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.
At the end of the day, customers want to feel like they can trust your shop, they know they'll be taken care of, and you're only doing the repairs that are most necessary.
On the other hand, your shop wants to bring in as much business as possible, and generate as much revenue as you can with the time and resources available to your team. That's made possible with the right tools for the job, streamlined and efficient processes, and transparent communication with your customers.
Better operations means smooth repairs, smooth repairs means happier customers, and happier customers means more business.
When your shop is trying to run like a well-oiled machine, any breakdown in workflow can lead to delays, a frustrated team, and unsatisfied customers.
For example, if a customer's repair takes longer because the part you thought you had in stock is actually on back order, they're going to be less likely to return.
That's where shop management software comes in. Just any other tool in your shop, there will be a return in your investment.
What if we told you that you can get even more value out of the work you already do with the right processes in place?
Digital vehicle inspections software is one of the best way to show your customer exactly what's wrong with their vehicle. Instead of an old-school paper approach, Digital Vehicle Inspections (DVIS) are a core component of your shop's workflow, and let technicians quickly highlight existing and potential future issues, with evidence!
If a technician notices that the brakes are okay now but will need to be repaired in about three months, they can note that in the DVI report, or even attach a picture for the customer to see.
Even better, because digital vehicle inspection software let you send pictures and videos, track declined repairs, and even let your shop text findings directly to customers, you can help customers feel comfortable that they're making the right decision in approving that costly repair they may have otherwise put off.
With the right DIV features creating such a modern, seamless experience, you'll be the first shop they think of next time they need something fixed!
This month we were all about operational efficiency saving you time in messaging customers, managing employees, and staying on top of your inventory. Your time is your money. So be sure to take advantage of these features to save time in your day.
Save Time With Template Messages
Effective communication is vital to a high quality customer experience. However, it can be time consuming and frankly, repetitive. That’s why we’ve introduced templated messages.
Your top 3 most used customer messages (inspection, estimate, and invoice) can now be customized to fit your shop’s communication needs and voice. These are fully customizable and paired with the ability to create any other message template you’d like.
Who’s this for?: Customers on our Scale Tier with Tekmessage turned on.
Have employees that work across your multiple locations? Well, managing them just got easier. This month we put out two separate releases that allow you to seamlessly create, move between shops, and delete employees right from the MSO dashboard. No more hopping in and out of each shop’s profile.
Who’s this for?: Customers with our multi-shop add-on package.
Manage Inventory More Effectively With The Inventory Feed
Managing inventory effectively is crucial for shop operations. To help shops stay on top of pricing and quality changes we’ve introduced the Inventory Activity Feed. This will now automatically log stock orders, parts moved into inventory, and purchase order cost updates.
See Continuous Improvement of Our ALLDATA Integration
In August, we launched our ALLDATA integration, offering you yet another option for labor guide integration with Tekmetric’s shop management system. Since then, we’ve continued to improve it including the introduction of vehicle specification information and a search bar for easy navigation.
Who’s this for?: Customers on our Grow and Scale Tiers who integrate with the ALLDATA labor guide.
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