Written by: Anthony Allen
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
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.
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.
It's important to measure success and gross profit shows your shop's success as a business, not as individual mechanics and technicians.
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