The Auto Body industry has struggled with COVID, supply chain shortages, labor shortages, and increased competition, forcing most businesses to look hard at their profit margins. The United States automotive service market is fragmented, with large market players who hold the most significant shares. There are nearly 258,000 auto mechanic shops in the US, IBISWorld says, making auto repair a $63 billion industry.
Understanding the margins for profit in an auto body shop can help an owner determine what activities will benefit their business the most. Total parts and labor sales make up almost all the business for an auto-body shop, but profit margins differ. Margins for parts are lower than profit margins for labor, and an intelligent auto body shop owner will identify ways to increase revenues and control expenses.
Labor costs typically account for the most significant expense related to operating a auto body shop. Labor Costs are roughly 36 to 44 percent of the price of a repair job. Such jobs can generate gross profit margins of 50 to 65 percent per job. The primary factor driving profit margins on labor is the accuracy of the estimate to repair a vehicle. Suppose the work is more involved than initially estimated. In that case, the insurance company might force the shop to absorb the cost or try to get the difference in expenses from the customer to achieve the margins it wants on a repair job.
Technological changes to the vehicles worked on combined with a shrinking labor pool have increased overhead requirements and driven up labor costs.
Margins for Auto Parts
The second largest expense to repair a vehicle is auto parts. A Repair can generate gross profit margins between 20 to 40 percent for each part installed. The gross profit margins are typically higher for after-market and reconditioned parts. An owner who takes the time to research suppliers might locate quality parts for a lower price. However, given the supply chain shortage, the cost for parts likely has little flexibility.
Paint and other materials generally account for up to 35 percent of gross profits in a body shop. The factors driving margins usually are tied to how much material is used per job, the amount of waste generated per job, and the quality of the job. Jobs done poorly might result in having to do the work over again without charging the customer. Poor quality work can dramatically decrease the amount of profit created on a job.
Ways to Increase Productivity
Owners can increase labor productivity by regularly scheduling appointments, using proven vehicle maintenance and repair methods to eliminate errors or repair delays, and improving labor tracking and bay scheduling.
Reducing down time in the shop is key to increasing profitability. You’re already paying for the business to be open all day, so if you don’t have cars in the bays, you’re spending money without getting anything in return.
Scheduling repair appointments helps:
- Control labor costs and control your work mix because you make more accurate predictions of which employees need to be in the shop and when to order parts in advance of appointments.
Send out direct mail postcards to remind customers when their next oil change is due. Add a link to your web page to allow customers to book their appointments online. Customers will appreciate the convenience of pre-scheduled appointments. Prescheduled appointments reduce wait times, and they can choose the time of day that works best for their schedule.
Send Service Reminders
Send automated text or e-mail service date reminders. Customers that don’t show or cancel at the last minute waste time and they cost you money in the form of unused service bays and labor. Service reminders are a simple way to ensure appointments are kept by busy customers. Suppose you know a customer’s vehicle is due for service, but they haven’t booked an appointment yet. In that case, service reminders are a great way to show that your shop pays attention. Using service reminders will win-over customers for another job.
Improve technician time tracking and bay scheduling to decrease labor costs.
A more efficient schedule creates significant savings for auto shops. Accurately allocating and tracking the time needed to complete jobs is key to running a lean and profitable auto shop.
- Use time-tracking tools available through auto shop management software, to pinpoint where labor hours are going to waste.
- Auto software also includes features like detailed service history for every customer, so your techs can quickly get up to speed on any job and complete it fast.
- Create a set of standard jobs to reduce administrative work and make bay scheduling effortless.
Ways to Generate More Revenue
It is more expensive to attract new customers than current ones. If you focus on customer service and your customer’s needs, they will reward you with referrals and word-of-mouth advertising to earn you new customers.
Inspect Every Vehicle
Like Firestone’s Courtesy Check, a quick inspection could lead to extra revenue for your auto body shop. Most consumers will appreciate your inspecting their vehicle and letting them know of things they need to address.
Cross-Promotion and Upselling
A proven strategy to increase your average repair order is cross-promotion and up-selling recommended services.
- Try cross-promoting services that could be purchased in tandem, for example:
- Tire rotations and tire replacements.
- Oil changes and air filter replacements.
- Freon refills and air filter replacements.
- Build long term relationships with customers by treating your customers like people.
Customer Rewards & Referral Programs
Offer customer loyalty rewards programs to encourage repeat business. After so many visits, customers earn a percentage discount or free service.
Encourage the use of a customer referral program for your auto shop that will reward customers with discounts or gifts when they refer a new customer. As a customer is checking out, ask them, “Do you know anyone who would appreciate an expertly done oil change?”
Ways to Reduce Your Expenses
It doesn’t hurt to look through your expenses and cut extra services that aren’t contributing to your bottom line.
Eliminate unnecessary card transaction fees
Unnecessary card transaction fees can eat up your revenue. Some processors charge the same flat rate for debit and credit cards, which removes the savings for accepting lower-cost debit card transactions. Look for a payment processor that charges the wholesale cost of running a card plus a flexible processing fee.
Finical, a merchant solutions payment processor, provides cutting-edge payment solutions to help grow your business. Finical offers low costs per transaction for credit card processing, and you’ll receive your funds within 48 hours. Our credit card processing is PCI-DSS compliant and secure. Every transaction is encrypted.
Finical understands the challenges and needs of auto repair and body shops, dealers, and auto parts businesses. We offer customized credit card processing solutions to ensure our clients’ automotive business runs as smoothly and effectively as possible. Free equipment comes with every account.
Regardless of the size of your business, Finical’s payment processing tools help auto shops and other automotive businesses streamline their operation, saving time and money, positively impacting the bottom line. Our processing solutions will allow you to accept payments from your customers quickly, securely, and efficiently. Contact us today for a free consultation.