that will spread like crazy.

That does make sense that you would change things on the invoice a little, to make the values to be a bit more easy to swallow for the customer. I'm certainly not advocating hiding your parts and labour on your invoices, even if the law doesn't say that you have to. Transparency and openness is always better for customer relations. I was just saying that when doing estimates, they should be quoted by the total job price, not parts & labour, and definitely not parts & hours. It's true that some people will always complain, but for most people, if they approved a job that is X amount of dollars, it won't matter what portion of X is labour and what portion is parts.

Pattersonautobody, regarding your first random thought: The whole point of KPIs are that they are industry standards that have been forged by people who have done many hours of math to break down the numbers in auto repair. They aren't just imaginary numbers that someone pulled out of mid air, there are actually quite complicated calculations used as proofs that these numbers are required for a shop to make a good profit margin at the end of the year (20+% should be your target, most shops make 3-5% or less). As a side note to this, I agree that selling on value is very important, and you should get your maximum return on each repair, but most shops problem isn't return on repair, it's low productivity, efficiency and hours/RO. Productivity is profit, plain and simple. On the second point, http://www.motor.com/article.asp?article_ID=369 This article explains the industry standard of how to track time and calculate efficiency, productivity, parts:labour ratio, and explains how to correctly bill diagnostic time, which is a major profit weakness in most shops. You need to be calculating your lost time, because once it is lost, it can never be gotten back. And time is the most important item you're selling, not labour or parts. As for your statement, "we don't care how slow or fast a tech gets the work done", you SHOULD care! This is directly related to your tech's efficiency, and it is arguably one of the most important KPIs for a shop to track correctly. Regarding your last topic, Does your shop quote out parts & labour (or even worse, parts & hours) on your estimates, or do you quote how much a JOB is worth? It shouldn't matter whether a brake job is $125 parts and $75 labour, or $150 labour and $50 parts. In the end, the job costs $200, and this is the number that customers mainly use to price shop (except when calling local part stores). No other professional industry uses the "parts and labour" mentality, and neither should the auto repair industry. I understand that some customers will fight about these issues anyways, but in many cases you can try to explain the value of the job to these customers. If it gets bad, let them go give grief to a shop owner who likes dealing with problem customers.

I'm actually glad that you've brought this old topic to life, I had hoped to get a little more discussion out of these threads then I did. Did you read my other thread? http://www.autoshopowner.com/topic/9381-labor-margin-vs-parts-margin It relates to this one. I believe (and others do too) that parts margins will be driven down in the future by a combination of internet price checking, transparency in business practices, and customer attitudes. I believe it will be harder in the future to maintain a 50% parts margin with customers who know that they can get the same part at their local part store, for lower then what you are selling it for. From a warranty perspective, a shop normally justifies high parts margins with the statement "we add value to the part with our warranty". While this may be true in your eyes, customers don't see it that way, all they see is higher prices then the local parts store. Ask yourself this: What am I really selling in my shop? The correct answer to this is your time, aka your labour. If you didn't sell any labour, there would be no parts sales, it's certainly not the other way around. Why not have your rates reflect what your customers are -really- paying for when they bring a vehicle to your shop? Your labour! With proper marketing, your customers will appreciate that you aren't gouging them on parts, and your shop will also become more profitable at the same time! You might ask: How will it become more profitable, seeing as you still make the same amount per hour? (as I demonstrated above) The answer is: In the future, jobs will be more and more labour intensive, with less related parts sales. Reflashes, diagnostics and maintenance all have very low related parts sales, but can be very profitable for your shop, and with an increased labour rate, you shop will be more profitable and sustainable in the future.

I believe this is the correct answer, although I think the potential safety issue is very minimal IMO. Don't forget that you almost always have a slight brake pull due to the crown of the road. I also think that refinishing/replacing in pairs is to keep both sides wearing at the same rate, so if one is worn out, the other will be soon to follow. That being said, I work at a heavy duty dealership at the moment, and we regularly replace single rotors on commercial trucks with disc brakes if the other is still within spec. If I was in your situation, I'd measure the "good" rotor, estimate how much time is left before it fails, and inform the customer. Educate them to the cost of fixing it now vs returning for another appointment where you have to disassemble that wheel end again. Obviously recommend changing rotors in pairs, but if they don't want to, I wouldn't press the issue. If the rotor will last until their next scheduled maintenance, maybe they'd want to have it replaced then, always give your customer the choice.

