How Do I Calculate My Auto Shop’s Gross Profit?
As the owner of an automotive repair shop, there are some significant numbers for you to know and track carefully. Among those numbers, one of the most important is your shop’s Gross Profit. Your gross profit is a reflection of your shop’s value. It's the remaining profit after you’ve deducted the cost associated with providing all your services.
Simply put: Gross Profit = Revenue - Cost of Good Sold
How to Improve Your Gross Profit
The best practice for automotive repair shops is to set a minimum goal of achieving at least 50% profit margin on sales of parts and accessories. While every job is different, we advise shops to analyze their prices by striving for an average of $1 of labor for every $1 part sold. This can help you estimate your labor costs or parts pricing.
If your labor sales are significantly higher, it might mean you’re undercharging for parts and accessories. Likewise, if your parts sales are higher, your labor rate might need to increase a bit.
Increase Your Profit Margin
As an owner, the key to hitting a higher profit margin is to focus on the business as a whole and leave the repairs to your trusted team of technicians. Some simple changes can help increase your gross profit and grow your shop.
- Focus on customer service to retain quality, repeat customers - it costs more to acquire new customers than it does to keep current ones.
- Set diagnostic rates equal to labor rates—oftentimes, not charging diagnostic rates can contribute to profit loss.
- Charge for shop supplies and environmental fees—even it's just a couple of bucks, it adds up!
- Use your digital vehicle inspections— increase the price tag of your average repair orders by showing instead of telling the customer educates them, and they are more likely to up-sell themselves.
It's important to measure success and gross profit shows your shop's success as a business, not as individual mechanics and technicians.