What is the right amount for parts mark up? 20%, 35%, 100%, or do you just go by the retail price of a part as determined by the manufacturer, jobber or WD? This is a tough question in terms of business practices and ethics.
This gray area can get a lot of people in trouble. If a shop marks up the price of a part too little, the profit margin can be quickly eaten away by the technician’s commission, or credit interest rates charged by the parts supplier. Charge too much and you might not be able to sleep at night, or risk losing a customer.
Can the average consumer look up the price of a part over the internet? Yes. This is just one of the downsides to technology that puts information once only available to a few, can now be put in the hands of the many. But, just like the old saying, “you can’t believe everything you read”, people should not believe everything they find on the internet.
Look at it this way, the same technology that allows you to make sure that the part is right, or allows for automatic replenishment of inventory, is also giving the consumer the opportunity to look at retail prices. It is a deal with the devil.
Chances are you will soon find yourself at the other end of a webpage ink jet print out. Should your parts prices be more than retail? Yes. Should you offer to install a part that a customer supplies? No.
If you are confronted by a customer who is questioning the prices compared to those found on the Internet, don’t panic. Tell them that the parts you install are not typical parts. Parts used by the professional shop are usually higher quality than what is offered to the price-driven DIYer. Also, tell them that you would not risk your reputation on a part that might be below your standards. It is not that “over-the-counter” retail or “mail-order” parts can be of a lesser quality, it is just that some products offered may not be “professional grade.”
If customers keep persisting about the price of parts, walk away. These are probably the same people who download music for free.
Every shop should have a large sign behind the counter that says, “We do not install customer-supplied parts, no exceptions”. Not only will this prevent comebacks, but it will also protect your parts income. Sure, there will be some exceptions to the rule for some customers and parts.
One example you can bring up is that a patron of a fine restaurant would not ask what is the price of the raw steak before they order the porterhouse. Also, if a patron brought in their own raw steak, do you think the restaurant would cook it up for them? No. Automotive repair is a service business in some ways just like a restaurant.
Now don’t go out there and boycott parts suppliers that post prices on the internet. It just won’t work, and they have their right to sell to the general public at whatever price they like. Also, some automotive parts suppliers who also sell to the general public also have some great programs for shops and they have some quality lines.
If you are marking up prices excessively on some parts, I have no pity for you. Marking up the price 100%, or more, over retail or purchase price on some parts is not a way to run a business. Also, having separate mark-up rates for certain customers or situations is not ethical.
If you feel that the only way to make a profit in automotive service is through parts, you are wrong. I have seen repair orders from shops that have a generous parts mark-up, but they do not have a clue on how to properly bill labor charges. The most common forgotten or under-charged item is brake flushing and bleeding. Some shops are still charging 0.20-hours for a brake fluid flush and bleed. This may have been right for older vehicles, but with today’s vehicles with ABS, do not be afraid to charge 0.50-hours or more for the operation. For some vehicles with rear disc brakes, take the time to check the labor guide for times – you might be pleasantly suprised.
So what is the right amount or procedure to mark up parts for sale to your customer? It is a tough question to answer. Some say that you should charge what the market will bear. Others say that the part’s price should reflect the value to the customer. Either way, don’t give away the steak, or turn it into ground beef.