1. Fine-Tune Your Shop’s Strategy
As an aspiring shop owner, you know your repair shop won’t be the only garage in town. You’ll want your shop’s strategy to appeal to your community. Coming up with a strategy is where you can let your imagination run wild because the possibilities are endless, but you’ll need to bring it back down to earth in order to come up with a strategy that is solid enough to succeed.
Here are some guiding questions that will help you strategize.
What kind of shop will you create?
Do you want to run a general auto repair shop or a specialty auto repair shop? You can determine whether your shop will focus on exotic vehicle repairs, diesel engine repairs, fleet work, or stick with the standard independent garage clientele. Your shop’s main focus may be something you’ve already thought of, but what about your shop’s name?
Be sure to choose something catchy and creative, but still ties into the type of repair work you do. Some of our favorite shop names over the years have found clever ways to speak to their clientele, like Prestige European Auto Service or Turbo Tim’s Anything Automotive. Other great shop names speak to their mission, like Fix It Forward Auto Care. Once you’ve come up with the name, make sure to double check that it isn’t already in your state’s business records or trademark records.
What type of services will your shop provide?
Along with determining the focal point, you’ll want to put thought into each service your shop will provide. Will your main focus be on oil changes, tune-ups, and regular maintenance? Will you want to sublet some of your repair operations? It could be that you focus on standard repairs, but when a customer comes in with a specific job that you don’t want to turn down, you can have that repair work done through a subcontractor, but you’d have to establish that partnership.
How organized do you need to be before you expand?
To dive even further into strategy: How many locations do you ideally want to open up? And where? How are you going to scale? And when? Although your growth plan is helpful to brainstorm, it isn’t necessarily something you need to determine right this very second.
Determining a solid strategy means building your brand and finding the sole purpose of your auto repair shop. From there, you’ll go through each of the remaining steps in this blog, and you’ll know when it’s time to consider growth in linear terms or to scale your business exponentially.
2.Calculate Your Capital Expenses
After you’ve selected the strategy routes you want to go, you’ll need to look into your capital expenses. The investments you put into your shop at the beginning play a huge role in determining how profitable your business will be in the future.
Find your garage
As an aspiring shop owner, you’ll need to weigh all of the pros and cons when it comes to location. Will you want to open up a shop in a small town, a suburban area, or a big city? Prices will vary greatly depending on the location you choose. Whatever location you go with, you’ll want to look into whether an auto repair shop already exists and what services they already offer, the competitive rates, and any additional location-specific factors that would weigh into your decision.
Another location-specific factor you’ll want to take note of is that certain cities and towns have differing regulations. For instance, if you want to open up a shop in your home garage, you need to double-check your city’s codes to ensure you’re remaining in compliance. Most independent auto repair shops choose to rent a commercial space for their garage.
Invest in your shop’s equipment
You may be tempted to save by purchasing used or cost-friendly equipment, which makes sense when you’re trying to get started with little investment. But it’s important to consider quality. You may want to seek out the best version of certain tools so that your team can have good faith knowing they have what’s needed to get customers’ vehicles back on the road safely. Tools built to last will not only do just that but will also last during repetitive use on your shop’s projects. Here’s a quick checklist of tools you’ll need to hit the ground running:
Invest in a shop management system
Along with the tools you select for your shop, you’ll want to invest in a solid shop management system that you and your team can rely on. A shop management system will give you and your team:
The ability to gain experience
- A methodical system for analysis
- A clear framework for enhancing the customer experience
- Digital tools and integrations
- Guardrails that prevent errors
- The ability to track declined jobs
- Better compliance standards
- A workflow to build estimates with speed and accuracy
- A direct tie to all shop systems
- The capacity to set and reach profit goals
The Seed Stage Costs
At the seed stage, the two major areas you’ll be investing a good portion of your cash towards are your strategy and capital expenses.
During this phase, you’ll want to bring your imagination back down to reality (while still keeping those ideas in the back of your mind, of course) and really pinpoint the vision for your shop. Focus on the strategy, expenses, and the mission.
