bstewart

Well then disregard my last post on the issue haha. Are those numbers possible/viable in a real world shop? I've never heard of a shop making 23% or more in profit. 15-20% seems to be the maximum that most books and forum posters claim you can achieve. Obviously it would be shop specific, but which of the 3 factors you listed go up the fastest if your profit drops below 20%? Or do they all go up by the same amount?

He's saying that your overhead will be greater than 25%. 25+27+25 = 77% Profit would be (theoretical maximum) 23%, but every 1% of overhead is 1% less profit that you see.

This is an excellent post, that we could dissect in another thread by itself, but just a quick question: Does the 27% labour include your (owner's) salary? Or do you account for it some other way like from the profits? (I hope not)

Here is an EXAMPLE parts matrix, copied from Mitch Schneider's book, From Intent to Implementation: This is for normally sourced parts $Part cost Gross Margin Divide By 0.01-5.00 70.0% 0.30 5.01-10.00 60.0% 0.40 10.01-75.00 55.0% 0.45 75.01-200.00 50.0% 0.50 200.01-500.00 42.0% 0.58 500.01-750.00 35.0% 0.65 750.01 and up 30.0% 0.70 This is for dealer sourced parts $Part cost Gross Margin Divide By 0.01-1.00 70.0% 0.30 1.01-5.00 65.0% 0.35 5.01-25.00 60.0% 0.40 25.01-75.00 55.0% 0.45 75.01-500.00 42.0% 0.58 500.01-750.00 32.0% 0.68 750.01 and up 28.0% 0.72 Note that this is an EXAMPLE, you could start with these numbers, but you would HAVE to adjust them to suit your own shop's desired parts margins. In fact, you should be constantly looking at your parts margin anyways, and tweaking your matrices to reflect changes in your business environment.

I agree 100%, Joe. Every shop needs to know their breakeven point, and have a pricing structure in place to make a reasonable net profit at the end of the day/week/month/year. Like you said, it's a well known fact (or should be well known) that your labour margin is far more important then your parts margin. Labour margins will become even more important compared to parts margins in the future as vehicles are made better and require fewer parts to fix and maintain, but more labour through preventative maintenance, diagnostic, reflashes, etc. 20 years ago, a healthy parts to labour mix was 1 to 1, now it is 0.8 to 1. What will it look like 20 years from now? 0.75 to 1? 0.7 to 1? Even lower? Labour margins will make or break a shop in the future, even more then they do now. On to your second point, I honestly don't believe we put too much emphasis on parts pricing. We are reacting to a consumer and industry trend that threatens profit margins. Consumers have been given an option to find a multitude of information via the internet, and they use it to compare pricing on parts because it's one thing that they can have a little bit of control over when having their vehicle repaired. I know this because I'm exactly the same way, I do a lot of price checking online to find the best pricing on my parts for my own vehicles. So, looking through the customers perspective, they know that labour is expensive, no matter where they go. But if they can save $10-20 on the same part, they feel that it's their right, and I have to agree with the consumer. The problem is when they are comparing a lower quality part online to a higher quality part in a shop. This is a problem that each shop's marketing has to solve, by showing your customers the difference between the quality part and the cheaper part. Perhaps shops need to start offering a "low tier" option to the extreme-budget-minded customer? Explain to them that no warranty (or very little, maybe 1-3 month) will be offered, so the 20-30% that they are saving on the part could (and most likely will) cost them more in the long run. I believe that this is what customers truly desire. Not cheaper parts per se, but the option of cheaper parts. Or rather, options on their parts (some customers might want top-of-the-line OEM parts only, and not be given an option for that either) Customers don't like being told that they have to buy one product, they want to choose the best one that suits them, and I feel inclined that we as an industry should be giving them the choice. I've been thinking about how I'm going to sell parts when I get my own shop. When quoting parts to the customer, I think I'm going to quote 3 options (using the good, better, best system): 1. A value part (not the cheapest that you can buy, mind you) for the budget minded customer, with little to no warranty. 2. A premium quality aftermarket part that would come with the shops full warranty (hopefully 1-2 years) 3. A OEM dealer part, that would obviously come with the highest price, and could be offered with the best warranty (either the same as premium aftermarket, or slightly better) This way, the customer chooses the right part for him, rather then just being told that "we only sell premium aftermarket parts" when maybe that isn't what they are looking for. Sorry for being long winded in all my posts, I've just got a lot of ideas rolling around in my noggin'.

