As an auto repair shop owner, one of the questions I get asked regularly is: “I jumped online and found the part for my vehicle for $120.00, why are you charging me $260.00 for the same thing? ”. Often times followed up with “Can I just go get the part and bring it to you?”
There are several different answers for this very question. Here are two of the most common:
- The biggest reason is warranty. I give you a 3 year 100k mile warranty on any job I do for you. In order to do that, I am very selective on the technician that performs the work and the quality of part that is supplied. Sometimes I am using the same or very similar part you can find at the local parts store. Other times I am using a very specific brand or supplier based on the years of knowledge and product testing we have accumulated. Does that make sense?
- To be completely honest, the other reason is that I make almost half of my living off of parts sales. Running this shop is very expensive, expensive building, tools, equipment, office staff salaries, utilities, etc… To overcome that I only have 2 things for sale, our technicians labor and the parts they install. Unfortunately, I cannot stay in business and earn a fair profit off of Labor sales only. I have to sell parts at a very specific profit margin in order to cover all the expenses involved in this operation. Does that make sense?
An even more in depth answer, based on my relationship with the customer, their personality type and their response to the above answers is:
- When first getting started in this industry, I would have never believed just how expensive it would be to run a good shop. In order to make a fair profit, which to me is 10 to 20%. I have to maintain a gross profit of 60%. What that means is after paying for the part and the technicians wages, I need to keep 60% of the sale. I know that sounds crazy but this is why. You take a $1.00 repair bill, the technician and the part costs $.40. Then from there I invest $.10 into fair wages for the office staff, I invest $.05 into marketing to make sure enough customers can find me, and I invest $.25 into what I call fixed expenses (rent, utilities, loaner cars, signage, tools, equipment, etc..). If you do the math on that, out of the $1.00 sale, you have $.20 left at the end of the day. This is the reason why we must not only just sell parts and labor, but we must charge what we charge to ensure we cover costs and make a fair profit, so we can be around to help you for years to come. Does that make sense?
Institute for Automotive Business Excellence