What values do you want to bring into your shop? Are you worried you might not have enough for some expenses?
Maybe consider saving on a capital expense by looking into equipment financing and leasing. The options are endless, so narrowing down all your options will help you get your shop to where you want it to be.
3. Figure Out Your Ideal Labor Goals
If you carefully factor in a labor matrix, custom labor rates, and labor guides, you can optimize your labor profit margin.
Make more money on labor
You’ll want to create labor rates that are competitive and reasonable. In other words, you want rates that will keep your technicians and your customers happy. To determine accurate labor times that will set your shop up for success, you’ll need to find a reliable labor guide. Pro-tip: when you’re looking for a digital labor guide, ask yourself these questions:
- Does it pull comprehensive labor times from reliable industry sources?
- Does it add new labor times for new vehicles?
- Is it built into my shop management software?
- Is it user-friendly?
- Is it backed by a responsive customer success team?
Once you’ve found your go-to labor guide, you can determine the approach you will take to make more money on labor:
- Use a labor matrix. With a labor matrix, service advisors can automatically apply markups or multipliers to jobs based on time ranges and how long the job takes to complete.
- Create custom labor rates. Custom labor rates are ideal when you’re putting a pro technician on a job or you’re working on a special job. With custom labor rates, you specify the cost of labor however you’d like.
- Apply a labor guide markup. Labor guide markups are best to use when it seems like a job is going to take longer than the estimate in the labor guide, and your techs will be dealing with the brunt of it. In other words, when a technician is working hard to get a job done right, those extra hours (and cash) should go back to them.
Of course, your business will be different from the shop down the street. So, determining the labor rates you choose to go with is entirely up to your shop and the unique circumstances that each job entails.
Who do you plan to hire?
Shop owners, when you’re hiring, you can go one of two ways: you can hire skilled technicians and service writers right out the gate to spend less on upfront training costs, or you can hire those with less experience and invest in training people up. Carefully select the team that you see yourself going the distance with. Keep in mind that you don’t have to select one or the other; you can do a mix of and have the skilled people help with training the new talent.
To bring the best out of your team you’ll want to provide them with continuing education opportunities like training or conferences, monthly or quarterly check-ins, and brainstorming and collaboration sessions. Because there is a labor shortage in the auto repair industry, training might be a good incentive for more people to join the auto repair labor force. Of course, training can take a lot of extra planning to ensure that you’re doing it right and not wasting too much time or money. Pro-tip: have each of your shop’s systems in place prior to bringing on employees so everyone you initially hire will learn how to use each system at the same time and can train others when you decide to expand.
Will you pay your technicians based on hours or commission?
As you know, technicians work hard. And it’s important for their hard work to pay off. There are a few common approaches to technicians’ pay:
- Hourly pay: employees are compensated for the amount of time they’re on the clock. For example, if a technician takes three hours on an estimated one hour job, they will get paid the full three hours.
- Commission pay: there are three different commission structure options:
- Percent of sale: Calculated based on total order value. The commission amount can be anywhere from 1-100%, but most fall in the 10-20% range.
- Flat-rate pay (also referred to as book time): employees are paid by the job. For example, if your technician takes three hours on an estimated one hour job, they will get paid for the estimated time rather than the time worked. On the flip side, if the technician took 30 minutes to complete an estimated one hour job, they will get paid for the full hour.
- Tiered: Incentive-based structure that allows your employees to earn a progressively higher commission with each “tier” based either on sales or conversion count.
This isn’t to say hourly is better than commission, or vice versa. The way you pay your employees is entirely up to you. Just ensure that whichever approach you take, you find a way to streamline it.
4. Optimize Your Shop’s Scheduling System
One way you can boost your auto repair shop profit margins is by gaining more control over your shop’s time. If you and your team optimize scheduling, you can confidently say “yes” to more work.
As your shop transitions over from the seed stage to the start-up stage, you’ll begin to see more jobs come in. But make sure you have prepared yourself and your team to take on whatever may come through the pipeline.