That seems like a good way to get people's eyes open to the fact that having a code read isn't a diagnosis. I wonder if it would be feasible to show all customers a list of potential fixes for a code if they don't want to diagnose? I like the quote someone said that a check engine light being on is like a pain in your body. Reading the code tells you which part of your body has a problem (like head, chest, arms, legs etc). A true diagnosis is like a doctor actually doing tests (like x-ray, MRI, cat scan) and telling you what is wrong (infection, pneumonia, cancer etc). EDIT: BMW at Pep Boys, and he's refusing diagnosis? You're driving the wrong car buddy, haha! It's never cheap to fix a BMW lol!

From what I've read on Canadian shop surveys, the main problem with profitability is the same as in the US. Low HPRO and ARO. Many lower quality shops have an average HPRO of 1.4 or lower, and ARO of $180 or lower. A 2010 study of Canadian firms found that the average shop has 5 bays and 2.8 techs, but the top 25% of shops make 45% more sales in a year vs the bottom 25%. The biggest difference between the 2 groups is service advisors. The top 25% group has 1.22 SA's, where the bottom group has 0.88 SA's, almost 40% less, for the same number of techs. The most interesting fact in the study, daily sales per SA was almost exactly the same for ALL SHOPS, which means that each service writer has a maximum dollar capacity of about $2800/day. Want to make more then $2800/day (700k/year)? Add another service writer, plain and simple. It's quite an interesting (and short) study, you can read it here: http://www.aiacanada.com/uploads/2010_website/publications/2010_Automotive_Shop_Survey_en_March_16_2010_V2.pdf I'd be willing to bet that most of the data strongly correlates with US shops as well. As a generalization about Canada vs the US, we weren't hit as hard in the recession, so there's more jobs and discretionary spending up here. The dollars are there, ripe for the picking, it's just up to our shops to make the sales happen. That's a very interesting theory, and I'd be especially interested to see you (or someone else) to put it to the test and see how it goes for a 3 or 6 month trial! Using my formula from the other post, a hypothetical shop would have a shop rate of $140/hr on a $30/hr tech wage to maintain a $110/hr margin. You'd have to maintain a strong marketing presence to make sure your customers know that they are getting parts at cost, in return for the increased labour charges.

Unfortunately, a fair price is whatever people are willing to pay for an item, regardless if the markup is 10%, 100% or 1000%. I'm from Canada, and routinely our prices on just about everything are higher then in the US. Most of the time much higher. For the past couple years, our dollar was at par with the US dollar, but our prices on everything were still usually 10-20+% higher. That same belt would probably be $45-50 here, even though the retailer's cost was probably $5-10 in both countries, with something like a 500-1000% markup. Why you ask? Because it's the prices we are willing to pay. Plain and simple. Not enough Canadians travel south on shopping sprees, or to buy new cars etc. We don't let our money do the talking. Now back to an auto service point of view. Unfortunately, our average consumer has been told countless times by discount parts stores that our prices are too high. Therefore, through perception alone, they feel that they are getting screwed, regardless of whether they are or not. Our industry doesn't help our cause, with lots of "rat hole" shops not marking up parts correctly. I'm not really sure what can be done to break consumers of this mindset, or whether we should be taking an "if you can't beat em, join em" attitude. I outlined my theory in the following thread: http://www.autoshopowner.com/topic/9381-labour-margin-vs-parts-margin/ Perhaps good shops should be looking at increasing their labour margins, and reducing their parts margins, to reduce our dependence on making lots of money from parts sales. My theory will also have the added benefit in the future, as vehicles get better and require less parts to maintain, we will become more profitable because more and more jobs will be labour intensive, rather then parts intensive. Our industry is changing from us being "parts changers" to us being "vehicle technical experts" where we diagnose and fix problems, often times with little to no additional parts sales (think reflashes, diagnostic etc). Maybe we need to change our pricing structure to reflect this fact, and stop depending on parts margins to keep us afloat?

