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Cost cutting – not the answer to increased profits.

I have spoken with thousands of shops and almost all have the same talent – cutting costs. Cutting costs seems to be the most common way to try and increase profits.

It reminds me of the story of a dog owner who was tired of spending so much money on dog food. So, he trained his dog not to eat. The inevitable happened — the dog died.

The same goes for your business. The more you try to cut costs (electricity, wages, maintenance, etc.) the closer you come to closing your doors.

The answer? Increase profits by improving productivity, better sales and closing techniques, and raising your prices! Yes, I said it, raise your prices.

Sadly, most shops have not raised their labor rates in years, have not properly calculated their labor rates, charge way too little for parts and do not charge for things like parts cleaner and diagnosis.

In this article, I am going to focus on making more money on parts by using the Parts Matrix (see Standard Tables in Setup) feature built into the ManagerSE. Using Price Matrix automates and standardizes the parts markup, saves you time and makes you more $. The number you should be looking to achieve is a 66% Gross Profit BEFORE expenses. You should shoot for a 70% margin on Labor and a 60% margin on parts. I teach this to all my clients and workshop attendees.

You can easily check your margins on every Estimate or Revision using the Check Profit (F12) built into your Manager SE before selling the job. I know that not every job will be at 66% as some will be higher and some lower, but if you work at it, you can get a higher margin than you have now.

Profit Snap Shot Screen Shot
Profit Snap Shot Screen Shot Example

The Check Profit report will be fairly accurate when you enter the cost of parts on every part and you have already set up the tech’s wages and hours in the Technician Setup.

To get your overall parts prices to a 60% margin, you need to set up the Price Matrix so that it charges a higher % for the low cost items and sequentially lower margin as the cost increases. What this means is that you have to stop just doubling the cost of parts (most shops default to this) and use the Matrix Price or List Price (whichever is higher).

I have heard all the excuses like “I can’t charge more than list!” or “My customers won’t pay those prices!” and many more. Yes, you can. All the top shops use a Price Matrix and work toward the goal of 66% G.P. I used a simple matirx even before we had computerized systems. Once I implemented the matrix, my profits increased tremendously all without losing clientele.

Trying to make more money by reducing your expenses doesn’t work. Raising your prices is one of the best ways to put more money in your pocket. Using a Price Matrix is a key step in doing so. And the more money the business makes, the more you can pay your staff and yourself which will translates into better service for your customers.

Want a sample Matrix? Want to have a conversation about this topic? Email me, Jeffrey Nott, at [email protected] or call me at 408.221.1165. I’d be happy to give a few minutes of my time.

Jeff is an automotive consultant with ESI Training who provided this shop tip. Reach out to your Local Mitchell1 Rep for Mitchell1 software.

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