It’s no secret that independent shops and dealerships have a margin on parts installed on your vehicle. Part margin is an essential part of a profitable business model. As a full-service shop, realizing a profit on parts allows Quality Automotive Servicing in Truckee, CA to continue to offer a premium level of service that we call ServicePlus.
There is a misperception that shops are making a lot on part margin.
Most shops use a pricing matrix to determine margin on parts. This matrix will determine the “installed price” of the part calculating a markup of between 30% and 60%. This is a matrix, so there will be different margins depending the price of the part. This doesn’t mean that the shop sees this margin as profit. After expenses, the shop aims to realize about a 10% profit and after taxes, just 5%. Here’s an example of how it might look.
This example shows that a $400 installed part earns just $40.
Shop Expense is 40%
- Non-technical employee salary, benefits, profit-sharing, retirement, payroll tax
- Location expense
- Tools, equipment, technical subscription services etc.
Even with a 10% profit on parts, only about half is actually retained as profit to the shop.
Shops aim to see a 10% profit on parts, in the example that’s $40. But half of that will be applied to cover things like corporate taxes, sales tax, as well as breakage and warranty. This leaves just $20 to the bottom line on a $400 installed part. Part margin is vital to business profitability which allows the shop to remain in business. The bottom line is that shops are not getting rich on parts margin.
How does QAS decide on a part purchase?
When Quality purchases a part for your car, an expert researches the correct part for the vehicle and decides to purchase based on
- Quality of part
- Time to delivery
- Cost & warranty
Sources for parts can vary.
Quality Automotive Servicing uses three sources for parts. Each has advantages and disadvantages. We do not install customer provided parts.
- Wholesale Part Venders
- Retail Outlets
What is installed price?
The installed price is the price you will see on your invoice. This is the wholesale price (or the retail price if no wholesale is available) with the price matrix applied. It’s necessary that all shops have an installed price, even the dealerships. Sometimes customers feel that they should be paying the retail price. This is not correct. The retail price is the price you would receive if the installation was performed by the customer, or a handy next-door neighbor. Which brings me to warranty.
Consider the warranty
Part of the parts markup takes into account the warranty. If the part fails, a reputable shop will warranty that part and perform a reinstall. The QAS warranty is two years or 24,000 miles and 3 years or 36,000 for Red Check Club Members. A good warranty protects the customer and the shop.
When you choose your shop, consider the community benefit.
QAS provides premium car care in our local community of Truckee and North Lake Tahoe. There are many advantages for you to keep your business within your community. The first is that you develop a relationship with your local shop and local people who know you and your car history. This is invaluable when something unexpected happens and you need a speedy fix or to reserve a customer courtesy car. Also, QAS is actively involved in issues that affect you and the community. A few of our outreach projects include providing workforce housing, feeding seniors with Meals on Wheels and preparations to opening a new Children’s Museum. These are just a few of the community programs that you support when you do business with QAS. By far, one of the most rewarding accomplishments of what we call "Full Circle Community Support" is providing locals with opportunities and training so that they can stay and work in their hometown. Take a look at the “meet the team” page to review the professional advancements some of our local high school graduates who are buildng a career with Quality Automotive Servicing. We really do care about our customers, our team and our community and prove it not just through words, but action.
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