Unfortunately, I don't believe it's stupidity most of the time. This is how customers have been conditioned to think for the last decade or so. If you take the time to educate your customer about value and the good work you do, and they still don't respect it (they just care about the almighty dollar), then I do believe it's time to fire that customer. I believe that firing a customer is a tactic that is underused in this industry, and if most of the "problem" customers got fired by a shop or two, it would greatly benefit everyone (especially you and your employee's morale). I'd be willing to bet it follows the old 20/80 rule: 20% of your customers cause 80% of your problems. The same 20% also most likely cost you money and your valuable time, rather then making you money from your time.

Definitely let it slide IMO! What if the customer took a card but referred more then 1 person? This is a good thing, not something to be strict about. Maybe you could even say "We usually want the card to be presented, but we'll give you the discount anyways." You just keep looking better and better to the new customer.

I'm very interested to see how others on here deal with a situation like this. My gut feeling is to have the customer pay full price for the mirror repair (every minute of diag billed for sure), the shop performs the air bag/seatbelt light repair no charge, and fire the customer from your shop. Hopefully the no charge repair isn't too ridiculous (less then the initial charge). This isn't the type of customer that I would want at my shop. They obviously don't respect you or the work you do, and are just looking to get "something for nothing." Eating one job is probably a small price to pay for eliminating the headaches this person will cause in the future.

Rambiss, you said someone sent you a great spreadsheet. Can you post a link, or send it to me? I might be in a position to get my first shop and I'm going to start jumping through the same hoops you did.

This is something I've thought of a lot as well. Having a strong warranty and using top quality parts is definitely a great selling feature for you. I'm guessing most "rat hole" type shops would run a 3 or 6 month warranty. From what I've seen, the most common would be a 12/12 warranty. A premium shop using top quality parts could easily offer 24/24 or even more if using dealer parts.

Looks very professional, I like it! The last 1.5 digits of your big phone number in the top right is cut off from my view. You might have to test your site on different browsers and resolutions to work out a bug such as this. Also, in the Auto Repairs dropdown, you should try to get each item on 1 line. For me it shows: Automotive Q & A It just looks a little silly like that. Other then that, it looks fantastic! All shops should strive to have a website such as this.

Excellent! This is exactly the kind of discussion I wanted to start! I'll be waiting to hear what insight you come back with from your meeting.

I asked for input from other shop owners in the other thread as well, but it seems that very few, if any, others on here have actually put this to the test and will share their results. (except maybe mmotley) Maybe a good start would be, asking your long time customers what they would think of the idea. You could say that you feel it's more transparent to the customer, and the benefit would be that you wouldn't charge more then your local parts store. See what their reactions would be. But also know, that if 5-10% of your "good" customers aren't complaining about your labour rates, they probably aren't high enough anyways.

Mmotley, do you follow this pricing structure in your shop? Would you care to share your actual gross profit margins on your labour and parts, and your parts:labour ratio? My only question would be: Would you be comfortable posting your labour rate in your shop? Would your customers appreciate the "we don't mark up parts" argument if they could plainly see that your labour rate is $150 when all your competitors are around $100? Like I said before, I agree with this idea, but right now it really is only an IDEA. I want to know if it's been done in practice, and what feedback your customers have given you. Tires Too, I outlined my theory in this thread: http://www.autoshopowner.com/topic/9381-labor-margin-vs-parts-margin/ Perhaps you'd like to take a moment to read the thread, and maybe you'd be interested in putting the theory to practice and letting us know the results (your customers reaction)!

I also feel like this is theft, although I'd like to hear from others who have dealt with the legality of situations like this. I believe you could file a mechanic's lien against the vehicle, but being from Canada, I'm not all that knowledgeable about US law.

