Highway and Heavy Parts Is Helping Repair Shops Boost Profit

Online, September 30, 2013 (Newswire.com) - Though handling a shop's day-to-day accounting operations might not be exactly what an owner has in mind when walking into work in the morning, it certainly doesn't hurt to have a firm understanding of how they work. Many dealers and repair shops try to avoid talking about things like revenue and labor costs but if they have a firm grasp on what they mean and how they affect one another, they'll be better equipped to boost profits and make more informed financial decisions regarding your business.

For a dealer or repair shop, the amount of money they make on a sale is a product of a number of different things. First and foremost, how much did they pay for the part they are selling? Secondly, what is the markup? And finally, what other costs (finding/picking up parts, freight, overhead, etc.) did they incur along the way to selling the part? If they know these variables, determining their profit is pretty simple.

Unfortunately, for many dealers and repair shops, it's been a race to the bottom with regards to profit margins when selling OEM parts, but it doesn't have to be. For instance, say their competition is selling a part but at a lower price than they're selling it for. A person might think they need to drop their price in order to make the sale and stay competitive, but they don't. In fact, they can double or triple their profit margin and sell the part for the same amount or even less than their competition. Most dealers think this means that they have to offer a more attractive warranty and while something like that may in fact help drive sales, there is a much easier way to get an edge over their competitors without taking a hit.

Higher profits don't always mean higher prices. Take an oil pump for example. When a customers needs this part a repair shop probably orders one from the original manufacturer, add a rather low 10 percent markup and turn around to sell it. Hopefully they already know it, but if they don't, they lost money on the sale of the part! In addition, they offer no competitive value over other vendors and in the event that the part does fail, the OEM will likely deny the warranty for one of many reasons that they have no control over. Sound familiar?

Now, picture a different scenario. Their customer calls and instead of ordering the pump from the OEM, the repair shop rebuilds it themselves and charge for the labor and markup the repair parts. Because rebuild kits are so inexpensive, they'll have enough room in terms of price to markup every hour of labor that they spend working on the pump. They'll even be able to markup the cost of any extra parts they have to order. When the job is done, they'll have a perfectly good oil pump that cost you a total of 35 to 50 percent of what they would have spent had they purchased the part directly from the OEM.

After they've completed rebuilding the part, how they want to get an edge over their competitors is up to them. They could match their price and make a bigger profit or they could drop their price and market it as a more economical option. Because they have more flexibility, they could even offer a better warranty. The fact that there are no cores to return will account for a great deal of savings as well. The option really is theirs, but one thing is for sure, they'll come out with more money on the other end!