Well said, ATS. I agree that the inspection and total car care is far more important then the oil change itself. Keep your good customers coming back. Do you lose money on your oil changes, or do you break even?

Wow it sounds great, just like most of the other reviews I've read. From all my research, Autobiz is probably has the most and best features for any of the low-mid priced, non-leased software suites. The scheduler working well is a huge plus, I've heard that a lot of the schedulers out there don't really work all that great. How are the electronic inspections done? Does the tech have to do it on a computer, or can they use a tablet/smartphone? I agree that electronic inspections are VERY important.

I didn't really have any specific questions, I just wanted a first hand impression of the software. Also, how is the reporting on Autobiz? Can you compare the reports to the reports of any other software? Like quantity and quality of them, I mean. Is there any graphing options?

Are those $54k and 63k alignment systems the Hawkeye Elite? There's a 2 year old ProAlign in my area for $13k on kijiji, I'm tempted to make an offer on it even though I don't have a shop yet lol!

I've thought about this exact issue a bit as well. It's why I call oil changes a necessary evil of our industry. For starters, you're on the right track with inspections and reporting to your customers. You can't feel bad about reporting everything, and I mean every single thing, that you find, because it is your professional duty. Your customers are depending on you to find all the problems with their car, and inform and educate them as to what is necessary to fix now, soon and later. From what I've read, doing all oil changes by appointment only is a good idea. This differentiates you from the bad quick lube mindset that you spoke of. Take your time to do a full inspection, don't rush through it. Also, take pictures of your findings and show them to your customers! This is the easiest way to sell repairs and maintenance! Let them see the problem with their own eyes, and educate them as to why it is a problem (safety issue - fix immediately etc) Finally, I think that you need to include them in your per ticket average, because they are still a ticket. However, you should also run them as a separate report, and make sure that you are still in fact making money or at least breaking even on your oil changes. Also, maybe you should tally up all the performed recommendations that result from your oil change courtesy inspections. You may find that the number is in fact, quite large and profitable, and it may put your mind at ease about oil changes.

I'd also like to know, because I've only read good things and reviews about AutoBiz. Anyone know what the price is for AutoBiz?

This has been brought up a couple times on this forum, and it is something I'd like to discuss. (As with my other thread, the numbers are chosen to simplify things and might not apply to all places) As we all know (or should know), the "gold standard" for a profitable shop is 70% labour margin and 50% parts margin and a 0.8:1 parts:labour ratio. With your techs making $30/hr, this equals a labour rate of $100/hr. With your 0.8:1 parts:labour ratio, this equals $80/hr worth of parts, costing you $40. Thus, each bay should be making $180/hr with base input costs of $70/hr for a gross profit of $110/hr (don't worry about fixed costs in my example) Now imagine the same shop as above, but instead have a 75% margin on labour and 33.3% margin on parts. Same input costs: tech making $30/hr, and parts costing $40/hr. Your labour rate would be $120/hr, and your parts sales would be $60/hr. You still get the same $180/hr for each bay and $110/hr gross profit. Nothing has changed when looking at the financial aspect of your business. If you are selling work by the job and not by the hour (as you should be), most of your customers probably wouldn't even notice the difference, since the price/hr is the same as before. But in this situation, your customers will now know that they can't get the part cheaper at the parts store down the street. Or if they can, the difference is rather negligible. As a matter of fact, you could boast this to your customers. Make it a big selling point for your business. On the plus side, it practically eliminates the fight with people who want to bring their own parts. You could also market that you provide "premium service" to your customers, in the form of better inspections, callbacks, texts emails and mailers, front counter service, diagnostics, road tests, etc etc. Would some customers balk at a higher labour rate? Probably, but it's not necessarily a bad thing. If 5-10% of your "good" customers aren't complaining about your prices, they probably aren't high enough anyways. But is this pricing more realistic to what your customers are actually paying for when they come to your business? I believe so. Is it more fair to your customers? I believe it is, since they know what they can get the part for, but they don't know your wages, your fixed costs, etc. As we all know, perception is everything to the customer, and if they perceive that you are ripping them off on parts, it will leave a bad taste in their mouth. Even if you properly explain that you add value through inspection and warranty of their parts. I know there is at least one member on here who has adopted this pricing structure, I'd like to know if there's any others, and what have been your impressions from customers about this.

