Running an auto repair shop might seem like a dream to auto mechanics or passionate technicians.
However, successfully running an auto repair shop and making it profitable doesn’t come that easy.
In fact, the automotive repair industry has seen a steady increase in competition recently. Auto repair shops are springing up across every town which means that there the marathon to ensure shop’s profit margins is harder than ever.
So how profitable are auto repair shops really? What factors should auto repair shop owners consider to boost their profit margin?
In this post, we are going to discuss the top six factors that affect the profit margins of auto repair shops. As auto shop owners, you can explore these factors and tactics to improve the financial performance of your auto repair shop.
What is Profit Margin and How is it Calculated For An Auto Repair Shop?
The auto repair industry is a $63 billion industry but the real question is what are profit margins? How is the profit margin of an auto repair shop calculated?
These questions are important things that auto shop owners should think about while opening or expanding their auto repair shop.
Simply put, the profit margin is the percentage of sales or revenue for your auto repair shop that are profitable.
There are two types of profit margin, the gross profit margin, and the net profit margin. Usually, it is recommended to go with the net profit margin while analyzing the performance of your auto repair shop.
The net profit margin is calculated after deducting all the expenses of auto repair shops or any business, for that matter. This is how you measure profit margin.
Net profit margin is net profit divided by revenue, times 100. The net profit is calculated by deducting all of the expenses from the revenue of an auto repair shop.
Why Is It Important To Calculate Profit Margins?
We’ll be honest: not many auto repair shops calculate their profit margins when they’re determining their performance or making important business decisions.
Most of them are just too busy getting the cars of their customers fixed and don’t really give it much thought.
But if you’re considering signing a new service contract or taking any important business decisions, calculating profit margins should be one of the first things you do.
In the long run, profit margins are extremely important for auto repair shops. It can be difficult to measure profitability because auto repairs are typically recurring monthly expenses. Additionally, most customers who need auto repair services tend to be loyal to a specific shop.
However, there are ways to measure the profitability of an auto repair shop even if they don’t receive much repeat business.
For example, you can calculate how much a shop spends on advertising and promotional items and compare that to its profit margin. This type of analysis can help shop owners understand how much they’re spending on their marketing efforts and whether it’s actually working.
It can help the business owners in understanding which business tactics and strategies are actually resulting in a higher profit margin for the auto repair shop.
The Top 6 Factors That Enhance The Profitability of Auto Repair Shops
If you want to take your auto repair business to the next level, as a shop owner, you should explore these six factors and fine-tune your business strategy accordingly.
1. Labor Costs
One of the most important expenses for the auto repair shop is of labor. Labor is one of the most important pillars of successfully running an auto repair business.
The more qualified and experienced your team is, the better will be the customer experience of the auto body shop. Attracting good talent requires you to pay higher wages at your auto repair shop.
So while that might mean higher costs, it will also encourage repeat business through excellent customer service.
Usually, owners of a car repair shop are easily tempted to higher fresh and inexperienced talent to drive down operating costs. However, this is only a temporary way to increase auto repair shop profit.
In fact, this can drive down auto repair shop profit in the long run because you will have to invest more money in training talent at your auto body shop.
Let’s suppose there is an auto repair shop offering customers exemplary service. But the example auto repair shop also charges its customers higher prices due to an experienced and qualified team of professionals.
In this case, this shop can have a higher profit margin because, despite high labor costs, they will also be getting more customers because of excellent service quality.
2. Effective Scheduling and Planning
As a shop owner, you can invest in the best possible team for your auto repair shop, but without effective planning, it won’t do you any good.
In fact, in the auto repair business, it is very important that schedule and plan your team’s repair activities effectively.
It is possible to keep labor costs in check by having customers schedule appointments so that you can anticipate how many employees you will need and when. You also won’t have to deal with no-shows when you use reminder calls or texts.
An effective way to automate scheduling and planning is through auto repair shop software. As a business owner, you must be wondering why this requires quite the initial investment.
However, having software for scheduling and tracking employee productivity can help you analyze how profitable your workforce is. It can also remind customers of scheduled appointments through automated emails and text messages.
Sometimes, you can also use such shop software to bill customers automatically and generate invoices. By automating day-to-day tasks, you can decrease the amount of time spent on a customer which also makes customers happy.
