Counter Insight:The right profit margin is good for everyone

Jan. 1, 2020
The old adage of ?charging what the market will bear? holds true, but sometimes competition can put on unbearable pressure.

What is it that makes you want to be a part of the automotive aftermarket? Maybe you’re a gear head who just likes cars. Or perhaps you have a burning desire to help others with their automotive problems. Or it could be you’re just trying to crank out a living. The truth for most of us probably lies somewhere in between. The bottom line, of course, is that we like what we do and we get paid to do it.

The rate at which we get paid, and to some extent the satisfaction we get from the job, depend on how much profit we make per sale. The main goal of any retail business is to sell an item for more than what was paid for it, but what is a reasonable markup or profit margin? Obviously, you need to make enough to cover your expenses and overhead costs as well as a little extra to grow the business.

When I first started in this business I had no idea about profit margins, markups or markdowns. The only thing I knew was that most lines had three different price levels with different colored price sheets for each. Some even had a fourth sheet with the really low pricing, reserved for “special” customers.

Although profit margins and operating costs were not my concern, I was interested in having a better understanding of what was going on financially because they affect my job security. When invoicing and real-time inventory tracking became available, I was thrust into the fold of understanding just how the profit pieces came together. With the push of a button I now could see cost and percentage of profit on any item I sold. Looking at it from this angle, list price and discounts seem meaningless to me. What matters is how much you need to get for that part to be profitable. It is vital that your installer customers understand this concept so that they can make a reasonable profit on the parts they install as well as on their labor.  

The unfortunate part of knowing how much you need to mark up a price is also knowing that you may not be able to get that much. Competition is everywhere and consumers are not afraid to question or comparison shop. The old adage of “charging what the market will bear” holds true, but sometimes competition can put on unbearable pressure. I have seen wiper blades on sale at a mass retailer for less than our cost, and at other times I’ve quoted items at close to 70 percent markup and have been told that we have the best price around.

Your only defense against both lowball pricing and mass merchandiser competition is superior service and knowledge, which translates into more productivity and economies of scale. The customer who gives you first call status on 80 percent of his parts might be doing so only because someone else is giving better pricing on the other 20 percent. Is it worth giving up a few percentage points to gain some of that extra business? After all, if your delivery truck is going there anyway why not try to make it as profitable and satisfying for both of you?

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