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

“Receipts.” We all know the literal meaning of this term—those pieces of paper or emails/texts a retailer sends you as proof of purchase, in case you want to exchange or return an item down the road.

In a casual sense, “receipts” also mean “proof” in the event of a dispute. For example, if your dog could talk and claimed he definitely did not steal the pizza from the picnic table, you could show him “receipts,” which could be a photo your astonished friend snapped of him while he was dragging the pizza away. Busted!

Ok, but in all seriousness, as a business owner, you interact with receipts in two ways:

1. You give receipts to your customers once their repair work is finished
2. You get receipts when you purchase items for your shop (like parts)
   

Even though receipts exist in practically every industry, there’s a huge difference between the receipts customers get from an auto repair shop versus the receipts they’d get from a restaurant or clothing store.

Look at it this way: you don’t go to a restaurant and get an estimate for how much your food will cost. You see the prices on the menu, order, and then pay at the end. But in the auto repair world, we have to scope out the work with an inspection and estimate. That’s where the shop and the customer come to an understanding of the repair work that will occur, and get a preview of the cost, before any work gets done.

Without a solid inspection and estimate process, there can be a higher risk of misunderstandings and miscommunications, which can diminish customer loyalty and lead to credit card chargebacks. For example, a customer could misunderstand the severity of the need for a repair and decline it when they get their estimate, and leave a negative online review that their car still has issues. Or, a customer could say they don’t want a particular repair, but a service advisor misunderstands them. The repair happens, and the customer is upset when they get the final bill because they’d communicated that they didn’t want the repair.

That’s why estimates and receipts are extra important in our industry—they protect shops and customers. They give your customers peace of mind; they have a record of what repair work they got done on which day, and how much they paid. And in the event of a customer claiming a certain repair didn’t happen on a particular day, you could pull up your copy of the estimate and the receipt and set the record straight. You won’t have to deal with a frustrating back-and-forth process that can stretch out for days.

But beyond literal receipts, there are other elements of safeguarding your business. After all, protecting your business isn’t just about protecting it from financial and legal standpoints, although those are two important areas. You also have to think about things like your team’s productivity, employee management, healthy margins, and more. Auto shop management software is a great core tool that can help you safeguard your shop from multiple angles.

If so, we support you.

Every mile you drive toward running your shop like a well-oiled machine is a mile in the right direction.

Choosing and optimizing the right technology to run your shop can lead to growth that accelerates into massive returns on your investment.

Prasanth Chilukuri understands the challenges that shop owners face each day with gaps in their efficiency and margins, which is why he co-founded Tekmetric with Sunil Patel in 2016.

Vehicle Service Pros published some of Prasanth’s tips for strategically growing an auto repair business with a shop management system like Tekmetric.

You can access his full piece here, or check out some of the highlights below.

Balance Is Key to Making Better-Informed Business Decisions

Shop owners make countless daily decisions that affect their customers, their team, and their business.

Making good business decisions is essential to keeping everyone happy and keeping the lights on in the shop, but how do you know what the right decision is?

According to Prasanth, the key to any successful business is finding the right balance between soft skills like intuition or relationship-building and hard skills like data analysis.

Both types of skills are important, but knowing when to employ each one is the trick to making better-informed decisions and growing your business.

Intuition is useful when shop owners have to make split-second decisions and often goes hand in hand with interpersonal skills. The auto repair industry isn’t just about cars, after all; it’s about people, too.

By learning how to pick up on cues and anticipate the needs of customers, employees, and vendors, shop owners can foster long-lasting relationships that grow alongside their business.

Of course, there’s only one way to know whether your shop is truly turning a profit: look at the numbers and analyze the results. Data can support any hunches you have about the health of your business, for better or for worse, so you can plan accordingly.

But if your shop is still tied to manual methods, gathering key information about parts usage and labor costs is probably not easy or convenient.

Why Manual Methods Just Can’t Keep Up

A shop management system might not be able to make business decisions for you, but it can help shop owners make sense of their key metrics and data. According to Prasanth, looking at the cold, hard facts is essential to boost the efficiency and profitability of the shop.

The science of data might seem contrary to the art of intuition at first, but they’re more related than you might think. As Prasanth describes, data can add support to a shop owner’s intuition or observations and reveal key information that can’t necessarily be gathered from conversations with customers and employees.

Unfortunately, trying to sort through the shop’s data by hand can be exhausting and often means missing family dinners to crunch the numbers after hours. And manually calculating daily, weekly, or monthly metrics can quickly become a headache with much larger room for human error.

Without real-time reporting tools, inventory counts and gross profit can’t necessarily be trusted and will always provide an out-of-date view of your business at best.

Being tied to manual processes for data collection also means being tied to the shop and losing out on valuable face-to-face time with the customers supporting the business.

As a result, shop owners are often left making the difficult decision between nurturing their intuition and building relationships, or focusing on the data and shop profitability when both are essential to the long-term success of the business. With Tekmetric, you can do both.

Get the Full Picture With Tekmetric

Tekmetric is a shop management system that comes fully equipped with business reporting tools within a repair orders software suite.

Tekmetric tracks key performance indicators like employee efficiency, parts usage, and profitability ‘round the clock so shop owners can focus on the more high-level aspects of their business.

Real-time reports are always available with numbers that are already calculated and organized.

A bird’s eye view of the shop gives shop owners the power to tailor their business plan and strategy by:

• Adjusting parts and labor matrices to maximize margins
• Extending or removing a running promotion
• Deciding to add more people to the team
• Knowing when it’s the right time to expand the business with new bays or by opening a new location