Parts cost at 18%, is it really possible?

We all know the importance of maintaining the proper margins and balancing cost, but sometimes it's seems that we hit a big wall and can't get passed.

How to we get parts cost down if mark ups are tied to cost?

Any input is appreciated.....

I believe you're referring to parts cost being 18% of total sales? I've read that 20% is perfectly acceptable, but if you're striving for 18% you could:

1. Keep using high quality parts and

2. Increase your total sales in other ways that don't involve selling more parts such as: higher general labour rate/increased parts margins/more high tech work at increased labour rates etc

Edit: 3. Negotiate a better part cost discount from your current supplier or find a new supplier that gives you better prices.

I'd be more worried about your overall margins you are getting for parts. Sometimes you can't help being parts heavy or parts lean. A healthy margin is what you can control.

I'd be willing to bet to that your missing out on charging properly for diagnostics. When I first started paying attention to my numbers, my parts to labor ratio was about 1.3:1. This happened because one of the first things I changed when watching my numbers was properly marking up parts. When I was making the right margin on parts, my labor was too low, mainly because I was not charging appropriately for diagnostics. Now that I've been working on that, I'm down to about 1.13:1 I still struggle with it, but I'm improving and my goal is 1:1. As mspec stated, there are gonna be some jobs that are just parts heavy, and there is nothing you can do about it.

Just remember this: You can have the best percentages in the world, but you cannot buy groceries, pay the power bill, or make a house payment with percentages. You make these payments with profit dollars. And lots of them. With that said, I am a numbers guy. Always have been. Always will be. I have a grid, mark-ups, and etc., but the one thing that some folks don't have is a "Profit Mindset." Most of you have one, some of you want one, and it's something you have to work on just like remembering names. I may be pricing out a job, and the matrix price on a belt is $51.88. I'll use the retail pricing strategy(Sears, Lowe's, Wally World, etc.) and make it $59.77. A water pump on the matrix at 67.14, I'll make 79.95. Now I'm in a pretty good demographic area for my business, so this works for me. What I'm saying is....always make money so you'll have a good chunk left after paying that big overhead and all the unexpected expenses. You know what I mean.

For you young bucks out there, youtube this song "Nothing From Nothing Means Nothing" by Billy Preston. Gonzo and Xrac and a few others probably know it by heart.

I may write a new song entitled "Something plus a lot times 1.34 equals Profits!!!"

The problem with randomly varying your price from the matrix is you possibly end up with inconsistent pricing. This is especially true when you have more than one person pricing jobs. You might have one of your people quote a job over the phone at one price, then a week later when the guy makes his appointment and comes in he's told a different price by a different guy. Actually, this could even happen with only one guy quoting prices if he doesn't remember what price he came up with last week. Consistent pricing is VERY important to to the public perception of your shop. Set up your matrix that will yield a fair profit and stick to it.

Mmotley is right, one of our biggest problem is getting the customer to understand why we have to charge them diagnostic time.

Thanks Guys for all your inputs!

The problem with randomly varying your price from the matrix is you possibly end up with inconsistent pricing. This is especially true when you have more than one person pricing jobs. You might have one of your people quote a job over the phone at one price, then a week later when the guy makes his appointment and comes in he's told a different price by a different guy. Actually, this could even happen with only one guy quoting prices if he doesn't remember what price he came up with last week. Consistent pricing is VERY important to to the public perception of your shop. Set up your matrix that will yield a fair profit and stick to it.

Very good point!

Mmotley is right, one of our biggest problem is getting the customer to understand why we have to charge them diagnostic time.

 

Thanks Guys for all your inputs!

Farmingham, I'd highly recommend the service advisor training course through RLO and their GSM course too if you really want to get better at it. Send me a PM if you'd like and I can pass along their information

The problem with randomly varying your price from the matrix is you possibly end up with inconsistent pricing. This is especially true when you have more than one person pricing jobs. You might have one of your people quote a job over the phone at one price, then a week later when the guy makes his appointment and comes in he's told a different price by a different guy. Actually, this could even happen with only one guy quoting prices if he doesn't remember what price he came up with last week. Consistent pricing is VERY important to to the public perception of your shop. Set up your matrix that will yield a fair profit and stick to it.

This won't be a problem if you are limiting phone quotes (we hardly give out any pricing over the phone) and having a SMS that will allow you to record estimates/revisions for clients. We save all estimates in a revisions tab via Mitchell1 which is helpful so whomever is the service advisor they can refer to the price that was offered. This creates consistency across the board. You should probably also have a 30-60 day policy on estimates since you will be changing pricing, parts pricing will change over time.

 

 

This won't be a problem if you are limiting phone quotes (we hardly give out any pricing over the phone) and having a SMS that will allow you to record estimates/revisions for clients. We save all estimates in a revisions tab via Mitchell1 which is helpful so whomever is the service advisor they can refer to the price that was offered. This creates consistency across the board. You should probably also have a 30-60 day policy on estimates since you will be changing pricing, parts pricing will change over time.

You say it won't be a problem but if you're making it up as you go, there are bound to be inconsistencies. It reminds me of the old saying, "always tell the truth and you won't have to remember what you said". Develop a matrix. Use one labor guide. Use these to build your quotes and you'll never have to remember what you quoted.

I don't understand the question.

My parts costs vary, but on average can be 25%, down to 12% of the particular job. On some oil change specials, the parts and supplies can be as high as 63% for me! And there are diagnostics jobs that supplies and equipment amortization are less than 5% in costs.

You say it won't be a problem but if you're making it up as you go, there are bound to be inconsistencies. It reminds me of the old saying, "always tell the truth and you won't have to remember what you said". Develop a matrix. Use one labor guide. Use these to build your quotes and you'll never have to remember what you quoted.

Trrguy, I can definitely see your point on this. The example I was giving was for jobs in the shop that we are pricing. We do very, very few phone quotes other than tires, so we don't have to remember the quotes. We also save all our estimates on Mitchell 1, so it's there when we need it.

You say it won't be a problem but if you're making it up as you go, there are bound to be inconsistencies. It reminds me of the old saying, "always tell the truth and you won't have to remember what you said". Develop a matrix. Use one labor guide. Use these to build your quotes and you'll never have to remember what you quoted.

Parts prices can always change. We use a matrix and 1 labor guide and my SAs do not judiciously quote random prices. If parts prices are always changing then no matter what matrix you are using you will have varying prices. If we get down to giving out estimates, our estimates are saved so anyone can refer back to the original price quotes that were given.

Of course prices change. The point I'm trying to make is create a process and stick to it. The bigger the shop, the more people involved, the more this is necessary. Not just in pricing but in all areas of operation.

I'm unclear what the 18% is supposed to be. 18% of the invoice total? Part cost of 18% of part sell price meaning you are selling at 82% margin? If you're at 82% GPM then you need to be teaching me. Hopefully not 18% mark up.

Average repair invoices are 40% - 55% parts and 45% - 60% labor. Average service tickets usually have a bit more labor.

I'm unclear what the 18% is supposed to be. 18% of the invoice total? Part cost of 18% of part sell price meaning you are selling at 82% margin? If you're at 82% GPM then you need to be teaching me. Hopefully not 18% mark up.

 

Average repair invoices are 40% - 55% parts and 45% - 60% labor. Average service tickets usually have a bit more labor.

 

Christian,

18% of Gross Sales