How does this answer the question, ”how profitable are auto repair shops?” Well, if you have more people working than you have jobs coming in, you’ll likely lose money. On the flip side, the more repair orders than team members, the more you’ll have to turn away work, and the more money will be left on the table. You need to prepare yourself for potential scenarios so you can find that balance ahead of time.
Find a scheduling system that works for your shop
There are a lot of scheduling systems and software on the market today, which makes narrowing down to one a bit tricky. Ask yourself these questions to help determine the right scheduling system for you:
- Is it cloud-based?
- Is it easy to add our customers to the calendar?
- Does it integrate with other systems?
- Does it offer customer communication tools?
- Does it offer trackable auto repair notes?
- Is it backed by a reliable support and customer success team?
If top-notch scheduling is a priority for you, we recommend going with a shop management software that has a built-in scheduling system.
If you prioritize selecting a shop management system that provides you and your team with a brilliant scheduling system, you have the ability to monitor what work is in the shop and what’s going on behind the scenes. A cloud-based scheduling system will help your team work harmoniously without ever interrupting or micromanaging one another. Using a smooth scheduling system will not only help you monitor schedules but also check your employees’ progress and reassign or prioritize work as needed.
5. Prioritize Team Management
Although owning and operating an auto repair shop is a lot of work, you don’t have to do it all by yourself. Try not to lose sight of the importance of your team. By making sure your team is happy, they’ll in turn work harder and provide customers with amazing service.
Become the ultimate leader for your team
Being a good leader doesn’t just require work on your business. You also need to continuously work on yourself. The good news is that the auto repair industry has many groups designed specifically to support shop owners and help them become better leaders. To become the ultimate leader, you can:
- Attend Conferences: Conferences like AAPEX and Shop Hackers offer opportunities for you to mingle with other shop owners and learn about their management styles.
- Join Coaching Groups: Coaching groups like MWACA and ASA provide great learning opportunities such as webinars, workshops, and other events you can attend with fellow shop owners to enhance your leadership skills.
- Read Industry Insights: Industry insights from sources like Auto Service World and Tekmetric’s Success Stories are a convenient way to gain leadership wisdom.
Build up your team
Now that you’ve absorbed insights on leadership, you can hone in on five key areas that will help strengthen your team, which in turn, will strengthen your shop and your customer service.
- Lead your team towards success by pointing out their strengths, and helping them in areas they can grow.
- Motivate your team by showing them how their hard work is paying off. Use performance metrics such as Car Count or Average Repair Order (ARO) to show your team the shop’s weekly, monthly, or even daily successes.
- Allow your team to collaborate with one another whenever possible. When people work together on a task and are treated as partners, they have more opportunities to inspire one another.
- Enable your team to tend to all areas of their life, not just work. Work-life balance is incredibly important in any workplace; but especially in workplaces that involve customer interaction and physical demands. Get to know your employees so they feel comfortable coming to you when they need a breather. Give them space outside of work to relax and live their life so that when they return back to the shop, they’re back to 100.
- Empower your team through mentorship. By mentoring your service advisors, technicians, and additional employees, you can encourage each team member to achieve their goals and look forward to coming into work each day because of the uplifting environment that you’ve worked hard to build.
How profitable are auto repair shops that prioritize team management?
Building your team up will help your shop reach new heights. According to Gallup, teams with highly engaged employees: are 17% more productive, have 41% less absenteeism, have 59% less turnover, have a 10% increase in customer ratings, have a 20% increase in sales, and what’s more, Gallup found that added together, “the behaviors of highly engaged business units result in 21% greater profitability.”
The Start-Up Stage Costs and Profits:
At the start-up stage, your main priority is your team, labor, and scheduling so you can ensure your shop is prepared for each and every opportunity that comes its way. At this stage, your hard work is still in the forefront, but you’ll begin to see the pay off make its way into your shop’s bank account.
Keep in mind that you won’t fully know how profitable your shop is because your investments won’t be fully paid off right off the bat (if only it were that easy, right?) But that doesn’t mean you should lose faith in reaching your profit goals; by planning, preparing, and remaining steadfast, you’ll start to see you and your team’s hard work come to fruition.
