How to Use an Auto Parts Markup Matrix to Maximize Your Shop’s Gross Profit
Parts and appropriate markup prices are a significant avenue through which auto repair shops make profit. An appropriate parts markup process comes down to having precise calculations and consistent systems that apply the right markup to the right parts – resulting in higher profit for the shop.
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. Additionally, there can be inconsistency regarding what gets marked up and the amount, leaving customers with questions when they look at their final invoice. However, establishing a consistent system can take the guesswork out of determining a fair markup for each part sold.
With an auto parts repair markup matrix, also called a parts matrix, there’s no more second-guessing. Parts markup matrices allow shop owners to create the ultimate streamlined process for marking-up parts. Instead of spending precious time calculating the right markups, shop owners can apply one matrix across the board – keeping their team prosperous and hitting the shop’s gross profit goals.
The Price is Right: Efficient Parts Shopping
Before a shop can even mark up a part, the owner or employee must find and purchase the part – which should be both high-quality and reasonably priced. When shopping for parts, it is important to find the part quickly and at a fair price. Efficient shops find a balance between the two, allowing them to order parts faster while still securing good deals.
There are several ways to find the best deal when shopping for parts. Some shops may look at a local junkyard for hard-to-find inventory. Others look at the local auto parts store for a brick-and-mortar experience. While these methods may take some extra time, they are great ways to uncover new deals.
When shops want to compare prices, however, digital solutions offer the best avenues. Many auto repair shops save time and effort by utilizing shop management systems like Tekmetric, which swiftly compare prices from multiple vendors at once. With online parts houses, repair shops can earn back the time they would have spent hunting down these parts and making comparisons in person.
Determine Pricing with a Parts Matrix
Once a part has been purchased, a shop needs to determine the right markup. It might be tempting to drive up the part’s cost, but this could ultimately drive away customers looking for cost-effective repairs. The most impactful markups offer a good deal for customers and the shop.
There is a simple rule to ensure parts are marked up appropriately: the more expensive a part is, the less it should be marked up. For example, a $10 wiper blade might sell at a 50% markup easily. But, it is more difficult to mark up the price of a $400 alternator by the same amount. The customer may balk at the price tag or even request a second opinion from a competitor.
A parts matrix can strike just the right balance in price for parts in accordance with the shop’s gross profit goals. Rather than spending hours with a calculator, pen and paper, a shop owner can invest in a shop management system – such as Tekmetric – that automatically calculates parts markups. In fact, a shop management system can make calculations based on the shop’s desired gross profit percentage – bringing the shop owner one step closer to meeting its goals.
Simple Versus Compound Calculations
Parts matrices can include both simple and compound calculations, and a shop management system enables shop owners to automatically apply both – depending on the part.
A simple calculation includes marking up parts in a certain price range by a specific amount. By comparison, compound calculations mark parts up by different percentages within specific cost ranges. For example, if a shop owner sells a job for $20, they could mark up the first $10 by 10%, and the last half by 20%. Some shop owners avoid compound calculations to avoid confusion with customers. However, they can also give the shop an edge when it comes to increasing gross profit margins. Some shop owners that use complex calculations in their parts markups have been able to increase profit margin by 8% to 10% when compared to using simple calculations alone.
Final Considerations
Understanding the calculations and processes behind price markups can be difficult. However, establishing a process and maintaining consistency can increase a shop’s profit more than nearly any other day-to-day operations. Ultimately, each shop has unique needs and preferences, and it’s up to the shop owner and their team to determine how to utilize a parts matrix in a way that works best for them – and benefits the bottom line.
