What's YOUR parts:labour ratio?

[bstewart]

I've been doing a lot of reading about shop profitability and the numbers that help you to achieve it.

I'm also certainly looking towards the future of auto repair, and how shops will continue to be profitable in a world with higher operational costs and customers who visit shops less (regardless of the reason why).

 

20-30 years ago, it was considered ideal to have a parts:labour ratio of 1:1, meaning you sell $1 in parts for every $1 in labour you sell (a 50/50 mix).

Then shops started becoming more competitive, overheads started increasing and customers reduced their yearly shop visits from ~4 to ~3 (and more recently, to ~2).

Since then, it was considered ideal to have a 0.8:1 parts:labour ratio, meaning you needed more labour sales to stay profitable (a 55/45 mix).

 

I've been reading Mitch Schneider's book, From Intent to Implementation, and he has some interesting ideas (written in 2002, over a decade ago).

He states that our desired mix now and for the forseeable future should be 60/40, or a 0.66:1 parts:labour ratio, and I wholeheartedly agree.

As vehicles become more complex to repair, and are better built (requiring less parts to repair, but more diagnosis), and lower parts margins (due to the internet mostly), labour will become even more important for a shop to remain profitable.

 

Therefore I ask, what's YOUR parts:labour ratio?

Are you still striving to meet the 0.8:1 ratio that became the standard 10-20 years ago?

Have you broken that threshold and are already on your way to the desired 0.66:1 ratio?

 

In a way, I believe this ties into my theory about labour rates and parts profit margins that I outlined in my other thread here:

http://www.autoshopowner.com/topic/9381-labor-margin-vs-parts-margin

In short, I believe that higher labour rates, accompanied by lower parts margins would go a long way to attaining a 0.66:1 ratio, and also bring shops higher profitability, because labour has higher margins then parts in general, and you will sell more labour compared to parts in the future.

[Sean]

I like this idea and have been exploring it as well. I noticed you mentioned Mitch Schneiders book, which I haven't heard of. Are they worth the investment ? One of the books seems to sell for @100.

Great topic

Edited April 18, 2014 by Sean

[bstewart]

I like this idea and have been exploring it as well. I noticed you mentioned Mitch Schneiders book, which I haven't heard of. Are they worth the investment ? One of the books seems to sell for @100.

Great topic

It's an 8 part series, and you should be able to find them for about $30 each. I only have the first book right now, but I intend to get the whole series, it's extremely well written. I'd say it's a great $240 investment for the whole series.

Try different places, like amazon, barnes&noble, ebay etc.

[ncautoshop]

I like this idea and have been exploring it as well. I noticed you mentioned Mitch Schneiders book, which I haven't heard of. Are they worth the investment ? One of the books seems to sell for @100.

Great topic

great books!

 

Sent from my SCH-I605 using Tapatalk 2

 

 

[xrac]

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[ncautoshop]

 

Which of the Schneider Books is the best?  Any recommendations? 

Operations management and managing dollars with sense really opened my eyes!

 

Sent from my SCH-I605 using Tapatalk 2

 

 

[pattersonautobody]

Sorry to resurrect an old topic, but it appears that 0.67 to 1 is a Key Performance Indicator for parts:labor? One thing I don't understand is why is it necessarily to get better profit on the labor end than on the parts end? If you are making 50% profit on parts, if not higher excluding tires and dealer parts, we don't want to decrease this margin merely to make the parts:labor ratio better.

[bstewart]

I'm actually glad that you've brought this old topic to life, I had hoped to get a little more discussion out of these threads then I did.

Did you read my other thread? http://www.autoshopowner.com/topic/9381-labor-margin-vs-parts-margin It relates to this one.

 

I believe (and others do too) that parts margins will be driven down in the future by a combination of internet price checking, transparency in business practices, and customer attitudes.

I believe it will be harder in the future to maintain a 50% parts margin with customers who know that they can get the same part at their local part store, for lower then what you are selling it for.

From a warranty perspective, a shop normally justifies high parts margins with the statement "we add value to the part with our warranty".

While this may be true in your eyes, customers don't see it that way, all they see is higher prices then the local parts store.

 

Ask yourself this: What am I really selling in my shop?

The correct answer to this is your time, aka your labour. If you didn't sell any labour, there would be no parts sales, it's certainly not the other way around.

Why not have your rates reflect what your customers are -really- paying for when they bring a vehicle to your shop? Your labour!

 

With proper marketing, your customers will appreciate that you aren't gouging them on parts, and your shop will also become more profitable at the same time!

You might ask: How will it become more profitable, seeing as you still make the same amount per hour? (as I demonstrated above)
The answer is: In the future, jobs will be more and more labour intensive, with less related parts sales.

Reflashes, diagnostics and maintenance all have very low related parts sales, but can be very profitable for your shop, and with an increased labour rate, you shop will be more profitable and sustainable in the future.

[pattersonautobody]

Problem is to do that, you would honestly need a $165 an hour labor rate, and people would rather live in la la land than know that's the real cost for labor.

[Jeff]

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[national autoworks]

I look at this another way. The business we are in is comprised of a 2-fold solution. Labor AND parts. One wouldn't exist without the other. I believe that you should make a strong business case for both sides to be profitable. Dealers break apart the 2 into individual departments for a reason. To drive success on both sides of the repair order. If you truly understand the market you are selling to, this is a possible feat.

 

Just my 2 cents...

[mikesauto2427]

I am in the process of slowly upping my labor rate. I am sick of customers complaining about my parts prices. A little less on parts and more labor.

[alfredauto]

I charge more for parts than the internet does. If people complain about it, which is rare, I offer to them the idea of getting their own parts and doing the job themselves. An egg at the supermarket costs ten cents, that same egg at a diner costs $5. Same idea. Don't let the customers bully you out of business.

[xrac]

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