In an ideal world, you would hit your target profit margin for labour and parts on each ticket. Unfortunately the real world is not like that. Since each ticket is very different, you will have widely fluctuating profit margins from ticket to ticket. On one ticket, you might sell a lot of small, higher profit items, like bulbs, clamps or filters. Your parts profit margin on this ticket might be a massive 80%, but you might only make a few dollars of actual profit on your parts. On another ticket, you might sell a transmission, which carries a much lower profit margin (around 25-30%), but you would also make hundreds of dollars of actual profit on this ticket. Therefore, you have to look at your averages over a period of time (daily, weekly, monthly) to find your "real" profit margin on parts. The longer the time period, the more accurate the number will become, because it smooths out the fluctuations from ticket to ticket.

That is a wonderful idea! I hope you get some repeat customers from this promo. How much did it cost to fix up the car?

I think you missed the point of my post, and focused on the one line that carried the least weight. The OP was asking if he should be "just covering his overhead" with his parts margins, or whether he should be making money. I simply explained the industry standards of profit margins, which is 70% on labour and 50% on parts, for an average of 60%. I honestly agree with you that parts margins aren't everything, but they most definitely can not be overlooked either. Like I said in my post, a shop only sells two things: labour and parts. Not making any meaningful profit on parts would only be ok if you were making something like 78-80% on your labour ($140-150/hr shop rate on $30/hr techs), which I suspect 99% of shops aren't. I even outlined this theory (higher labour margin & lower parts margin) in my other thread, which I linked to at bottom of my first post.

It's an 8 part series, and you should be able to find them for about $30 each. I only have the first book right now, but I intend to get the whole series, it's extremely well written. I'd say it's a great $240 investment for the whole series. Try different places, like amazon, barnes&noble, ebay etc.

I've been doing a lot of reading about shop profitability and the numbers that help you to achieve it. I'm also certainly looking towards the future of auto repair, and how shops will continue to be profitable in a world with higher operational costs and customers who visit shops less (regardless of the reason why). 20-30 years ago, it was considered ideal to have a parts:labour ratio of 1:1, meaning you sell $1 in parts for every $1 in labour you sell (a 50/50 mix). Then shops started becoming more competitive, overheads started increasing and customers reduced their yearly shop visits from ~4 to ~3 (and more recently, to ~2). Since then, it was considered ideal to have a 0.8:1 parts:labour ratio, meaning you needed more labour sales to stay profitable (a 55/45 mix). I've been reading Mitch Schneider's book, From Intent to Implementation, and he has some interesting ideas (written in 2002, over a decade ago). He states that our desired mix now and for the forseeable future should be 60/40, or a 0.66:1 parts:labour ratio, and I wholeheartedly agree. As vehicles become more complex to repair, and are better built (requiring less parts to repair, but more diagnosis), and lower parts margins (due to the internet mostly), labour will become even more important for a shop to remain profitable. Therefore I ask, what's YOUR parts:labour ratio? Are you still striving to meet the 0.8:1 ratio that became the standard 10-20 years ago? Have you broken that threshold and are already on your way to the desired 0.66:1 ratio? In a way, I believe this ties into my theory about labour rates and parts profit margins that I outlined in my other thread here: http://www.autoshopowner.com/topic/9381-labor-margin-vs-parts-margin In short, I believe that higher labour rates, accompanied by lower parts margins would go a long way to attaining a 0.66:1 ratio, and also bring shops higher profitability, because labour has higher margins then parts in general, and you will sell more labour compared to parts in the future.

http://www.autoshopowner.com/topic/8991-pricing-markup-matrix-advice That thread would be a good place to start. In the last post I included EXAMPLE parts matrices for aftermarket and dealer sourced parts. As a shop owner, you ONLY make money on 2 things: labour and parts (labour being the larger of the two) You absolutely need to make a good profit margin on parts to stay profitable as a business. The "gold standard" for shops nowadays is to make 70% gross profit margin (GPM) on your labour and 50% GPM on your parts, for a total of about 60% GPM. This will let you achieve 10+% net profit at the end of the year, which will pay for tools, training, building upgrades, bonuses, wage increases etc etc etc Try to think more in terms of profit MARGINS rather then price MARKUPS, it will benefit you greatly. Here is another thread which talks about the ratio of your labour to parts GPMs. http://www.autoshopowner.com/topic/9381-labor-margin-vs-parts-margin It contains a little more theory about your profit margins, but it should be a good read as well.