Excellent. Are you allowed to reveal their pricing, or is there a non-disclosure on it?

I'm sure most people have seen this on the Hunter website. Fill in your own numbers and run the calculations yourself and apply them to your shop. Using these numbers, payback on a $63k system would be less then 2 years. Still really good. Even if you only sold 1 alignment per day instead of 2, you'd pay $63k back in 5 years, and you'd get a 234% ROI on a 10 year life cycle ($147k in net profit). 200% ROI would be the bare minimum to make a good investment. These numbers even account for 100% depreciation, so after 10 years, you could sell the machine for about $6k (10%) and bank it or put it towards another new machine. This also accounts ONLY for alignments. In reality, alignments also sell a lot of related steering and suspension work on top of the alignments, so your payoff would actually be much higher.

This sounds very impressive, especially the 7 minute turnaround time on data holes. Information gaps aside, does it include all the features that Mitchell/Alldata have? Or asking another way, is Motologic a true replacement for Mitchell/Alldata, or would you need to use both?

Brilliant! For a couple bucks worth of dye on every leak repair (which would be billable of course, "we used dye to confirm that the leak is gone"), you've removed all the risk of comebacks for repairing a new leak that popped up in the same vicinity! Anyone know long will dye last before breaking down or loses its fluorescence in an engine?

Right on, sounds like you really put a lot of thought and planning into this! Great job, it sounds like you're on the right track then.

Oh that makes a little more sense, that you are a car wash first, repair shop second. I don't disagree about increasing your car counts, but be sure that you aren't losing money each time you bring in a new customer. Perhaps you could look at it another way, diverting your car wash customers to your repair shop, rather then your LOF customers to your repair shop. Maybe with the purchase of a high priced detailing (I don't know your numbers, but maybe over $60 or something), you give them a coupon for $10 off their next auto service, but it can't be used for LOF. Or maybe $10 off a service with $50 minimum purchase. So just getting a LOF wouldn't qualify. Studies have been done that show $10 is a sufficient amount to get people motivated to buy something, so I wouldn't go higher then that. I would also say to definitely update your signage, make sure everyone knows that you do full service auto repairs and preventative maintenance. Just remember that the perception of quick lube shops is that they want to screw people by upselling stuff that people don't need. I'd be sure to give your customers a professional recommendation list and estimate based on their inspection, not just have a handwritten list of stuff the car "needs" or have the tech just tell the customer.

Ok that makes sense, I figured it was probably around $85-90. Any reason that timing belts are done at a 3.5% premium and A/C work is done at a 5.3% reduction vs standard repairs? The differences seem pretty small, I guess I was wondering why both A/C and timing belts aren't both done at the $89.67 rate? Your other rates make perfect sense, although your diagnostic rate at a 33.7% premium seems a little low to maintain a good hourly bay revenue? It might work well in your situation though. On the other hand, kudos to you for actually charging extra for diagnostics! Most shops lose so much money because they don't charge properly for diagnostics.

