Finance Labor Rate Parts Pricing Shop Financing Columnists

7 Steps to Higher Profit

Order Reprints

Three years ago, I taught a financial seminar at the Ratchet+Wrench Management Conference. Recently, I got a call from a shop owner that attended that seminar. He told me that the presentation changed his life. He told me that he did just about everything that was covered in the presentation and it resulted in more than $90,000 to the bottom line and roughly the same with sales. 

I’ve often met with shop owners—good shop owners with great reputations—whose margins and bottom line are nowhere near where they need to be. I’ll go over what they need to change, but I’m met with arguments on why it won’t work for them.  I’m here to tell you that it will work, if you follow the right steps, like the shop owner who called me did. 

1: Look at your labor rate.  

A good rule of thumb is that if your labor rate is less than $135, or you haven’t changed it in over a year, then it’s time to raise it. I have people time and time again tell me, “I can’t charge more than $XX.XX in my area.” In all my years and in all of the shops that I’ve encountered, I have never known one to go down in sales or customer base when a labor rate change happened. However, they all greatly increase profits and income. 

2: Make sure you are doing labor bumps. 

ALLDATA and Mitchell are guides—it says so on the old printed book! They are only correct or the same less than 37 percent of the time. You must see what your tech says, what the guide says and then bump by .05. If you don’t, then at the end of the month, your effective labor rate will not be where you want it to be because you had too much carry over, too much warranty work and too many no gos.  If this number is not in line, then your gross profit won’t be either.

3: Pay flat rate. Do not pay salary.

If you want a tech that gets paid more than he or she produces and coast through every week, then pay him or her a salary. If you want a tech who wants exponential potential to make a lot of money, then pay him or her flat rate. I would probably make more money by paying salary, but then I would have unmotivated techs, so it doesn’t work for me.

4:  Factor in shop supplies. 

This should show up at least 6 percent. If not, then you are losing a lot of money that you pay out and that is owed to you. 

5:  Examine your parts mark-up.  

If your parts mark up is not at a 2.8 or better you should examine your matrix or matrix overrides that your managers may be doing. Review your matrix, or better yet, review your manager’s matrix overrides because he or she is probably going around it.  

6: Evaluate the amount of discounts you’re giving out. 

How much did you lose in discounts last month? Do you know what it should be? If it’s more than a couple percent, then you may have a problem.

7: Negotiate where you can. 

When was the last time you looked at your uniform bill? Have you gone back and looked at each one? If not then you are losing money. 

When it comes to parts vendors, have you asked for:

  • Higher monthly rebates on total purchases?
  • Training? 
  • Paying out to sponsor manager competition?
  • Shop lunches?
  • Tickets to events?
  • Reducing pricing on common parts? 

You can save thousands per year here, so take advantage of it. 

These are a few instant, easy-to-do fixes that will make you thousands of dollars. However, it means nothing if you don’t review your numbers every day and then review it with your manager to make changes. I promise, if you put even some of these in place and do the daily review and accountability on it, you will have the same revenues and more profit at the end of the year. 

Finally, please don’t assume that your managers—even the toughest of them all—don’t want to review their goals.  I went to visit one of the “toughest” managers in the country recently. When I sat with him to talk about the business, I asked him if there was anything we could do for him. He said, “I would really like you to send me a budget and goals each month of what you want me to do and how that will impact me financially so I can do more and hit those goals.” It was so eye opening to me how much I take these things for granted and what a difference it makes. 

Related Articles

5 Ways to Improve Gross Profit

How to Increase Your Net Profit

Debunking the Gross Profit Myth

You must login or register in order to post a comment.