ORLANDO — There are only three ways to make money in the automotive repair shop business, but by crunching some numbers, you can increase your gross profit.
So by working on increasing sales, increasing gross profit and decreasing expenses, you can make more money. Kelly Bennett focused on increasing gross profit in his class “Increasing Gross Profit” during WORLDPAC’s second day of its first supplier and training expo.
Working through financial examples, Bennett, who also leads WTI classes for WORLDPAC, highlighted ways to increase gross profit, the money left after everything you sell is paid for.
“I think we’re trying to make it up in volume,” he says. “And there are other ways to make up for it other than volume.”
One of those ways is labor. Bennett says that shops should have $1.30 in labor sales for every $1 in parts sales. This is known as the labor to parts ratio, and if your shop’s ratio is upside down, there’s a problem.
“Our business needs 60 percent gross profit. And when somebody’s upset about price, you need to sell the service,” Bennett says.
That shouldn’t be too difficult to do. Think about it. When’s the last time someone came into your shop and asked to buy parts without the labor? That’s probably a very rare occurrence. But think about the opposite.
“How often do you sell labor without parts? Maybe not every day, but weekly,” Bennett says, adding just think about brake inspections.
That ties into another component of increasing your gross profit — education and advising your customers. When you talk with your customers, you can make the money off your labor.
“We sell more labor than parts, we have a higher gross profit, so why is it that most profit that most shops see more profit off parts?” Bennett poses. “It’s a lot easier to give away time than it is to give away parts.”
Your gross profit on labor should be 75 percent. Combine that with the 50 percent on parts and you can achieve the 60 percent gross profit in your shop. Bennett stresses that your labor sales need to exceed your parts sales.
And while you need to have some empathy for your customers, in order to be successful you also need to have some ego about your shop. This ties back in to educating and advising your customers. Yes, you need to be understanding, but you need to keep in mind that you’re in business and you need to make that gross profit.
“The question you need to ask yourself when expenses increase is not how am I going to pay for it,” Bennett explains. “The question is how is the customer going to pay for it. That’s business.”
After all, if you don’t have that gross profit, you won’t have the money to pay off salaries, net profit (money for business, personal and government costs — you know, taxes) and other expenses, you won’t be successful in running your business.
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