How to Use an Auto Parts Markup Matrix to Maximize Your Shop’s Gross Profit

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October 19, 2023

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Read time: 3 min

If your shop isn't using at least one mark up matrix to get the most out of your parts sales, then you might be leaving a lot of money on the table.

In fact, auto repair shops have an amazing opportunity to maximize their profit margin on parts sales in particular. Especially when you consider the tools available to support and simplify the entire process. Gone are the days of using pen and paper or busting out the calculators.

Cloud-based shop management systems have made it easier than ever to not only manage your shop, but really get the most value out of the work you're already doing.

Using a parts matrix in particular is one of the most important aspects in making sure your shop is profitable. By building streamlined process for marking up parts, shops can ensure grow your shop’s profit margin while staying fair to customers.

What is an Auto Parts Markup Matrix?

An auto parts markup matrix is a powerful tool for optimizing your parts pricing and increasing your gross profit.

When it comes to providing parts for a repair, auto repair shops can build multiple markup matrixes to determine the best markup percentage to apply based on different factors, like how much it costs your shop to purchase the part from your selected vendor.

In our latest Auto Repair Industry Index shops were achieving an average 35% with just 3 markup matrixes. There's a lot of room to grow their profits!

Why should shops use a parts markup matrix?

It might be easy for a shop to leave parts markups up to individual service advisors. However, this can result in widely varied processes based on each employee’s unique experience.

You want to build a consistent, reliable mark-up process to save your team time, while maximizing profit yet remaining fair to your customers.  

With a detailed parts markup matrix in place there’s no more second-guessing.

Instead of spending precious time figuring out the right markup for every single repair order, the perfect markup percentage can be applied every single time -- both saving time while maximizing profit margins on every repair order.

The Price is Right: Efficient Parts Shopping

Before you decide how much to mark up a part, you obviously have to buy that part (or find it in the inventory). When shopping for parts, getting good deals is important, but so is having an efficient process for finding those deals. Efficient shops strike a balance between quickly finding parts and snagging good deals.

There are various ways to quickly shop around and find the best deal on parts. Some shops still send their part’s person to the local auto parts shop or scrapyard to find those hard-to-find parts.

These days, many auto repair shops save themselves a lot of hassle by turning to shop management systems that enable them to swiftly compare prices from multiple vendors at once. With online parts houses, repair shops can earn back the time they would have spent sending someone to hunt down these parts and making these comparisons in person.

Mark Up Parts By Just the Right Amount

After comparing prices and deciding which parts to purchase, it’s time to find the markup “sweet spot,” where it’s a good deal for your customers and your business.

As a general rule of thumb, the more expensive a part is, the less you can mark it up.

Consider this: fast food companies make some of their highest profit margins off of their least expensive menu item—soda. If a cup of soda costs the fast-food company $0.25, charging a dollar for it gives them a 75% profit margin. But a 75% profit margin on a hamburger that costs the fast-food company $7 to make would hike up the price to $12.25, which is probably more than most customers are willing to spend.

If you double the price of a $10 wiper blade, the customer won’t bat an eye. But if you try to mark up the price of a $400 alternator by 100%, it’s a different story! The customer will balk at the $800 price tag and probably go ask another shop for a second opinion.

Reach the Right Pricing With a Parts Matrix

Marking up Parts with a Simple Calculation

A simple calculation is used when you markup parts in a certain price range by a specific amount.

But you can also use a compound calculation for parts markups. With a compound calculation, parts are marked up by different percentages within specific cost ranges. For example, if you sell a job for $20, you could mark up the first $10 by 10%, and the last half by 20%.

Marking up Parts with a Complex Calculation

While compound calculations are more complicated, using them for your markup matrix can give you an edge when it comes to increasing your gross profit margins. Some shop owners that use complex calculations in their parts markups have been able to increase their profit margin by about 8% to 10% when compared to using a simple calculation.

Find the Right Markup Matrix For Your Shop

Ultimately, each shop has unique needs and preferences, and it’s up to you and your team to determine which type of calculation to use when building your parts matrix. But no matter which calculation method you choose, an automotive markup matrix can be a game-changer.

By streamlining the process of marking up parts you can save time and keep your team happy while hitting your profit goals.

👉 Ready to grow your automotive business? [Book a personalized Tekmetric Demo Here]

FAQ

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Drivers can sometimes see repairs as frivolous or not important.

Reasons for their skepticism can stem from many things: the customer can’t see what the service advisor is seeing on their end; they might not have a way to gauge the importance of the issue at hand; maybe a service advisor doesn’t communicate the problem correctly or forgets to ask the customer if they’re following along.

Tekmetric’s features empower auto repair shops to improve customer transparency, streamline communication, provide flexible payment options, and simplify the payment process.

These promote customer trust, enhance satisfaction, and ultimately help your shop close more repair orders. And that's what matters most.

Because at the end of the day, if customers feel they can trust your shop, they'll be more likely to return the next time they need something repaired.

Your Auto Repair Shop Can Close More Repairs Orders With These Features

August 20, 2024

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Your auto repair labor revenue and parts margins are critical for enhancing your shop’s profitability. Adjusting your pricing on parts to make a profit is pretty straightforward.

But when it comes to labor times for auto repair shops…that’s where things can get a bit tricky. 

Yes, you need competitive labor rates, but you also need to keep those rates reasonable so you don’t scare off your customers with sky-high prices. 

