Article

Service and Parts Profitability

June 2012, Auto Dealer Today - WebXclusive

by David Keller, CPA, CFE - Also by this author


Gross profit percentages are very important if you want to show a profit in the service and parts departments. You should set your minimum goals to achieve 70 percent for labor and 40 percent for parts. Accessories are normally priced somewhat lower, with a gross profit of approximately 10 percent to 30 percent, depending on what item is sold and what the competitive pricing is.

There are some who would argue you can’t afford to charge yourself retail rates for internal labor and parts. The difference between these gross profit percentages and what I see on some financial statements is normally immaterial to the vehicle gross profit when reviewing the averages for all repair orders.

To compute the labor rate you should charge, take your average labor hourly technician cost, including any incentives for hours or parts sold, and divide it by 30 percent (100 percent less the 70 percent gross profit you want to make) to arrive at the hourly labor rate you should charge yourself or others. For example, if your hourly pay is $15, then divide $15 by 30 percent to arrive at a $50 per hour labor rate. This will allow you to make a 70 percent gross profit on your labor charged.

To compute the parts retail price, you would use the same formula. For example, if your parts cost is $15, then divide $15 by 60 percent (100 percent less the 40 percent gross profit you want to make) to arrive at a $25 retail parts price. This will allow you to make a 40 percent gross profit on your parts sold. Most parts system setups use a markup method rather than a gross profit method. If this is the case, then you should use at least a 67 percent markup to achieve a 40 percent gross profit on your financial statement.

On repairs, you will normally have approximately $1 of labor charged for every $1 of parts sold. If so, you will average 50 percent to 55 percent combined gross profit on labor and parts sales. On maintenance-type work, there will normally be more labor and fewer parts, as you are basically running through a checklist to see what the vehicle needs.

What work should you sublet out? If you have the stalls and qualified technicians available, you want to do as much of the work yourself rather than give another shop the gross profit you would be making on the repair. You should try to maintain a 15 percent gross profit on any sublet labor you sell. This would include towing, tires, glass, etc.

I see many dealers who are subletting out repairs they could complete themselves. If you have the shop space, you should be completing these repairs yourself even if who you are using is cheaper. The reason is you will make some profit even at the cheaper price, which will go straight to the bottom line as profit and utilize unused shop space.

Accounting for all available labor hours versus the flat-rate hours turned will provide you with a technician efficiency report. The technicians should have two timecards. One is for clocking in normally at the start of the day, clocking out/in for lunch and clocking out at the end of the day. This timecard will track the total time the technician is on site. The second timecard is to track the hours charged to each repair order so the labor can be costed out and the hours turned can be charged to the appropriate sales account.

The difference between the total hours and the flat-rate hours generated is called unapplied time. The goal is to keep unapplied time to a minimum. Even though the technician may not be busy all the available hours, any differences should be documented on the repair order timecards so you know what they were doing when they had unapplied time. They could have been cleaning the shop or running for parts. If they are actually working but not on vehicles, then their time should be charged to an appropriate expense account and not unapplied time (a cost of sales account with no matching sale account).

Another tip is to not keep repair orders open for long periods of time. Close out the items you have completed and open a new repair order if you are waiting on parts. If you do so, then your sales and cost of sales will be more accurate each month and your internals will update the cost of your inventory much faster.

There is a great possibility of theft in the parts area. To protect yourself, use purchase orders and let your suppliers know they are required. The purchase orders should have the repair order number on them and also a stock number if you are repairing your own vehicle. A random review on a regular basis of purchase orders and the repair orders they are attached to will hopefully reduce the possibility of theft.

The parts department personnel should be completing mini parts physicals daily. If you take the number of bins you have in the parts department and divide it by the number of working days in the month, you will arrive at the number of bins you should be taking a physical inventory of daily and verifying the physical counts to the parts pad. You would then run the variance report monthly to see any differences you have encountered. By taking the physicals daily and your entire parts inventory monthly, you hopefully will catch problems before they get out of control. Parts shortages cut directly into your gross profits and should be minimized.

If you structure your parts and service departments to accurately track your sales and cost activity with adequate setups of minimum gross profits, you only have to worry about the volume of work you sell. That is up to you.

