Demarest: Planning for 2026: Rethinking Budgets and Setting Targets

Every year around this time, my inbox fills with clients asking how to set their budgets for the coming year. What should overhead be? How much should they spend on advertising? Should they plan for new equipment or capital investments? These are valid questions, however, the way many shop owners think about budgeting sets them up for the wrong decisions.

Last month, I talked about why judging advertising strictly by cost is dangerous. That same logic applies to budgeting as a whole. Before you set goals for 2026, you need to understand the three foundational numbers that actually determine your results: sales, gross profit percentage, and overhead. If all three remain the same, you’ll end up with the same profit you had this year. That may be fine for some shops, but if you’re looking to grow, your approach has to change.

Don’t Use Personal Finance Logic 

The problem is that most owners apply personal finance logic to their business. In your personal life, your income is largely fixed. If you want to save more, you cut expenses—skip Starbucks, pack your lunch, stop buying unnecessary stuff, etc. That works at home.
But running a business is different. In a shop, your expenses are mostly fixed based on the size, staffing, and systems you’ve already committed to. Your income and gross profit are what you can influence the most. When owners apply personal budgeting logic to their shop, they assume sales and gross profit are fixed, leaving “cutting expenses” as the only lever to increase profit. That leads to poor decisions.

Could you stop buying tacos for the team every Friday and “save” $3,600 a year? Sure. But if that small expense is helping morale, retention, and productivity, cutting it could easily cost you thousands—maybe tens of thousands—in lost production. You can’t nickel-and-dime your way to profitability. I’ve never seen a shop succeed that way, but you won’t be the first to try.

Setting Expectations Without Restricting Growth

So, does that mean you shouldn’t budget at all? Not exactly. The purpose of budgeting is to set expectations, not to restrict growth. If a new tool, piece of software, or training will improve efficiency and increase gross profit, don’t reject it just because it wasn’t in the budget. Instead, adjust your gross profit targets accordingly. The right investment should make the target achievable.

Once you nail down your projected overhead, you’ll have a clear idea of what you expect to spend in 2026. If your gross profit stays the same, you already know what your net income will be. If you want to earn more, you must increase gross profit—either by doing more work or raising prices. Want to increase gross profit 10%? Then either raise your labor rate and parts margin by 10% or produce 10% more billed hours. Which path is right depends on your shop.

Ultimately, the three numbers that determine your success next year are:

•    Monthly sales
•    Gross profit
•    Monthly expenses.

Your technicians don’t need to know the overhead number—they need clear weekly hour goals. Your advisors need sales and gross profit targets. And you, as the owner, are responsible for keeping overhead on track.

If the shop produces the hours you planned for, and the front counter sells those hours at the right price, profitability will follow. But if you’re the only one who knows the targets—or you make decisions based on “staying under budget” instead of driving gross profit—don’t be surprised when the numbers fall short.