3 ways your shop can make more money on labor: 

  1. By using a labor matrix 
  2. By creating custom labor rates 
  3. By applying a labor guide markup 

Before we dive into the differences between these three methods for setting the best labor times at your shop, here’s a quick refresher on the one thing these methods have in common: the labor guide

What is a Labor Guide? 

A labor guide is like the gospel of labor times for auto repair shops. It tells you how long, on average, it takes to complete different types of repair work.

Remember that the times listed in auto repair labor guides are averages, so it’s best to treat them as a starting point.

Why Auto Repair Shops Need a Labor Guide to Maximize Revenue

April 7, 2023

Read time: 3 min

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See how your shop stacks up against thousands of auto repair shops nationwide

You track your ARO. Maybe you watch your car count week over week. You know when a month is good and when it's below par.

But here's a question most shop owners can't answer quickly: Compared to shops like yours, are your numbers strong, average, or quietly underperforming?

There's a real difference between a number that's improving and a number that's competitive. A shop can grow ARO year over year and still be well below what high-performing shops are seeing in their market. Without an external reference point, you don't know which situation you're in.

That's the problem benchmarking solves, and it's the reason the data matters more than the direction.

Internal Tracking Tells You the Trend. Benchmarking Tells You the Truth.

Internal performance tracking is essential. If you don't know your ARO, car count, parts margin, and effective labor rate, you're managing without the most basic tools. But internal tracking has a structural limitation: it can only tell you how you're doing relative to your own history.

That's useful for spotting momentum — a rising ARO, a growing car count, tighter parts margin. What it can't tell you is whether your baseline is strong or weak relative to the market.

A shop with a $580 ARO that has grown from $520 over two years has made real progress. But if top-performing shops in their region are averaging significantly higher, that progress hasn't closed the competitive gap. It's just moved in the right direction.

The fix isn't to stop internal tracking. It's to add an external benchmark so you know what the target actually looks like.

➡ See how your ARO compares →

The Problem With Benchmarking From Anecdotes

Many shop owners get their benchmarks the informal way: conversations with peers at trade shows, numbers shared in coaching groups, or revenue figures posted in forums. These have real value, but they're also limited.

Self-reported numbers skew high (people share their wins). Peer groups are small samples. Industry averages from trade associations are often lagged and lack the granularity you need to compare fairly — a six-bay shop in a suburban market shouldn't be benchmarking against national averages that include dealership-adjacent shops in metro areas.

The more useful comparison is data drawn from shops operating in similar conditions, at similar scale, tracked in a consistent and anonymized way.

What Good Benchmarking Actually Looks Like

Effective benchmarking for an auto repair shop compares you on the four metrics that most directly drive profitability:

  • ARO: Are you getting full value from each car that comes through your door?
  • Car count: Is your volume where it needs to be to support your revenue goals?
  • Parts margin: Are you protecting margin as supplier costs fluctuate?
  • Effective labor rate: Is your real revenue per labor hour aligned with your posted rate?

Each of these metrics has a different lever. If your ARO is lagging, the fix usually involves inspection completion rates or customer communication. If your car count is stagnant, the issue is typically acquisition or retention. If your parts margin is eroding, your pricing matrix needs a look. If your effective labor rate is low, it's often a discounting or packaging problem.

Benchmarking tells you which problem to solve first. That's valuable when you have limited time and you're trying to prioritize.

How the Tekmetric Shop Index Works

The Tekmetric Shop Index is a free benchmarking tool built from data collected across more than 12,000 auto repair shops. Enter your shop's metrics and get an instant comparison showing where you stand on each of the four key measures. No Tekmetric account is required. Anyone can use it.

The output isn't a vague grade — it shows you where each metric ranks and gives you a clear picture of where the gap is largest. That's the signal that tells you where to focus first.

➡ Benchmark your shop now →

What to Do After You See Your Rankings

The benchmarking data is the starting point, not the finish line. Once you know which metric is your biggest gap, you can start asking the right questions:

  • If ARO is lagging: How consistently are your technicians completing and sending digital vehicle inspections (DVIs)? Are customers seeing and approving the recommended work?
  • If car count is flat: Are you actively pursuing new customers? Are return visit intervals optimized? Are declined jobs being followed up?
  • If parts margin is soft: When did you last review your parts pricing matrix? Is it adjusting for recent cost increases from your vendors?
  • If the effective labor rate is low: Are service writers building jobs accurately? Are discounts being applied consistently or inconsistently?

Each of these questions points toward a workflow, and Tekmetric's reporting is built to surface the answers at the job, technician, and service writer level. But even before you get to that step, knowing which question to ask is most of the work.

➡ Benchmark your shop now →

The Shops Getting This Right

High-performing shops don't treat benchmarking as a one-time exercise. They check their rankings periodically, track how their numbers shift against the industry baseline, and use the comparison to coach their teams with context.

"You're at 85% DVI completion" is a data point. "You're at 85% completion, and top shops are at 95%" is a coaching conversation with direction.

"Seeing them take the shift to Tekmetric and then grow profitability in the same four walls has been phenomenal. Some of them are just exponential."  — Matt Schwab, Clutch Automotive, Tekmetric Customer

Takeaways

  • Internal tracking shows you direction; benchmarking shows you position.
  • The four metrics — ARO, car count, parts margin, effective labor rate — are the right comparison points.
  • Good benchmarking data is consistent, anonymized, and drawn from shops with similar operating profiles.
  • The TSI tool is free, built from more than 12,000 shops, and gives you an instant read on where your gaps are largest.
  • Your benchmark result tells you which lever to pull first — and that's where the work starts.

Once you know your gaps, the next step is building a system to close them.

➡ Benchmark your shop now →