Going into the busiest quarter for tire shops means an opportunity to do some planning that can deliver more cash to your bottom line.
I always start with the low hanging fruit and typically that involves setting up rules in the existing shop management software or point of sale system.
Looking at your annual average parts gross margin % on your financial statements gives you the average points you earn on parts. But you have time now to dig a little deeper, so I suggest you extract a report from your software that shows the total parts sales for your whole year; include the cost, sales price, quantity sold, etc.
Now you can export this in excel and start experimenting with applying varying “levels” of points goals across ranges.
Customers typically won’t question the lower prices on a quote from a shop, so you need to ensure you’re achieving the highest amount of points on these low-cost items to balance out the high-cost items (like transmissions) where you’re limited to the number of points you can achieve.
When you go to the movie theater and spend $30 on popcorn and pop for 2 people, you’re experiencing the product price matrix markup on low-cost items. Theaters make their money on the coke and the popcorn. The concept is the same for your shop, you need a price matrix that ensures you attain higher points on low-cost items to balance out the lower points earned on high-cost items. However, too often I see shops “afraid” to charge a fair amount of points on even expensive items.
You see, you have to cover the costs of rent, utilities, and all the other shop expenses just to keep the doors open; so you have to have a fair minimum markup even on a very expensive part.
Set this up in your system and follow it religiously, with no exceptions and you will see returns in the form of increased bottom-line net profit.
Conversely, if there are items you have worked with suppliers to negotiate amazing prices on, then you need to ensure you still receive the “extra benefit” for this and not pass it on to your customer.
So there are exceptions to every rule, but only when they work in your favour.
Another example, if you can get a dealer part for $200 from your supplier and your pricing matrix markup on that dollar value is 50 points then you would charge your customer a price of $400; however, if the dealerships sell it to the customers for $1,000 then you need to mark up more than your price matrix and charge something like $800.
Below is a product price matrix example:
|$0.01 – $1.00||90|
|$1.01 – $2.00||80|
|$2.01 – $4.00||75|
|$4.01 – $10||70|
|$10.01 – $30||65|
|$30.01 – $120||55|
|$120.01 – $200||50|
|$201 and up||44|
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