If anyone would like to receive a spreadsheet to calculate the lost gross profits on internals and the average increase per repair order by charging regular retail rates, please email me and I will send it to you.

Vol. 9, Issue 4

Comment

  1. 1. Bruce Gebhard [ May 14, 2014 @ 05:17PM ]

    Mr. Keller ... Just read your 2012 article ... Service and Parts Profitability ... and per your offer ... I would appreciate it if you would send me a spreadsheet to calculate the lost gross profits on internals and the average increase per repair order by charging regular retail rates. Thank You ... Regards, Bruce Gebhard

  2. 2. Bradley Foster [ May 19, 2014 @ 05:30AM ]

    I too would like to see the mentioned spreadsheet. Thank you! Great read!

  3. 3. Dan [ July 02, 2014 @ 06:23AM ]

    Great article......yes, please send me the spreadsheet you spoke about

  4. 4. Emily Sorensen [ July 21, 2014 @ 09:18AM ]

    Agreed...Please forward the said spreadsheet to me as well.
    Thank you

  5. 5. Brian Scott [ August 27, 2014 @ 06:17AM ]

    If the above mentioned spreadsheet is still being offered I would really appreciate it as well.

    Thanks,Brian

  6. 6. Eric Styons [ November 02, 2014 @ 05:43PM ]

    Great points in your article. If the spreadsheet is still available, I'd like to get a hold of it. Thank you.

  7. 7. Eric Styons [ November 02, 2014 @ 05:43PM ]

    Great points in your article. If the spreadsheet is still available, I'd like to get a hold of it. Thank you.

  8. 8. Bruce Carr [ November 03, 2014 @ 06:32AM ]

    Would you send me the spreadsheet for the internal rate. I have tried to change this for a year now.

  9. 9. Muhummed [ November 20, 2014 @ 08:00AM ]

    Great read David. Could you kindly send me the spreadsheet as well. Thank you.

  10. 10. Chris [ December 21, 2014 @ 06:11AM ]

    Could you please send me one to.

  11. 11. mark calvillo [ January 03, 2015 @ 11:51PM ]

    If that spreadsheet still available Please send me a copy

  12. 12. Philippe Gerling [ January 14, 2015 @ 08:56PM ]

    If this spreadsheet is available, please send me a copy.
    Thank you.

  13. 13. Dan [ January 19, 2015 @ 07:57AM ]

    Please send spreadsheet. Thank you

  14. 14. Alex [ January 27, 2015 @ 12:04AM ]

    Is the spreadsheet available

  15. 15. John [ January 29, 2015 @ 05:32PM ]

    Would love a copy of the spreadsheet

  16. 16. Brian [ March 01, 2015 @ 07:41AM ]

    Great article.. If that the spreadsheet is available, please email me a copy.
    Thank you

  17. 17. Jeff [ March 04, 2015 @ 11:22AM ]

    great article, would love a copy of that spreadsheet

  18. 18. Billy Milone [ March 04, 2015 @ 06:39PM ]

    Great article is right!! I would also love a copy of that spreadsheet. Thank you

  19. 19. cat [ March 20, 2015 @ 07:53PM ]

    I would like to have the spreadsheet too.plese

  20. 20. Nick Bradick [ March 23, 2015 @ 02:04AM ]

    Excellent article and would love a copy of your spreadsheet.

    If anyone would like to receive a spreadsheet to calculate the lost gross profits on internals and the average increase per repair order by charging regular retail rates, please email me and I will send it to you.

    Nick

  21. 21. Joe Willey [ March 23, 2015 @ 08:04AM ]

    would you please send me a copy of the spread sheet

  22. 22. Abhi Khurana [ April 21, 2015 @ 11:53PM ]

    would you please send me a copy of the spread sheet as well.

  23. 23. Abhi Khurana [ April 22, 2015 @ 12:24AM ]

    I would like a copy of spreadsheet as well. Please and Thank You .

  24. 24. mike [ April 23, 2015 @ 05:31PM ]

    I will take one as well thanks

  25. 25. Mike botelho [ April 23, 2015 @ 09:10PM ]

    Thanks

  26. 26. Mike botelho [ April 23, 2015 @ 09:10PM ]

    Good info.