3. Capital Expenses
Your profitability also depends on your major capital expenditures, such as rent or mortgage payments, equipment purchases, and more. It’s important to have a good location for auto repair shops.
One of the key factors that determine how much total sales revenue you are going to make is in fact, the location of your business.
Moreover, if you rent your location, you might be able to save money upfront, instead of tying up a large portion of your equity in a down payment and a commercial mortgage. Rent spikes can hurt your bottom line, and owning your property protects you from that.
You need to purchase equipment and keep that equipment in good working order. This is another key expense that affects your store’s profit margin.
If you want to give your customers a quality repair job, you need current, reliable machinery. It is possible to spread out the cost of important equipment over time with equipment financing.
All of these costs will have to be considered as you measure the profit margin for your auto repair business.
4. Day-to-Day Expenses
Keeping an eye on your everyday expenses can help protect your profit margin. If you don’t know it, you may be overcharged for responsible chemical and oil disposal. It is also advisable to conduct research to ensure that you are charging enough for your services.
It is also recommended that you look into the average industry cost for labor, for example, make sure you research hourly wages from time to time as these figures tend to change.
You should calculate the daily expenses incurred per average repair order. You can also compare this to the average expense per repair order in the industry, to analyze your performance.
Credit card transaction fees can cut into your profit margins if you do not watch out. It is possible to find the best rates based on your sales and average order ticket.
Some processing companies charge the same flat fee for credit and debit cards, while others have different rates. It’s a good idea to get quotes from your banks, insurance agents and accounts every year.
Getting new customers or establishing a loyal customer base for your auto body shop will require you to invest money in marketing.
It is an investment that can build and maintain your customer base, so honing your marketing strategy is an important part of your business plan. Car owners have to pay nearly 9 cents per mile for maintenance and repairs.
According to the Federal Highway Administration, each customer you attract and retain could generate more than $1,200 in business every year, because the average driver puts nearly 13,500 miles on their car every year.
Every business has a responsibility to create a digital and social presence to attract new customers.
According to Bright Local, ninety percent of customers find local businesses and services online, so make it easy for prospective customers to find you. There is a way to create a listing for your business on the internet. Make sure that you have a website that is search engine friendly.
You can also invest in the latest marketing tactics like search engine optimization that has the potential to boost total sales generated.
Most customers search the city name along with the service they want, so sprinkle applicable keywords and phrases, such as “Denver oil change” or ” Chicago tire repair” throughout your website content.
6. Focus on Customer Service and Get Positive Reviews
Bright Local says that eighty-two percent of customers read online reviews before making a purchase. It is important that you add your business to review sites and maintain control of the conversation even if you might be worried about opening yourself up to criticism.
Customers will research your auto repair shop online before buying your vehicle. It is important that you establish your business as a credible and trustworthy provider because horror stories about dishonest mechanics overcharging or making unnecessary repairs can affect your profit margin.
Negative reviews can occur. If you can address the customer’s concerns in a positive way, you can give them insight into how you handle problems and criticism. If you address the negative review, you could turn an unhappy customer into someone who would return to your shop.
Additional Tips To Boost Profitability
While factors like inexpensive and inexperienced help, labor costs, capital expenses, and marketing are important, there are also other ways that can improve profitability.
With a few small changes, you can see improvements in the bottom line in no time. For example, if your customer base is younger in age than average, why not increase the average age of your clientele by offering discounts for people over fifty or sixty?
If there’s only one mechanic in your town, maybe you should offer your services to those who live further away. Maybe you can take on more clients by advertising at local community centers, high schools, and senior centers.
In the past, auto mechanics charged a flat rate for repairs, but with technology changing, most mechanics charge per hour of labor. In addition to changing the way mechanics get paid, businesses should take a closer look at their pricing structure, according to the latest research.
According to the study, which surveyed a large number of consumers, the price was a huge factor in purchasing decisions, and customers expect a better deal if the business offers an estimate upfront rather than waiting until the final cost is revealed.
Wrapping it Up
In conclusion, in addition to maintaining a strong, profitable business, repair shops must also offer high-quality service at affordable prices and maintain the reputation of being a leader in their industry.
