There are nearly 258,000 auto mechanic shops in the U.S., IBISWorld says, making auto repair a $63 billion industry. But how profitable are auto repair shops — especially small auto repair operations?
Though gross sales are an important factor, owners need healthy margins to sustain their businesses. Whether setting prices on services or minimizing spending on products and labor, it’s important to know how to run an auto repair shop in a way that keeps costs down while still offering customers exemplary service.
Give your business — and your cash flow — a tuneup by focusing on these six areas.
1. Labor
The quality of your services depends on your staff’s expertise and ability. Attract good talent by paying your people competitive wages. Research hourly wages by looking at local want ads. Hiring inexpensive and inexperienced help might be tempting, but unless you plan to invest a good amount of time and money in training, it could be a losing proposition in the long run. A skilled, knowledgeable employee can usually complete jobs in less time and with fewer errors.
Set your prices based on how long it takes for employees to complete certain tasks. Tracking employee productivity can help you develop a good database of timelines. For example, a coolant flush might take an hour to complete, whereas a brake replacement might take two. Whether you roll your labor charges into your prices or bill customers a separate hourly rate, having timelines will help you create more accurate estimates, which keeps customers happy.
2. Scheduling
Paying fair wages is a start, but you also need to make sure that you’re getting the most out of those wages. Having people on the clock when your auto repair shop is slow wastes money. Keep your labor costs in check by having customers schedule appointments so that you can anticipate how many employees you’ll need and when you’ll need them. Use reminder calls or texts so that you don’t have to deal with no-shows.
3. Capital Expenses
In addition to your labor, your profitability hinges on your major expenditures, such as rent or mortgage payments and equipment purchases. A good location is key for auto repair shops. If you rent your location, you might be able to save money upfront instead of tying up a large portion of your equity in a down payment and a commercial mortgage. However, owning your property protects you from rent spikes that could hurt your bottom line.
You also need to buy equipment and keep that equipment in good working order. Having outdated or unreliable machinery could affect the speed and quality of your work. Equipment leasing can be a good way to get the current, reliable equipment you need to offer your customers a quality repair job. Equipment financing could be a good way to spread out the cost of crucial equipment over time.
4. Daily Expenses
You can also protect profit margins by keeping an eye on your everyday expenses. For example, you might be overcharged for responsible chemical and oil disposal and not know it. Do some research to ensure that you’re charging enough for your services to recover your expenses.
Watch out for credit card transaction fees, too, as they can cut into your profit margins. Shop around for the best rates based on your sales and average order ticket. Some processors charge the same flat fee for credit and debit cards; others have more flexible rates. And make it an annual habit to get quotes from your banks, insurance agents and accounts.
5. Marketing
You could also boost your bottom line by honing your marketing strategy. Marketing is an important part of your business plan, and it’s an investment that can build and maintain your customer base. Maintenance and repairs cost car owners nearly 9 cents per mile, AAA says. Because the average driver puts nearly 13,500 miles on their car every year, the Federal Highway Administration says, each customer you attract and retain could generate more than $1,200 in business every year.
According to Invesp, businesses have just a 5% to 20% chance of bringing in a new customer, but they have a 60% to 70% chance of making a repeat sale. It makes sense, then, to start by marketing to customers who already patronize and love your business. Consider sending repeat customers exclusive offers by email. Giving deep discounts can cut into your profit margin, but other deal programs, such as loyalty programs or bundled packages, can be a cost-effective way to entice repeat sales. Use a customer management system that sends service reminders to help busy customers care for their cars.
Attracting new customers is important, too, and every business should create a digital and social presence. Ninety percent of customers find local businesses and services online, Bright Local says, so make it easy for prospective customers to find you. Create a Google listing for your business. Make sure, too, that your website is search engine friendly. Most customers search the city name along with the service they want, so sprinkle applicable keywords and phrases — such as “Denver oil change” or “Chicago tire repair” — throughout your website content.
6. Customer Service and Reviews
Eighty-two percent of customers read online reviews before making a purchase, Bright Local says. You might be worried about opening yourself up to criticism, but it’s important that you add your business to review sites and maintain control of the conversation.
Customers will research your auto repair shop online before they entrust you with their vehicle. Because horror stories about dishonest mechanics overcharging or making unnecessary repairs are common online — and because review sites like Yelp and Google can affect your profit margin — it’s important that you establish your business as a credible and trustworthy provider.
Negative reviews happen. The best way to handle them is to address the customer’s concerns in a positive way that gives potential customers insight into how you handle problems and criticism. By addressing the negative review, you might also have an opportunity to turn an unhappy customer into someone who would come to your shop again.
How profitable are auto repair shops? It depends on how closely you watch your bottom line and whether you’re taking every step to care for your customers and your business. Keeping costs down is a big part of how to run an auto repair shop at a healthy profit margin, but customer service is where the rubber really meets the road. Keep your customers happy, and you’ll keep running smoothly.
