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The average profit margins for auto-body shops revolve exclusively around parts and labor. The total sales of parts and labor make up almost all of the business for an auto-body shop, but that does not mean the profit margins are the same. Profit margins for parts are lower than profit margins for labor, and a smart business owner will identify ways to increase financial gains and mitigate outgoing costs.
Profit Margins for Parts
The sale of parts does make auto-body shops money—but maybe not as much as you would think. On average, according to the Body Shop Business website, the sale of parts generates between 36 to 44 percent of sales proceeds, while parts produce only 20 to 28 percent in profit margin. The reason for this has to do with style and control. Parts (especially accessories) go in and out of fashion, and the tastes of customers ebb and flow. Accordingly, auto-body shop owners only have so much control as to how much they can reasonably charge for parts. What parts cost is not determined by business owners but by manufacturers, and consequently, prices for parts can only be inflated to what a business thinks customers can afford.
Profit Margins for Labor
Labor sales usually produce the same percentages as the sale of parts, but profit margins are much higher. According to Body Shop Business, labor tends to generate between 50 to 65 percent in profit margins. Because of this, it is wise for auto-body shop owners to focus efforts on controlling labor profit margins by raising labor output hours and keeping labor as the chief device for making money. Owners can increase labor productivity by giving employees more responsibilities and by using proven methods of vehicle maintanence and repair to eliminate errors or repair delays.
Reduce Technical Costs
Auto-body shop owners can also reduce costs in technical areas to increase overall profit margins. One way to reduce technical costs is to lower the number of employees the shop has full-time and, if possible, eliminate part-time positions, according to Body Shop Business. Another measure is to train employees through the use of outside sources (i.e. seminars provided by parts suppliers) and reduce or eliminate tool and uniform subsidies. Means of technical cost reduction should be handled delicately, albeit professionally, so as not to upset or interrupt business as usual.