As a shop owner, you will also have to invest in a highly qualified and experienced team.
Always remember that offering quality services to customers will help you draw in leads. If you pair up excellent quality services with targeted marketing efforts and maintain a good team, you can improve the financial performance of your company.
If you can do all of these things, you’ll reap the rewards of a highly profitable auto repair shop.
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What is the average profit margin for auto repair shops? According to Small Business Chron, auto repair shops generally have a profit margin of 50-65% for labor and 20-28% for parts sales.How can I make my auto repair shop more profitable? ›
Charge flat fees for routine services, like monthly car washes or maintenance, will attract more customers to come back to your shop. Be conscious of labor costs. So many businesses fail because of inefficient labor management. Choose your staff carefully, and make sure they are well-trained before they start to work.Is the automotive business profitable? ›
Profitability varies from company to company, but generally, premium car brands, like BMW, will observe higher profit margins than general and budget brands. There are, however, exceptions to this rule, such as Volkswagen and Toyota, which both show potential for profitability.What are 4 things you will now look for when choosing an auto repair facility? ›
- Certified, Professional Mechanics.
- Clean, Organized Workspaces.
- Good Customer Feedback And Reviews.
- OEM (Original Equipment Manufacturer) Parts.
- Follow These 4 Tips – Find A Great Mechanic!
- Oil Changes. Oil changes are a fact of life, which is why there are countless dedicated oil change businesses out there. ...
- Brake Jobs. ...
- Diagnostics. ...
- Alignment Checks. ...
- Suspension. ...
- A/C and Heating. ...
- Parts Shop.
Worldwide, the automotive repair industry market share is $789.8 billion for 2021 and is projected to grow to $1.6 trillion by 2031. This equates to a worldwide CAGR of 7.6% from 2022 to 2031.What is the best business structure for a mechanic shop? ›
However, the most fitting choice for a new mechanic shop is a limited liability company (LLC) since it combines benefits from the other types of business entities and rolls them into one. One major benefit that LLCs provide is pass-through taxation.What is the most common type of auto repair shop? ›
Independent garages are the majority. They are privately owned, and often come with varying degrees of service delivery and pricing.What is the average markup on parts for an auto repair shop? ›
Not all markups are created equally
Many automotive business consultants suggest an overall 100% markup on parts in order to achieve an overall 50-55% profit margin. This markup is important to achieve a 30 to 35% net operating profit. Shops that fail to succeed often have net operating profits of less than 15%.
- Automotive service manager. National average salary: $61,340 per year. ...
- Auto body technician. National average salary: $62,633 per year. ...
- Auto estimator. ...
- Car sales executive. ...
- Industrial designer. ...
- Truck driver. ...
- Mechanical designer. ...
- Diesel technician.
As far as products and services a car dealership has to offer, look no further than their parts and service department for a plethora of options. For all car dealerships, their primary revenue generator (and profit center) is the Parts and Service department.What makes the three C's so important in automotive repair? ›
You must first understand the condition, determine what the cause is and then correct it.What customers want in an auto repair shop? ›
- A Warm Welcome. Contrary to popular opinion, going straight to the point is not always an excellent idea. ...
- A Comfortable Waiting Area. ...
- Transparency. ...
- High-Quality Services. ...
- Reviews. ...
- Strong Online Presence.
- Get Involved In Your Community. ...
- Run Special Promotions For First-Time Customers. ...
- Partner Up With An Adjacent Local Business Like a Body Shop. ...
- Advertise Locally. ...
- Run Targeted Social Media Ads. ...
- Up Your Search Engine Optimization (SEO) Game.
Either way, if you ignore this step, it will lead to the most expensive car repair of all, replacing the engine. Engine oil and all of the fluids in your vehicle are consumables you will need to change or top off for the life of the vehicle.What company pays automotive technicians the most? ›
- Toyota Universe. 4.4 $67.84per hour. 188 reviews16 salaries reported.
- ALL AMERICAN FORD. 3.6 $42.58per hour. ...
- Penske Automotive Group. 3.8 $38.37per hour. ...
- Christian Brothers Automotive. 3.5 $36.25per hour. ...
- Gettel Hyundai of Sarasota. 1.7 $35.00per hour. ...