  27. 27. Larry Ackerman [ April 24, 2015 @ 04:37AM ]

    please send me a copy of your spread sheet

  28. 28. Larry Ackerman [ April 24, 2015 @ 04:38AM ]

    Please send me a copy of your spread sheet

  29. 29. Krystal Munday [ May 05, 2015 @ 04:27PM ]

    Please send me a copy of your spread sheet. Great Read. Thanks

  30. 30. jason [ May 25, 2015 @ 11:15AM ]

    Please send me a copy of your spreadsheet. Great article!

  31. 31. Brigette Rowlands [ May 26, 2015 @ 01:23AM ]

    Good Day David
    I am currently doing my MBA on Parts and Service and would appreciate any information you can share with me
    Regards
    Brigette
    South Africa

  32. 32. Eddie C. [ June 04, 2015 @ 06:30AM ]

    Please send me a spread sheet, thanks!

  33. 33. Jack A Rollens JR [ June 12, 2015 @ 10:42AM ]

    Great article, Please send me a copy of your spreadsheet.

    Thank you

  34. 34. Fahad [ June 19, 2015 @ 11:42PM ]

    Great article, Please send me a copy of your spreadsheet. Thanks

  35. 35. T.C Coleman [ July 07, 2015 @ 08:01AM ]

    Great article please send me a copy. Thanks!

  36. 36. Tina Richard [ July 07, 2015 @ 10:16AM ]

    Please send me the spreadsheet

  37. 37. Kevin Hurley [ July 12, 2015 @ 09:13PM ]

    Thank you please send me a spreadsheet

  38. 38. Iona brightman [ July 20, 2015 @ 09:54AM ]

    Thank you, please send me the spreadsheet.

  39. 39. Matt H. [ August 07, 2015 @ 09:51PM ]

    Excellent article. Nice to get a different Perspective on things. Add me to the spreadsheet list please!

  40. 40. Christian [ August 21, 2015 @ 05:41PM ]

    GREAT ARTICLE, PLEASE SEND ME THE SPREADSHEET AS WELL

  41. 41. Richard Chase [ August 23, 2015 @ 05:32PM ]

    Mr Keller, I just read your article on Service And Profitability on Auto Dealer Today. it was a good article. I would like for you to send me a spreadsheet if it is still available.

  42. 42. Nathan Snyder [ August 25, 2015 @ 06:14AM ]

    Well said. Please send me the spreadsheet as well.

  43. 43. Joshua Bagley [ September 09, 2015 @ 08:19AM ]

    I would like for you to send me a spreadsheet if it is still available.

  44. 44. Rashmi [ October 07, 2015 @ 01:08AM ]

    Please send me the spreadsheet if still available.

  45. 45. Stephanie Winn [ October 10, 2015 @ 09:22AM ]

    Please send me the spreadsheet also. Thank you so much!

  46. 46. Jackie King [ October 21, 2015 @ 05:48AM ]

    Could you send me the spreadsheet please? Thank you very much.

  47. 47. randy smith [ October 21, 2015 @ 12:52PM ]

    I am very interested in the internal parts spreadsheet, to help determine parts markups and margins for used car -internal repairs in our dealership.

  48. 48. Laura Moyers [ October 31, 2015 @ 07:37AM ]

    I would like a copy of the spreadsheet referenced in your atricle. Thank you!

  49. 49. Ryan robison [ November 02, 2015 @ 08:08PM ]

    Please send my way!

  50. 50. Kim Minton [ November 17, 2015 @ 11:24AM ]

    I would like this spreadsheet also. Thank you

  51. 51. Justin Harris [ November 18, 2015 @ 12:04PM ]

    Please send me spread sheet. Thank you!

  52. 52. Mahesh Salvi [ December 02, 2015 @ 12:36AM ]

    Excellent article. Nice to get a different Perspective on things.

    Kindly send me the spreadsheet, thanks in advance

  53. 53. Dexter Cain [ December 09, 2015 @ 05:46PM ]

    Please send me spread sheet. Thank You!

