6 Ways To Increase Auto Repair Shop Profits
While achieving higher profits for your auto repair shop may seem like a distant reality at first, it is doable with the right strategies.
17:32 23 September 2022
While achieving higher profits for your auto repair shop may seem like a distant reality at first, it is doable with the right strategies. The auto repair industry has become incredibly competitive; auto repair shops can be found in every other nook and cranny.
The burgeoning competition also means that it is even more important to come up with effective strategies for your auto repair shops; to stay ahead of the curve.
Running a successful and profitable auto repair business has many layers to it. It’s not just about keeping your service bays filled; there is a lot that goes into making an auto repair shop profitable.
In this post, we are going to discuss 6 of the time-tested strategies you can adopt to boost the profits of your auto repair shop.
How Can I Make My Auto Repair Shop More Profitable?
Let’s start with the basics. Your automotive repair business needs to maintain higher profits, so you can expand the footprint of your auto repair workshops successfully.
Simply put, the profit margin is the percentage of sales that are translated into profit. The higher the margin, the better it is for your business.
In the auto repair industry, the average profit margin for parts is between 20-28% and for labor, it is 50-65%.
To increase it for your automotive shop, you either need to increase your revenue or decrease your costs. And doing both can really help you double down on profits for your automotive shop!
1. Automate Your Auto Repair Business
The best way to make auto repair shops profitable is by cutting down costs. And how can you cut costs, you ask? Automation!
In this day and age, automotive repair shop owners can benefit from technology and software to automate their day-to-day tasks.
Automation can cut down costs of your auto repair business by:
- Improving efficiency and reducing the amount of time it takes to perform day-to-day tasks
- Reducing the number of errors that result in losses or cost outlays to the auto repair shop
- Reducing the number of human resources required and driving down labor costs
Analyzing your performance and business capabilities using technology will help you understand what decisions and steps you should take. For example, if you require more capital for your shop, you should consider taking up auto repair loans.
There are a number of different technologies that auto body shops can use. However, one of the best technology nowadays is auto repair shop software. It helps you cut down costs and also boost revenue through better customer relationship management.
Better CRM is a huge factor driving customer satisfaction and becoming a preferred auto repair shop for customers in your vicinity. By having a solid base of repeat customers, you can easily enhance your profit margins.
You can also use automotive shop management software for:
- Inventory management and control
- Generate comprehensive reports on performance
- Financial reporting
- Maintaining a database of customers and service history
There are many other functions that software can perform, to reduce costs and turnaround time.
2. Encourage Customer Loyalty
At the end of the day reducing costs is great, but having a concrete base of customers will drive your profitability.
As a business owner, you should run customer referral and loyalty programs to turn car owners into loyal customers. A customer referral program will help you get new customers while the latter will support you in maintaining control over existing customers.
Remember, the more money you make, the higher chances you have of better profitability.
There are many ways you can structure your referral and loyalty programs. For example, you can offer a free oil change after 10. You could also offer discounts to your customers for bringing in more customers and getting the word out about your business.
3. Invest in Digital Marketing
Initially, this may sound like a cost outlay but effective marketing is a necessary success ingredient. The more money you invest in marketing, the more you are likely to make.
Nowadays, marketing has become quite accessible and affordable. Having a solid social media presence and good digital marketing practices can put auto shops on the map and win over more customers.
Firstly, you need to set up a business website and social media handles. Then depending on your digital marketing budget, you can target a wide range of strategies.
For example, blogging and search engine optimization are excellent ways of driving traffic to your website. This will help you in getting potential clients to land on your website, have a look at your services, and eventually, avail those services.
By being able to target a wide range of customers, you will be able to increase profits.
4. Analyze and Maintain Your Overhead Expenses
Auto shops have various overhead costs including utilities, labor costs, POS services, inventory, and auto parts ordering. To accelerate business and maintain a healthy net profit margin, you should regularly analyze your overheads and gauge how to drive them down.
You can also do time-based analysis of how the shop is spending money; for example, if your expenses seem higher in Q2 than in Q1, you should look for the reasons.
And another suggestion that you should use is to make the most out of your expenses; always make value-centric decisions. For example, you can invest in more costly auto shop repair parts if the value offered to potential customers is greater.
You shouldn’t cut back on costs or expenses that will help you in offering excellent services at your shop or business. You can then factor in the costs or expenses in your price.
5. Charge Labor As Per Customer Segments
It’s recommended not to charge flat fees to all of your customers. Actually, we would suggest that to boost your automotive repair shop profit margin, your labor rates should be based on customer segments.
For example, for the luxury car repair segment, the customers should not pay the same price as hatchback car customers. This sort of strategy is actually used in a lot of different industries to maximize efficiency.
This strategy is also very helpful in managing margins and profitability.
Having the right labor charges along with seamless customer service is extremely helpful in boosting margins and profitability.
6. Have An Upsell Strategy
Last, but certainly not least, for better auto repair shop profit, you should have an upsell strategy.
While customers come to your shop for regular maintenance, all vehicle owners want the best for their vehicles. Knowing your customers and understanding what they really need will help you in pitching extra services.
You can segment customers and create personalized packages with discounts and add-ons for each customer segment. For example, you can have a different package for female customers, for your adults, and so on. You can segment the customers on various dimensions but always look for inherent buying patterns within each segment.
Wrapping it Up
If you are going to work in the automotive repair industry, you need to know that there are many things that can affect the profitability of a repair shop. If you are a business owner, you need to keep an eye on the following three costs: equipment, labor, and parts.
To stay ahead of the competition, you also must invest in these three areas to offer a better customer experience. The most important thing to remember is that you have to be prepared to spend money in order to make money.
You should also understand that there are many factors that can affect margins. While some repair shops may see steady increases in profits year after year, others face a decline in profitability.
In addition to shop equipment and labor, the most common reason for a decline in profit margins is due to the rising cost of parts.
But to maintain profitability, you will need to focus on boosting revenue through better marketing and loyalty programs for customers and reducing costs. Use the above tips to increase revenue, expand your customer base and boost profitability.