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.
Your auto parts inventory management system should match the operational pace of your shop, and the system shouldn’t be so complex or time-consuming that it takes time away from hours better spent repairing cars.
Running a more efficient shop will lead to a better experience for customers, more clarity in the repair process, and ultimately more approved repairs. That means more money for your shop!
Still using pen and paper to keep track of your shop's parts inventory? Let's help you find a better way with a modern, cloud-based shop management system.
He and Sunil Patel started Tekmetric in 2016, and today, it’s become the preferred auto tech software in the auto repair industry.
Prasanth’s success prompted Authority Magazine to contact him for an interview on the formula for scaling success.
Below are just a few excerpts of Prasanth’s interview with Ken Babcock (CEO of Tango), along with bonus content for any entrepreneur seeking to scale their business.
Scaling with People
Let’s look at each component.
The Right People.
First, you have to have the team that serves your company the best.
At Tekmetric, we learned this the hard way. We had a phenomenal idea — but our first team wasn’t comprised of exactly all the people we needed.
And that meant we failed in the first round. It was disappointing, but we learned a valuable lesson, and the next round, we hired people based on the talents we knew we needed. It was the right move, and it set us in the right direction toward success. In fact, many of the team members from this second group are still with us today.
Tekmetric’s People Today: The Best Support in the Industry
Today, Tekmetric has a growing team of people working in various departments, such as customer support, sales, product development, and human resources.
Walk into our Houston headquarters, and you’ll see people from all backgrounds catching up on their week, discussing the next product update, or talking about the future of our company over a cup of coffee.
A large portion of our team works remotely. We have employees across the United States, including: </p><ul>
Cleveland, OH
Washington, DC
Denver, CO
San Diego, CA
But no matter where our team members are, one of the big things they have in common is that they’re passionate about providing Tekmetric’s customers with the best experience and support possible.
Our support team in particular is easy to get in touch with.
Customers don’t have to spend hours listening to annoying “waiting” music on the phone or anxiously sitting in front of their computers for a response to a support ticket.
The Tekmetric support team acts to get questions answered quickly and any issues resolved fast.
After all, auto tech software needs to move at the pace of the auto repair industry—fast—and support is an important part of that process.
Having the idea is great; getting it right as you grow is vital. You may not have the details fully fleshed out, but you must know what you want to do and the tools you need to get there.
I’ve always said, if you have a goal in mind, and you don’t know how to get there, then you’re doing something right.
If you do know how to get there, you’re not thinking big enough. Think long and hard about what you want your business to look like.
Once you figure out those initial steps and orient yourself in the right direction, you can think ahead to challenges like growing and scaling.
Tekmetric’s Direction Today: Driving the Auto Repair Industry Into the Future
The Tekmetric team keeps a close eye on what’s happening in the auto repair industry so that we can stay one step ahead when it comes to driving the auto repair industry into the future.
For example, Tekmetric listened to its customers’ desires for a true two-way texting feature, which enables shops and their customers to communicate more seamlessly than ever before.
Tekmetric also frequently adds to its list of integrations with industry-leading tools so that shop owners can set up workflows that work best for them.
And Tekmetric listens to what shop owners, technicians, and service advisors are saying, taking their feedback and suggestions into account.
We know that we cannot do this on our own, and respect the contributions of people throughout the industry.
.svg)
.svg)
.svg)
.svg)
.svg)
.svg)
.svg)
.svg)