How Tekmetric Facilitates Team Management:
- Tekmetric gives you access to your shop’s key stats, such as Car Count, ARO, and GP Dollars, which you can share with your employees, showing them how their hard work is benefiting everyone, and that they’re all part of something bigger.
- Tekmetric integrates with Shop Owner Coach so you can become the best possible leader, mentor, and teammate for your hardworking employees. Shop Owner Coach helps hundreds of independent shop owners achieve their dreams through personalized coaching, training, and accountability.
- Tekmetric integrates with team communication tools like Flock and Slack that helps team members communicate more effectively and stay in sync.
6. Cater To Your Customers
Your shop’s customer service is what will keep your customers coming back. By giving your customers the VIP experience they deserve each time they set foot in your shop—or even before—you’ll earn and maintain five star reviews.
Digital vehicle inspections allow for more transparency. A more fluid inspection process undoubtedly makes DVIs more useful than traditional inspection methods. Thanks to tablets and smartphones, technicians can take advantage of touch screens and cameras to quickly conduct insightful, transparent DVIs. Pictures and videos open up a world of transparency, finally letting technicians show guests exactly what’s wrong with their vehicles without taking them to the back of the shop and risking their safety (which would be an OSHA violation anyways, but you get the point). When the technician finishes the digital vehicle inspection, it can be sent as a text or email to the customer.
DVIs make the entire repair process a smooth ride for your team and your customers. If customers can visibly see what’s going on with their vehicles each step of the way, they’ll feel more comfortable leaving their precious cargo—the car they’ve worked hard to own—behind. One way you can boost transparency in your shop is by investing in a shop management system with a built-in DVI feature.
Encourage repeat business
Building a loyal customer base is crucial to growing your business. By showing gratitude towards your customers, you will continue to enhance their experience each time they stop by your shop.
Maybe you could create a loyalty program where customers who have been coming to your shop for all of their vehicle’s oil changes will get one free oil change for every 10 oil changes. Or maybe they visit for their regular scheduled maintenance and can get one free service worth up to $50 per every $100 spent.
Keep in mind that incentives are where you can get creative, brainstorm with your team, and find ways you can give back to loyal customers without the risk of having to cut costs. Rewarding your shop’s dedicated drivers will keep them happy and remind them that despite the growth and expansion your shop may experience, they’re still important to you.
Another way you can encourage repeat business is by using a Declined Jobs Report that shows you every job that customers have declined in the past. Having the ability to track declined jobs in your system means your service writers can remind customers the next time they step foot in your shop, or even use it as a catalyst to reach back out and say, “Hey! I noticed last time you came in, your oil was getting low.
You might be needing an oil change soon. Would you like us to take care of that?” And bringing it back to the DVIs, having a photo or image of that finding will help nudge the customer even more.
By boosting your shop’s customer experience as it relates to vehicle maintenance, your customer’s vehicles will be in tip-top shape, and your auto repair shop profit margin will grow.
Provide customers with a modern experience
If you choose to invest in a DVI system, you’ll already be providing a modern inspection experience. But what about communication and payment? Touchless, curbside experiences are becoming more and more of an industry standard. Embracing a text-to-pay system will give your customers the option to pay straight from their phones without waiting in line or stepping foot in the lobby.
Another tool that would amp up your customers’ experience is investing in a two-way texting system. If your shop’s customers have the ability to text your team a question without having to call your shop or walk up to the front desk, think about how much easier it is on them and on your team! Each text response your customer receives will help further establish trust by showing them firsthand how responsive your shop answers their questions and addresses their concerns.
7. Maximize Your Parts Margins
Growing your parts margin is a key component to the profitability of your shop. Outside of labor profits, the profit your shop brings will ultimately come from parts markup at the point of sale. So, how do you grow your parts profit margin?