Two things stand out to me from your comments: 1. The fact that you offer a full interior and exterior cleaning with an oil change or $35 repair. 2. The fact that you want to give more away to first time repair customers. I believe both of these are not the right things to do. Unfortunately, I believe your oil change customers are using you for the free detailing service you provide, for a very low rate. $35 for an oil change and detailing is selling yourself way short IMO. If you broke it down by the hour, I'm guessing your tech is spending more then half an hour doing the oil change and cleaning. Even at half an hour, you're only billing $70/hr with no associated parts sales to bump up your profit/hr for that bay. Now I know LOF is a somewhat necessary evil in this industry, but it still doesn't mean you should participate in the race to the bottom on pricing everything else. Looking at it another way, if the interior/exterior wash takes 20 minutes, and your labour rate is a conservative $90, the price of the wash is $30 by itself. Can you afford to do oil changes for $5? If you're looking at giving away washes, I'd say you need to set your minimum purchase quite a bit higher before giving a wash away. Something like $100 you get an exterior wash and $200 you get an interior/exterior wash. People (especially Americans) have been conditioned to think that low price and free stuff is the only way to quantify value in auto repair. This needs to stop. Period. Show them the value in your top notch customer service (as your name implies, you should be charging 5 star prices to go with your 5 star service). You seem to have a good start by doing callbacks on your previous recommendations, but you have to start pricing your services reasonably and stop catering to "D" customers who are looking for the lowest price and only come to you for a free detailing. You can take my comments with a grain of salt, since I'm not a shop owner yet, so I don't have first hand experience with what works and what doesn't. On the other hand, I've done a lot of reading on how to build a profitable auto repair shop, so I am making an educated guess here.

And what is your "standard" shop rate for normal repairs?

I've been thinking about multiple labour rates for a while, but I wasn't sure if this was viable. (note the numbers are subjective and generalized) - You've got a lube kid doing oil changes, topping up fluids and washing cars etc. He's paid $15/hr - You've got an apprentice tech learning, doing basic & intermediate repairs, preventative maintenance and is building his tool inventory. He's paid $24/hr - You've got a journeyman tech doing high level diagnosis, complicated repairs, and has the most tools and training. He's paid $30/hr I was thinking why is there only a single labour rate in most shops, whether posted or unposted? I understand that most shops bill out their LOF and brake repairs as such, not based on hours but a flat fee for the job, but why not standardize it and have multiple labour rates? Even in states who are forced to post their labour rates, posting your top level rate and having standardized lower rates could benefit? Using the industry standard 70% margin on labour, you would get the following labour rates: Lube kid: $15 / .3 = $50/hr Apprentices: $24/ .3 = $80/hr Journeymen: $30 / .3 = $100/hr I've been reading a lot of online articles and blogs about this and finally came across the following: http://www.autosphere.ca/carcarebusiness/2013/03/28/5-average-shop-labour-rates-now-required/ The critical quote: "The better shops now have in place the following labour rates: 1. Maintenance 2. Diagnostic 3. Reflash 4. Fluid 5. Tire Install. Some shops even have a couple of others due to the type of services they can provide." I was wondering if anyone does this? If so, how did you set yours up? Do you post multiple rates or are they generally internal? Maintenance would probably be something like $80/hr in this case, since your top techs generally aren't required. Industry standard for diagnostics would be $180-200/hr, since it's the most complicated, requires the most training and tools, and also to maintain a proper profit/hr for that bay since there are no associated part sales. Reflashing I'm not entirely sure but I would think it would be around $125-150/hr for the same reasons as diagnostics, but not being as complicated and take less time. Fluids would be around $50/hr Tires $80 General repair would fall under the $100/hr rate Car wash would be around $50/hr, while having a dedicated detail specialist would command higher rates, but mainly sell packages unrelated to actual time (which is what shops should be doing more of anyways haha) Anything I'm missing? Anything you folks would like to add or comment on?