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.
Alex recently sat down with Ratchet + Wrench Radio to discuss a whitepaper she authored on how shop owners can identify inefficiencies in their shops. During the conversation, she discussed how shop owners can recognize these inefficiencies and fix them with shop management software.
Have you submitted your taxes yet, or are you struggling to get your records in order and submit everything on time? Wherever you are in your tax prep process, you need to pull together a plan and act fast or you may have to pay penalties.
Sometimes, even hearing the word taxes can be scary, but unfortunately, taxes are one fear we don’t get to avoid indefinitely. Auto repair shop Tax Day is the same day as everyone else’s Tax Day, and things just get more complicated if you don’t file on time. The clock is running out on your time to file without an extension this year, and even filing for an extension comes with its own deadline.
But if you tackle the process with knowledge and empowerment, doing business taxes and sales tax on car repairs at the shop doesn’t have to be difficult.
Here are five tips that can help you have a better auto repair shop tax season.
Disclosure: the information in this article is not to be taken as formal tax or legal advice. Individual business circumstances vary, and you should always consult with a CPA and tax attorney.
As the auto repair industry continues to evolve, adaptability to changing customer needs is crucial to delivering a top-notch customer experience. When it comes to choosing an auto repair shop, customers are more likely to prefer a shop that is easy to do business with over the nearest shop. For the modern customer – an increasingly digital generation sometimes called Generation CX – the customer experience is paramount. One of the ways to curate an invaluable customer experience is to leverage the trends of today’s customers. Using these trends alongside the knowledge gained from your shop’s data, you can create an experience that is transparent, convenient and efficient.
Tekmetric’s Industry Index Report, pinpoints key trends around customer needs and expectations. In a recent webinar with Ratchet and Wrench, we discussed how you can use these trends to propel your business. By leveraging the trends within the report in conjunction with your shop’s performance metrics, you can tailor your approach to enhance your customer experience, drive revenue and ultimately boost your bottom line.
Efficient operations drive revenue
Efficient shops create more revenue opportunities by completing repairs quickly and effectively. When you streamline your processes, you enable your team to accomplish more in less time, without sacrificing quality. Efficiency creates smoother customer interactions and reduced wait times. This translates to a seamless customer experience – a key driver of satisfaction and repeat business that drives profits and increases your bottom line.
Several tools are available that can improve your efficiency, thereby helping you repair more vehicles in less time. For instance, Tekmetric’s Smart Jobs feature allows service writers to create jobs in just one click depending on the customer’s vehicle type by automatically pulling the correct labor time, sourcing the parts and applying relevant matrices based on the job selected. By reducing the number of clicks, your service advisors save time on creating repair orders (ROs). Instead, they can focus on answering customer questions and delivering an exceptional customer experience.
Convenient communication increases customer trust
Today, there are over 250 million vehicles on the road that are more than 12 years old and will inevitably need repairs. On average, shops see customers twice a year – and the majority will seek a shop they trust. Transparency and communication build strong levels of trust, resulting in a significant impact on the shop’s overall performance. Clear and convenient communication with the customer about repairs can streamline the approval process in the short term, as well as increase your average repair order (ARO) in the long term.
Customers expect clear communication and visibility in the repair process. One tool that supports these expectations is a digital vehicle inspection (DVI). DVIs allow your shop to send visual reports of inspection findings directly to your customers, keeping them informed and engaged throughout the repair process. DVIs can be shared via email or text, so your customer can conveniently access them and approve the work even when they are not physically at your shop. Through DVIs, a shop can share data in the form of photos and videos, encouraging customers to make informed, data-driven decisions. This digital tool goes a long way in building trust as vehicle owners can gain a deeper understanding of the repairs you recommend. Vehicle owners can prioritize the immediate repairs while also having a record of additional work, like a tire rotation, that needs to be done in three months.
Another way to build trust through clear communication is through two-way texting. This feature facilitates instant communication, enabling your customers to authorize repairs, ask questions or provide feedback in real time. For example, shops using Tekmetric can communicate directly with vehicle owners through two-way texts, even creating a repair order or appointment based solely on a text – no calls necessary! Customers know they can reach your shop anytime, from anywhere, and their needs will be met.
Together, two-way convenient communication and DVIs significantly increase the likelihood of customers accepting your shop’s recommended repairs, increasing your ARO and ultimately driving revenue growth.
Personalized customer experiences promote loyalty
Personalized customer experiences are another revenue driver. By adding a personal touch to the customer’s experience, you can go beyond the standard service offerings to create tailored experiences that bring customers back time and time again.
One key aspect of personalized experiences is the integration of digital payment options, such as “buy now, pay later” or text-to-pay. According to the Tekmetric’s Industry Index, only 16% of shops have tapped into the potential of text-to-pay options – but these options have tremendous potential in building customer relationships. Tekmetric’s solution enables your shop to offer customers the convenience of digital payment methods such as Apple Pay, Google Pay or text-to-pay. This not only streamlines the payment process but also caters to modern consumer preferences, making transactions faster and more convenient.
Additionally, “buy now, pay later” options powered by Affirm or Klarna allow your customers to get the repairs they need and pay over time, supporting their financial needs without negatively impacting your shop’s revenue. By alleviating some of the financial burden of repairs with “buy now, pay later,” you can better empower the vehicle owner to make an informed decision on repairs without breaking their bank. Tekmetric has witnessed the power of digital payment solutions: in the past year, 60% of customers at our partner shops were approved for financing, with 62% of them utilizing this option. The average transaction amount is $567 for card payments and $1,883 for "buy now, pay later" purchases on our platform.
Tying it all together to transform your customer experience
Efficiency, personalization and convenience are all traits that you can prioritize to maximize profit and create a noteworthy customer experience. Technology can do so much for businesses at its foundation, but taking it to the next level within the customer experience makes a significant difference. By leveraging technology to create a strong experience, you can set your shop up for success far into the future and measure up, by every measure.
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