- Show more companies.
|Industry||Employment (1)||Percent of industry employment|
|Automotive Parts, Accessories, and Tire Retailers||51,430||9.11|
|Motor Vehicle and Motor Vehicle Parts and Supplies Merchant Wholesalers||12,360||3.48|
|Automotive Equipment Rental and Leasing||6,460||3.37|
The auto mechanic industry is forecast to generate $80.5 billion in 2023, according to IBISWorld. Evolving technology and a rise in the number of electric vehicles on the road are reshaping the automotive repair industry.Why is the auto repair industry slowing down? ›
"Manufacturing stopped or slowed down because of COVID restrictions or people didn't come to work or they couldn't find the right people," Moody told ABC News. "In 2022, we [saw] the delayed reaction where there isn't the same supply of stuff that there was."Why are mechanics leaving the industry? ›
They agreed that a top reason for leaving the industry was due to compensation. A lot of technicians are leaving within the first 5-7 years because they see other opportunities with better pay, insurance, and retirement plans. Work environment in the shop was also a common answer among the group.
It's very competitive and will take time to build a clientele and make money. Going it alone as an independent shop can be challenging. So, if you're still asking yourself, is owning an auto repair shop profitable? The answer is, yes.What is a mechanic organizational structure? ›
An organizational structure is a system that outlines how certain activities are directed in order to achieve the goals of an organization. These activities can include rules, roles, and responsibilities. The organizational structure also determines how information flows between levels within the company.What is the #1 injury in an automotive shop? ›
Sprains, strains and tears.
These are the leading injuries sustained by auto mechanics and auto technicians.
Mechanics may be divided into three branches: statics, which deals with forces acting on and in a body at rest; kinematics, which describes the possible motions of a body or system of bodies; and kinetics, which attempts to explain or predict the motion that will occur in a given situation.What is another name for car repair shop? ›
An automobile repair shop (also known regionally as a garage or a workshop) is an establishment where automobiles are repaired by auto mechanics and technicians.What is the profit margin on parts? ›
What is a parts margin? Margin is the difference between the price you are selling a good or service, versus the costs you have incurred to provide the good or service. In the case of parts, this is the price a customer is purchasing the part for versus the price you paid.How do I calculate the value of my auto repair business? ›
Typically, an auto shop is valued at 2 to 3.5x seller's discretionary earnings. The exact multiple used is based on a number of factors.What is the gross profit margin for auto parts? ›
The benchmarks for parts gross profit is 30-35% for retail, warranty and internal, and 20% for wholesale.What is the highest paying job in the world? ›
- Chief Executive Officer (CEO) ...
- Medical Professionals. ...
- Corporate Lawyer. ...
- Investment Banker. ...
- Data Scientist. ...
- Project Manager. ...
- Senior Software Engineer. ...
- Web Developers.
China is the largest automobile market worldwide, both in terms of demand and supply. China's automobile registrations climbed to approximately 23.24 million units in 2022, representing a rise of around 10 percent.
Automotive engineers serve in a team responsible for vehicle design, development, manufacturing, and testing. They are also heavily involved in the marketing, sales, and after-sale processes of any kind of commercial vehicles.
According to a 2022 study by Experian Automotive, a lot of wealthy folks simply don't drive fancy cars. The study found that for people with household income of more than $250,000, 61% don't drive luxury brands. They drive Toyotas, Fords and Hondas like the rest of us. Other studies show similar results.What vehicle has the highest demand? ›
- Toyota Camry: 295,201 – down 5.9% ...
- Tesla Model Y: 252,000 – up 32.4% ...
- GMC Sierra: 241,522 – down 3% ...
- Honda CR-V: 238,155 – down 34.1% ...
- Toyota Tacoma: 237,323 – down 6% ...
- Jeep Grand Cherokee: 223,345 – down 15.5%
The profit margins are about 6% for most car rental businesses, but if you find the right location and negotiate well with fleet insurance companies and credit card processing services then your profit margin can be much higher (similar to how Uber works).What are the 5 profit centers of a dealership? ›
In the typical new vehicle dealership, there are six widely-recognized profit centers. They include the new vehicle department, used vehicle department, finance and insurance department, service department, parts department, and the body shop.How much do top car salesmen make? ›
|Annual Salary||Monthly Pay|
Salary Ranges for Car Dealership Owners
The salaries of Car Dealership Owners in the US range from $18,902 to $495,413 , with a median salary of $90,593 . The middle 57% of Car Dealership Owners makes between $90,596 and $225,300, with the top 86% making $495,413.
