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Mike Anderson

mike anderson autobody newsMike Anderson is the president and owner of Collision Advice, a consulting company for the auto body/collision repair industry. For nearly 25 years, he was the owner of Wagonwork Collision Center, an OEM-certified, full-service auto body repair facility in Alexandria, VA.

 
Wednesday, 08 July 2020 19:13

From the Desk of Mike Anderson: Making the Most of the ‘Parts’ Portion of Your Business

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Parts consistently make up 40% of total repair order dollars, so it’s well worth it for shop owners to pay careful attention to the role parts play within their business.

This month, I wanted to share the first of two columns outlaying some best practices related to parts I think could improve your shop’s operations and bottom line.

 

Best Practice: Make sure you’re accurately tracking your parts profitability.

 

As almost anyone who has attended one of my classes knows, I’m a big proponent of the value of detailed and dead-on accurate accounting practices and profit and loss statements. That’s where good P&L account and sub-account categories are needed.

 

You shouldn’t just track labor income, for example. “Labor” is one account; the sub-accounts include “body labor,” “paint labor,” “frame labor,” “mechanical labor,” etc.

 

When it comes to your parts account, I believe you need sub-accounts for OEM parts, aftermarket or non-OEM parts---which may also include accessories---and salvage or recycled parts. Some people break out remanufactured parts.

 

But one often missed sub-account is “stock parts.” Stock parts include things like seam sealer, double-sided tape, weld-through primer and cavity wax. These are not paint materials. They are parts you put on the vehicle.

 

The old adage of “junk in, junk out” applies in terms of entering parts on estimates and in your shop management and accounting systems. You might list seam sealer as an aftermarket part on your estimate because there’s not a “stock part” option in that system. But when you transfer that estimate into your management and accounting systems, you need to make sure the systems are mapped properly to reclassify that item into the proper sub-account.

 

One of the other common accounting mistakes I see centers around parts price-matching, when you choose to use an OEM part in place of an aftermarket part, for example. When that happens, it’s important that whoever inputs your parts invoices understands how to properly change that to an OEM part within your management and accounting systems.

 

If that doesn’t happen, the accounting system will presume you sold an aftermarket part, but the cost for that part goes into the OEM sub-account. That results in an overstatement of your profit on aftermarket parts, and understates your profit on OEM parts.

 

Best Practice: Know your gross profit margins on different types of parts.

 

Using your sub-accounts properly will help ensure you have accurate information on your parts profits by type. Most shops I see are making between 20% and 32% gross profit on OEM parts, for example.

 

But keep in mind lots of factors can influence that. Your buying power can result in higher or lower discounts compared to other shops. Your mix of work can play a role; parts profits may be higher or lower depending on whether your repair a lot of domestic vehicles, or a lot of Asian or European import vehicles. Even what part of the country your shop is in can affect discounts and profits.

 

Most shops are making between 30% to 45% gross profit on aftermarket parts. Again, buying power and discounts vary.


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