Invest in an inventory management system
Rather than having an endless Excel spreadsheet, you’ll want to invest in an inventory management system. Trust us, it’s a game changer. With a shop inventory system in place, you can easily grow your parts margin and gain insights on:
- Parts that sell
- Brands that customers prefer
- How wide your margins are
- When you’re not getting your money’s worth
- Whether you are undercharging or overcharging on different stock
Once your shop has a solid handle on inventory management, you’ll want to do some research on the right markup for your shop’s parts. You’ll want part prices to be a good deal for your customers and your business. One way you can reach the right pricing is by using a parts matrix.
Monitor your parts through parts reporting
Having the ability to track what parts are commonly used for repairs, which are longer-lasting, and who the preferred vendors are will help you streamline parts’ management. Investing in a shop management software that includes a built-in reporting feature will help you gain a better grip on all things parts.
8. Stay On Top of Your Shop’s Common Expenses
As they say, the little things add up. The little things your shop purchases on a regular basis can eat into your margins if you’re not careful. When you have clearer insights into your shop’s common expenses, you’ll be able to maintain the profitability of your shop. A lot of this stuff is important. So it’s less of a matter of not purchasing these things and more about knowing what you’re spending so that you can make little adjustments. For example, does your shop really need top-of-the-line staples, or can you opt for a more affordable option? Or maybe your coffee machine refills could be swapped for a more affordable local brand rather than the Starbucks coffee beans?
Decide what you actually need, what can wait, and what you may be able to get a better price on. You can monitor where your money goes—down to the dollar—by categorizing overall costs.
Some common expenses include:
- Rent or lease payments
- Utilities costs: telephone and internet, electricity, heating, etc.
- Maintenance costs: mending leaks, maintaining equipment, snow plowing, landscaping services, etc.
- Taxes: state income tax, property tax, payroll tax, sales tax, fuel tax, etc.
- Office equipment: computers, printers, tablets, desks, chairs, etc.
- Marketing expenses
- License renewals
- Lobby supplies: water, coffee, snacks, etc.
- Employee appreciation: gifts, holiday outings, meals, team bonding, etc.
- Ongoing training and education opportunities
9. Establish Strong Marketing Strategies
Marketing expenses are something you’ll want to invest in, but you want to ensure you’re getting a big return on those investments. By honing in on impactful marketing plans, you can increase your auto repair shop profit margin. Enhancing your shop’s branding, investing in promotional advertisements, and even hiring a social media coordinator will not only maintain your current customer-base, but will also boost business if done right.
Choose the right marketing strategies for your shop
What the shop a block over is using for their marketing strategy won’t necessarily work for your shop. You’ll want to carefully select any advertisement, social media post, or marketing campaign so that it continues to spread your shop’s mission and values. Here are types of marketing you can invest in:
- Website branding
- Local reviews
- Social media
- Email marketing
- Content marketing
- Referral program
- Reward program
- Pay-per-click ads
- Print and physical marketing
Monitor your marketing strategies
After you’ve carefully selected and invested in your shop’s marketing strategies, you’ll want to make sure that they pay off by tracking what’s working and what isn’t.
Find a way to see the cause and effect of various marketing strategies, like pulling up a report to determine whether the paid Facebook advertisements are bringing in new customers or whether the flyers your team placed around town are prompting more foot traffic.
When you launch a social media campaign, are you able to tell how much revenue or customers came from that investment? Same goes for all of the other marketing tactics. No matter the marketing strategies your shop chooses to implement, you’ll want to track what’s working and know why it’s working.
The Established Stage Costs
During this stage, you’re past the seed and start up stages and are beginning to reap the benefits.
You’ll begin to see you and your team’s hard work pay off through your shop’s widening profit margins. Continue to keep that momentum up as you near the expansion stage.
But also remind yourself and your team to take time to yourselves so you can continue to keep a cool head and give your customers the five star experience they deserve!
