How to Use the Auto Parts Markup Matrix to Maximize Your Shop’s Gross Profit

Parts And a fair markup price is an important way through which auto repair shops make a profit. An appropriate parts markup process comes down to accurate calculations and a consistent system that applies the right markup to the right parts – resulting in higher profits for the shop.

It may be easier for a shop to leave parts markups to individual service consultants. However, this can result in widely varied processes based on each employee’s unique experience. Additionally, there may be inconsistencies regarding what is marked and the amount, leaving customers with questions when they view their final invoice. However, setting up a consistent system can take the guesswork out of setting an appropriate markup for each part sold.

With the auto parts repair markup matrix, also known as the parts matrix, there is no longer a second guess. Parts Markup Matrices allow shop owners to create the ultimate streamlined process for marking parts. Instead of spending precious time calculating the correct markup, shop owners can apply a matrix across the board—to keep their team prosperous and meet the shop’s gross profit goals.

The price is right: efficient parts shopping

Before a shop can mark up a part, the owner or employee must find and purchase the part—which must be both high quality and reasonably priced. When shopping for parts, it’s important to find the part quickly and at a reasonable price. Skilled shops find a balance between the two, allowing them to order parts faster while securing good deals.

There are many ways to find the best deals when shopping for parts. Some shops may look for a hard to find local junkyard listing. Others look to the local auto parts store for a brick-and-mortar experience. While these methods may take some extra time, they are great ways to uncover new deals.

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When shops want to compare prices, however, digital solutions offer the best avenues. Many auto repair shops save time and effort by using shop management systems such as Techmetric, which rapidly compares prices from multiple vendors immediately. With online parts houses, repair shops can earn back the time they would have spent hunting these parts down and comparing them in person.

Set Pricing with Parts Matrix

Once a part is purchased, a shop needs to determine the correct markup. It can be tempting to drive up the cost of the part, but it can ultimately turn away customers looking for cost-effective repairs. The most impressive markups offer a great deal to the customers and the shop.

There’s a simple rule to making sure parts are marked appropriately: The more expensive a part, the less it should be marked. For example, a $10 wiper blade can easily sell for a 50% markup. But, it’s more difficult to mark the price of a $400 alternator by the same amount. The customer may balk at the price tag or may even request a second opinion from a competitor.

A parts matrix can accurately balance price for parts according to the shop’s gross profit targets. Instead of spending hours with a calculator, pen, and paper, a shop owner can invest in a shop management system — such as Tecmetric — that automatically calculates parts markup. In fact, a shop management system can calculate based on the shop’s desired gross profit percentage – bringing the shop owner one step closer to meeting their goals.

simple vs compound calculations

Parts matrices can include both simple and compound calculations, and a shop management system enables shop owners to automatically implement both – on a part basis.

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A simple calculation involves marking off parts in a certain price range by a specific amount. By comparison, compound calculations mark parts by varying percentages within specific cost ranges. For example, if a shop owner sells a job for $20, they might mark the first $10 by 10% and the last half by 20%. Some shop owners avoid compound calculations to avoid confusion with customers. However, they can also give the shop an edge when it comes to increasing gross profit margin. Some shop owners who use complex calculations in their portion markups are able to increase profit margins by as much as 8% to 10% compared to using simple calculations alone.

final thoughts

The calculations and processes behind price markups can be difficult to understand. However, by establishing a process and maintaining consistency, the benefits of a shop can outweigh almost any other day-to-day operation. Ultimately, each shop has unique needs and preferences, and it is up to the shop owner and their team to determine how to use the parts matrix in a way that works best for them – and Benefits the bottom line.

Tekmetric lets you set up your parts matrices