Q: “I’m trying to purchase an existing collision repair shop,” says BodyShop Business reader Greg Brehmer. “I’m trying to complete my business plan and am running into difficulty with the accepted percentages for parts sales, materials sales and cost as a percentage, etc. Is there any information you can give me?
Also, I’d like some sort of figure on what percentage parts/materials/labor make up of gross revenue. The business I’m looking into is about 63 percent gross revenue. Does that sound high?
A: Greg, our industry has a number of benchmarks that have been pretty consistent over the years. The following should assist you:
Gross Profit Levels
| Parts | 25 | 34% |
| Materials | 25 | 40% |
| Labor (All) | 60 | 65% Unloaded* |
| Sublet | 15 | 25% |
| Towing | 15 | 25% |
*Unloaded refers to cost of gross wage and doesn’t include employer costs of FICA, FUTA, SUI, workmen’s comp or any benefit costs.
Parts vary based on your volume of purchases. Normally, once you reach $1.5 million in total sales, your parts purchases allow you to get closer to 34 percent. To start, you’d be looking at 25 percent for the main lines domestic and lower on many foreign lines – especially Saturn and specialty lines (Mercedes, Volvo, BMW, etc.).
Material profit is driven by many factors, including your repair vs. replacement percentage. The more you repair, the less profit you’ll have in materials. We’ve worked with shops in the past that achieved up to 55 percent gross profit on materials.
An estimate should be about 52 to 55 percent parts and materials sales. Materials should be at 10 percent or above of sales. Costs of materials should be below 7 percent of sales.
Today, total gross profit for the job should be 40 to 45 percent.
Regarding labor, the worst pay system to have is a straight commission or flat-rate system – it misses the important areas of the company, encourages poor quality and almost eliminates teamwork. Unfortunately, it’s an easy system to manage, so it’s used often.
All the above examples are based on current and past benchmarks for the industry. In the near future, the rules will change, and so will many of the above figures. The key is to measure gross profit per hour, not just gross profit dollar or percentage. The new model for business will be based on producing vehicles much like an assembly line. I’ve written many articles over the last three years on the subject and would encourage you look through past issues at www.bodyshopbusiness.com and search for my name: Tony Passwater. These articles will explain everything I just said – but in more detail. You can also search my Web site at www.aeii.net.
Writer Tony Passwater is president of AEII, a consulting, training and system-development company. He can be contacted at (317) 290-0611, ext. 101, or at [email protected]. Visit his Web site at www.aeii.net for more information.