10. Increase Your Shop’s Average Repair Order (ARO)
If you invest in systems that help you and your team optimize productivity, you can improve your ARO and make room for new customers. If your shop’s ARO is increasing, that’s a pretty good indicator that your auto repair shop profit margin is growing at a healthy rate. Here are a few ways you can increase your shop’s ARO:
- Market to new customers
- Complete a thorough inspection on each customer’s vehicle
- Sell more work through declined jobs
- Schedule repairs in advance
- Communicate effectively
- Don’t forget the add ons! Any small last minute sales, like a new battery for a keyless remote or a lightbulb for a car’s interior light, will add up. Think of it this way: adding a few extra dollars per thousands of cars will boost your auto repair shop profit margin.
See Your Metrics: Reporting is Key in Increasing Your Auto Repair Shop Profit Margins
Business reports help you monitor the impact of each of the above ten tactics. An overall way you can visibly see how much profit your shop has acquired from opening day onward is by taking advantage of Tekmetric’s Real-Time Reports.
See exactly how much money is coming in and make smart financial decisions with Tekmetric's financial reports:
- Sales and profit
- Discount and fees
- Sales Tax
- Accounts Payable
- Accounts Receivable
Manage your employees and monitor their performance with Tekmetric’s employee reports:
- Real-Time Service Writer Report
- Real-Time Technician Report
- Technician Hours Report
- Commission tracking
Build trust with every single one of your customers—whether they’re new or returning—with Tekmetric’s customer reports:
- Customer list
- Declined jobs
- Customer leads
- Marketing sources
Always be in-the-know about your shop’s parts with Tekmetric’s parts reports:
- Parts purchased
- Parts usage
And that’s just an overview. Imagine what all you can do with clear, organized insights into the performance of your shop. Your auto repair shop profit margin will thank you.
“If I go to reports, I have so many metrics that I can look at that tell me what's going on. Tekmetric breaks out all of those metrics and shows me what we're selling and what we're not selling. It gives me the breakdown I need to measure what I'm doing.”
- Henderson Johnson, Owner of Toyo Automotive
Prioritize Routine Health Checks
No, we’re not talking about you visiting your doctor (although that is encouraged, too). We’re talking about how important it is to stay on top of your shop’s overall health. By taking advantage of the reports mentioned above, you’re already doing yourself—and your shop—a big favor.
Just as you do routine maintenance on your customers’ vehicles, you’ll want to do the same for your shop. To take your shop further, here’s a quick checklist you can follow during your monthly, quarterly, or annual check up:
❏ Check on your shop’s revenue. Is it where you envisioned it would be? Could your auto repair shop profit margins grow?
❏ Check on your shop’s customer base. Are you still gaining new customers? Have you reached a plateau? What is your main marketing source? What marketing sources could you explore next?
❏ Check on your shop’s expenses. Are you paying for more parts than needed? Are you getting the best bang for your buck? Could you be saving more?
❏ Check on your shop’s budget. Do you have the financial means to cover all expenses necessary? Are there items you can cut back on so you can prioritize more timely expenses?
❏ Check in with your shop’s bookkeeper or accountant. Do you have a reliable accounting system? Are there any outstanding payments? Is it time to rethink your collection procedures?
❏ Check in with your team. Are you providing enough training? Is there anything you can do to better support their professional growth?
❏ Check in with yourself. How are you taking care of your work-life balance? Are you able to spend time out of the shop without worrying about what’s going on in the shop?
Remind yourself that the growing stages can take a lot of energy. Running an auto repair shop isn’t easy and requires a lot of hard work. But once you’re at the stage where you can monitor your successes through a shop management system, you know you’ve gotten to the point you dreamed of during the seed and start-up stage. You can look back and say, I made it to the place I wanted to be. Now let’s keep going.
So, How Profitable Are Auto Repair Shops?
Once you’re at the established stage, you may consider expanding your shop to new locations, or growing your services and your team. Congratulations! You’ve made it to the growth and expansion stage.
The profitability of your auto repair shop depends on how closely you watch your bottom line. If you’re worried about your auto repair shop profit margin, try cutting costs down, focusing on customer experience, and streamlining tedious day-to-day tasks.
You can successfully monitor each of those tactics by investing in a shop management system that shows you how each of your decisions pays off. So, you want to start an auto repair shop? We’re glad you’ve decided to take a look at this blog before or during your journey as a shop owner.