  54. 54. Thomas Montefusco [ December 27, 2015 @ 08:47PM ]

    Happy Holiday's Please send me the spreadsheet. Thanks so much!

  55. 55. RAMSEY [ December 28, 2015 @ 12:06PM ]

    Happy Holiday's Please send me the spreadsheet. Thanks so much!

  56. 56. Frank s [ January 06, 2016 @ 06:21PM ]

    Please send my way as well , thank yoi

  57. 57. Sherri [ January 08, 2016 @ 12:42PM ]

    I would like a copy as well please

  58. 58. Andy white [ January 19, 2016 @ 07:40PM ]

    I would like a copy also

  59. 59. Andy white [ January 19, 2016 @ 07:42PM ]

    Copy of the spread sheet please

  60. 60. Carien [ January 22, 2016 @ 10:26PM ]

    Can you also email me

  61. 61. Tigh pesicka [ January 23, 2016 @ 07:22PM ]

    Please email me as well thank you

  62. 62. John R Torres [ February 09, 2016 @ 03:40PM ]

    Please email to me the spreadsheet - I would be very much appreciated !

  63. 63. Starr [ February 10, 2016 @ 11:00PM ]

    Is it to late to get a copy of the spreadsheet? That would be cool. Thank You

  64. 64. Chris Pearce [ February 12, 2016 @ 07:28AM ]

    I would like to have this spreadsheet please.

  65. 65. Ryan Allen [ February 14, 2016 @ 10:46AM ]

    I would like to look at the mentioned spreadsheet. Thanks

  66. 66. Marla [ February 22, 2016 @ 11:36PM ]

    If I could receive the mentioned spreadsheet that would be awesome. Not only would it give personal gain but I would love
    to prove the point that not every spreadsheet created helps when it comes to automotive shops..

  67. 67. toby [ February 24, 2016 @ 02:40PM ]

    I would like to see your spread sheet also thanks.

  68. 68. Ray Fajardo [ February 24, 2016 @ 02:52PM ]

    If you could e-mail the mentioned spreadsheet it would be appreciated, Thanks

  69. 69. Rob [ February 26, 2016 @ 08:21PM ]

    I would like to see the spreadsheet if it's still available.

  70. 70. ZK [ March 02, 2016 @ 08:56PM ]

    If possible may I have the spreadsheet too? Much appreciated, thank you.

  71. 71. SHANKARRAMAN [ March 05, 2016 @ 08:26AM ]

    Excellent, can you kindly share me the spreadsheet.

  72. 72. BRANDON BINGHAM [ March 06, 2016 @ 12:50PM ]

    Please send the spreadsheet. Thank you very much!

  73. 73. Allen Grim [ March 11, 2016 @ 11:30AM ]

    Please send spreadsheet. Thank you

  74. 74. Caryn Sanborn [ March 12, 2016 @ 01:08PM ]

    Can you please send me that spreadsheet as well!
    Thank you

  75. 75. Caryn Sanborn [ March 12, 2016 @ 01:12PM ]

    I would like the spreadsheet as well! Thx

  76. 76. Connie Mundy [ March 22, 2016 @ 01:19PM ]

    I would like the spreadsheet
    Thank you

  77. 77. Claude Chiles [ March 22, 2016 @ 01:32PM ]

    I also would love a copy of the spread sheet

  78. 78. jeremy artus [ March 30, 2016 @ 09:25PM ]

    I would like to have a copy of the spread sheet.

  79. 79. Larry Spencer [ April 03, 2016 @ 10:13AM ]

    Please add me to the list of spread sheets

  80. 80. Colby Willis [ April 07, 2016 @ 06:14AM ]

    I would like a copy of your spread sheet as well.

  81. 81. michael [ April 12, 2016 @ 01:44PM ]

    I also would love a copy of the spread sheet

  82. 82. George W [ April 13, 2016 @ 12:14PM ]

    Awesome Article. WOuld love a copy of the spreadsheets as well

  83. 83. Sean moore [ April 17, 2016 @ 12:52PM ]

    Great info. Would greatly appreciate the spreadsheet

  84. 84. Brian [ May 14, 2016 @ 09:17AM ]

    If still available. I would love a copy of the spreadsheet. Thank you in advanced

  85. 85. Bryan Marino [ May 15, 2016 @ 02:29PM ]

    Please send the spreadsheet. Thank you very much!

