One common issue that many auto repair shops face is a discrepancy between what they should charge for parts. In fact, many businesses don’t charge for the parts they offer and simply upcharge their services to try and turn a profit. Without appropriate markup procedures in place, you may find your business missing out potential profits. That’s why you’ll need an effective parts markup chart to help maximize your sales. Here’s what you need to know:
Know The Value of Your Parts
Your product is your revenue so it’s important to optimize its value by knowing how to price it. One of the standard markup methods for pricing parts is to use a simple percentage markup. While this tried-and-true formula may have worked years ago, it currently leaves a gap in the piece of revenue that covers costs such as insurance and utilities for your shop.
Additionally, applying a simple percentage upcharge can derive significant revenue on higher ticket items but won’t drive any on products with a relatively low original cost. That’s why you’ll need to toy with some pricing strategies to ensure you are maximizing profits.
The automotive industry has a relatively wide range when it comes to materials costs. Cost can range from simple nuts and bolts costing mere cents to more expensive materials such as a complete alternator replacement costing upwards of a few hundred dollars. Here are some standard industry markup strategies:
- Desired Profit Margin Approach: In this method, you can use your desired profit margin to calculate the cost of each respective part. For example, simply use this formula to calculate an appropriate cost - Full cost of the part / (100-target profit margin)100 = what you charge for the part.
- Volume Based Pricing: Take a higher markup on slow-moving inventory than on parts with high turnover to maximize the profit of parts whose demand probably won’t be affected by a pricing shift.
- Upcharge Low Cost Items: For low cost items such as screws and washers don’t cost much to your shop and to a customer, a couple of dollars isn’t a significant purchase in the long run.
That said, you don’t want to get in the habit of overcharging your customers as that can drive some customers away. That’s why you’ll want to build out a parts markup chart to help you appropriately price repairs quickly and consistently.
Develop Your Parts Markup Chart
You don’t want to find yourself repeatedly calculating the cost of parts by hand. That’s where a parts markup chart comes in handy. Some of the more simple methods include a list of supplies and the marked up price in an excel spreadsheet. While this can be effective for smaller repair shops, it can leave a gap for larger companies with a more sophisticated shop management system. Here are some of our top picks for parts markup charts for repair shops of any size:
- Fullbay: Fullbay is a suite of shop management tools designed to help you run your shop smoothly.
- ShopBoss: ShopBoss has a free parts markup calculator designed to make cost calculations easy.
Having a consistent pricing strategy is one critical component of customer retention. After all, customers won’t want to return to your shop if they think you might suddenly upcharge them more than from a previous visit.
Drive Customer Retention
When it comes to driving revenue, setting a solid pricing model will only help once you’ve gotten people through the door. BayIQ’s loyalty rewards program will help you promote your shop and keep customers coming back to you!
BayIQ’s automated marketing software integrates with several point-of-sale shop management systems to drive customers through your doors more often and incentivize them to spend more money when they do. Handle all of your marketing in one place with features like online reviews, appointment scheduler, and email and text message marketing for scheduled maintenance, declined services, promotions, and more.