STEP 3: REDUCE YOUR PARTS PRICING
YOUR PARTS COST IS THE SINGLE LARGEST COST IN A MECHANIC BUSINESS!
Did you know industry best practice is to pay 32-34% against your revenue? That means for every $1 you charge at least 32c is going towards your parts bill.
However, most independents are paying between 40-50% on parts against what they charge. It’s not unusual for us to see an independent pay up to 50c for every dollar earned in parts. That’s crazy! By the time you pay for the other expenses in your business, there’s not much left for you!
HERE’S A RULE OF THUMB IN MOST SERVICE BUSINESSES
1/3 of your revenue should be spent on parts (cost of sales), 1/3 on business expenses (van, insurance, marketing, etc), 1/3 on you.
If you’re not taking home at least 1/3 of your revenue, it’s time to review your numbers.
SO HOW DO YOU REDUCE YOUR PARTS EXPENSE?
There are 3 main ways:
- Increase your labour rate.
This will reduce the % of parts cost you spend.
- Shop around.
You can obviously negotiate across different brands. Having an account will help you negotiate further. However, beware of sharing your love across too many brands/stores – they are less likely to recognise your loyalty.
Beware of spending a lot of time price shopping. For every 30mins you spend price shopping that’s on average $120 in time lost (labour + parts charge). Is the $20 saving made on a few phone calls worth it? You’d be better off establishing a good relationship and negotiating a better price at one or two.
- Join a group.
This is obviously where Blue Toro can provide huge value. We hear every day – “my mate at my local store gives me the best rates”. Yes, he probably does. However, that’s under his local delegation, not a national delegation…despite what his ego tells you.
If you’re not already on Blue Toro’s national pricing, chat with us about how you can join.