The top success factors – quality, innovation, reliability, performance, and cost – are all related to product excellence.What is the most difficult part of a vehicle to fix and why? ›
The difficulty lies in their small size, coupled with the fact that they are known to be found nestled in the areas of a car that are hard to reach. Some engine compartments are more crammed than others, so depending on your car, this could end up being a simple repair, or I Spy's two-hour game.
Typically, an auto repair shop makes money by charging clients a flat fee or an hourly rate for the services offered. That translates to charging a set price for simple services like an oil change or fixing a flat tire.
Employment of automotive service technicians and mechanics is projected to show little or no change from 2021 to 2031. Despite limited employment growth, about 73,300 openings for automotive service technicians and mechanics are projected each year, on average, over the decade.
Many automotive business consultants suggest an overall 100% markup on parts in order to achieve an overall 50-55% profit margin. This markup is important to achieve a 30 to 35% net operating profit.Is it better to fix and sell car? ›
Your financial situation is a major factor when debating between repairing or selling a car. If your car has a lot of life left and a good value, repairing it is likely a good decision. If your car isn't worth the cost of the repairs, you might be better off selling it.What percentage of people repair their own cars? ›
Survey Shows 72 Percent of Car Owners Perform Maintenance on Their Own - Jul 1, 2015.What percentage is a good profit margin? ›
Your profit margin can tell you how well your business performs compared to other market players in your industry. Although there's no magic number, a good profit margin will typically fall between 5% and 10%.What is a fair markup for auto parts? ›
|Cost of Part||Gross Profit %||Markup %|
|$300.01 - $500||23%||30%|
|$500.01 - $1,000||20%||25%|
|$1,000.01 - $5,000||17%||20%|
You may be asking yourself, “what is a good profit margin?” A good margin will vary considerably by industry, but as a general rule of thumb, a 10% net profit margin is considered average, a 20% margin is considered high (or “good”), and a 5% margin is low.What is a 30% profit margin? ›
For instance, a 30% profit margin means there is $30 of net income for every $100 of revenue. Generally, the higher the profit margin, the better, and the only way to improve it is by decreasing costs and/or increasing sales revenue.Is 7% a good profit margin? ›
But in general, a healthy profit margin for a small business tends to range anywhere between 7% to 10%. Keep in mind, though, that certain businesses may see lower margins, such as retail or food-related companies. That's because they tend to have higher overhead costs.What is a 75% profit margin? ›
The gross profit margin is a measure to show how much of each sales dollar a company keeps after factoring in cost of goods sold. For example, if a company has a gross profit margin of 75 percent, then for every $1 in sales, the company will keep 75 cents.
A conventional car can last for 200,000 miles. Some well-maintained car models will reach 300,000 or more miles total. The average passenger car age is currently around 12 years in the United States. Choosing a well-built make and model can help extend your car's longevity.What makes a car not worth fixing? ›
At What Point Is It Not Worth Repairing A Car? A handy rule of thumb is if the cost of repairs approaches 50 percent or more of a vehicle's current market value, it's no longer worth trying to fix it.Should you wash your car before trading it in? ›
You should clean your car inside and out before bringing it to a dealership to trade it in. While the car dealership's staff will clean the car again before putting it up for sale, cleaning it before the inspection can increase the amount of money you get for your trade.How much is the most expensive repair on a car? ›
Critical Engine/Cylinder Failure – $7,000-$10,000+
Probably not – critical engine failure is well-known as the single most expensive car repair.
This isn't surprising, since there were about 272 million private and commercial vehicles in the U.S. in 2020.  "Highway Statistics 2020." Accessed January 11, 2023. From 2017 to 2021, 8.3% of American households did not have access to a vehicle.What percent of the Americans don't own a car? ›
How Many Americans Own a Car? Car ownership in America is on the rise. Only 8.3% of households did not have a vehicle in 2021, a 5.7% decrease from 2017, when 8.8% of households did not have a vehicle.