  86. 86. Joe [ May 16, 2016 @ 01:08PM ]

    Yes if still available please send me a copy of the spreadsheet. Thank you and enjoyed your article.
    Joe

  87. 87. Jimmy [ May 31, 2016 @ 08:22PM ]

    Would like a cooy of the spreadsheet.

  88. 88. Jimmy [ May 31, 2016 @ 08:22PM ]

    Would like a copy of spreadsheet.

  89. 89. jim minnig [ June 04, 2016 @ 02:29PM ]

    i would also appreciate a copy of thar spreadshhet. thank you

  90. 90. paul a [ June 08, 2016 @ 12:27PM ]

    If still available. I would love a copy of the spreadsheet. Thank you in advanced

  91. 91. paul a [ June 08, 2016 @ 12:27PM ]

    If still available. I would love a copy of the spreadsheet. Thank you in advanced

  92. 92. Rj [ June 11, 2016 @ 10:17AM ]

    I'd love to see the spreadsheet

  93. 93. Bryce D. [ June 16, 2016 @ 11:48AM ]

    I'd love a copy of the spreadsheet

  94. 94. Scott [ June 20, 2016 @ 07:19AM ]

    I hope you are still offering that spreadsheet. Please send if possible. Thanks and good article that gets to the meat of serv/pts deps....

  95. 95. Mary Espejo [ June 21, 2016 @ 09:32PM ]

    Aloha
    Yes the article was informative. I would like to get your input on an unapplied time issue that has been ongoing for several years at our dealership. If you could contact me by email, I can explain in more detail.

    Thanks

  96. 96. Ian [ June 26, 2016 @ 06:58PM ]

    Great article. Could you send me a copy of the spreadsheet. Thank you in advance.

  97. 97. AmandaS [ July 11, 2016 @ 07:49AM ]

    Great article!! Would love the spreadsheet you are offering.

  98. 98. Bill Hickok [ July 21, 2016 @ 08:29AM ]

    Would appreciate a copy of the spreadsheet. Thank you.

  99. 99. Christina M. [ July 30, 2016 @ 07:11PM ]

    Great article! Please send me spreadsheet. Thank you!

  100. 100. Christina M. [ July 30, 2016 @ 07:12PM ]

    Great article! Please send me a copy of spreadsheet.

  101. 101. stathis [ August 06, 2016 @ 04:56PM ]

    Would appreciate a copy of the spreadsheet. Thans a lot!

  102. 102. Brandon Smart [ August 07, 2016 @ 06:35AM ]

    Please send me a copy of your spreadsheet.

  103. 103. Larisa [ September 02, 2016 @ 03:52AM ]

    Good article...Please may you send me a copy of the spread sheet.

  104. 104. Katie S. [ September 08, 2016 @ 11:50AM ]

    Interested in a copy of the spreadsheet.

  105. 105. Katie S. [ September 08, 2016 @ 11:51AM ]

    Interested in a copy of the spreadsheet

  106. 106. loren moss [ September 10, 2016 @ 05:44AM ]

    Yes please send me the spreadsheet also thank you

  107. 107. loren moss [ September 10, 2016 @ 05:45AM ]

    Yes please send me the spreadsheet also thank you

  108. 108. loren moss [ September 10, 2016 @ 05:45AM ]

    Yes please send me the spreadsheet also thank you

  109. 109. loren moss [ September 10, 2016 @ 05:48AM ]

    I was wondering what is a more important factor to your service department overall profitability gross profit percentage or your effect of labor rate and why

  110. 110. Shen Yim [ September 11, 2016 @ 10:36AM ]

    Thanks for the efficient and effective article. Please email a copy of the spreadsheet.

  111. 111. Patti Molinari [ September 21, 2016 @ 05:46PM ]

    thanks and please send me the spreadsheet

  112. 112. Jack Crowder [ September 23, 2016 @ 11:42AM ]

    I would be interested in seeing the spreadsheet you have mentioned in this article. please send me a copy.

 

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