How Profitable Are Auto Repair Shops? A Gold Mine If Run Properly

Tips and tricks on building incredibly profitable auto repair businesses.

Car repair is not the easiest business to open but it can make shop owners millionaires. Everything is doable in this industry if you open your mind to new possibilities and do the math. In this article, you will learn how to estimate the profitability of your future business and how to improve the profits of your existing one.

How Much of Auto Repair Shop Profit is Expected In the First Year?

If you look for a set amount as an answer, you won’t be lucky because there are a lot of variables to this question. But don’t get discouraged! The good news is you can use a simple formula to get some estimates.

What’s good about running your own business is that everything can be calculated. That is if you do the formula and you follow it so you can make as much money as you want in your first year. You can make two million dollars if you want it just depends on how you set everything up and if you have the resources. If your goal is to make $100,000, the way that you have to do that is to break down everything into pieces. Follow these steps:

Step 1.  Break your big goal down. You have to divide your annual profit goal (not to be confused with annual revenue) into twelve months so you know how much you need to make monthly. Then you calculate your weekly and even daily targets: $8,333 per month, around $2,083 per week, and $280 per day.

Step 2.  Define your product. Business is all about sales so you need to understand what you are actually selling. Your product is auto repair so you have to have a certain amount of cars in your shop to be able to make a profit. So the first thing you have to do is to figure out what your average sales revenue is and how much profit you have per car. Let’s say your labor hour costs a hundred dollars so that means you have to do three hours of work a day at a hundred dollars an hour on a car to be able to make your profit for the day to reach your goal of $8,333 every single month.

Step 3.  Add expenses. Obviously, there are expenses you have to pay for like insurance, location rent, consumables, equipment maintenance, and all that you have to factor in. If you are doing three hours of profit then you have to figure out all your overhead. E.g., your overhead is going to be an extra $300 a day just to keep the doors open. That means you have to do six hours a day of work at the labor rate of 100 an hour to be able to cover your expenses and reach your goal. This way, you’ll do six hours of work so that means you have to either work on two cars three hours each, or on one car that pays you six hours of labor.

Step 4.  Assess your resources. Practically, you can set any goal you want it just all comes down to the resources you have to make it:

  • How much space is there in your auto shop? If your building is limited in space, maybe you won’t be able to work on that number of cars you need for your big goal.
  • Another question you should ask yourself is how much money you’re willing to do on marketing to get those amounts of cars in. Are you good at marketing or will you pay an agency to run campaigns for potential customers?
  • Are you good at actually fixing autos? How fast can you do the job? Do you want to work on that many cars? Can you handle the stress? If not, you will need to hire mechanics and add payroll to your monthly expenses.
  • Are you a good manager? Do you need managers because you’re lacking in that or don’t have time to deal with that?

If you have a one-man shop and you want to make a million dollars of auto repair shop profit that means you have to have more mechanics, more space, more support staff, and more marketing. You have also to make sure all the processes are running right so you are getting the most out of your investments. To do so, you need to use modern business management programs like Orderry. This is a cloud-based solution where you can easily keep track of your jobs, current customers, inventories, incomes and expenses, payroll, employee efficiency, and business KPIs.

As you see,  it’s not about how much you can expect to make in the first year. If you actually set the processes correctly, do everything right and know the formula, you can literally make as much money as you want. Just get enough resources and put everything in place.

What Are the Most Profitable Auto Repair Services?

To run your business efficiently you should constantly analyze the profit margins of your services to understand which of them bring money to your pocket. They either have year-round demand, are unique for some types of vehicles, or have the potential to sell up other services in the future. Of course, each business is unique and the most profitable services may vary for different types of shops. But in general, these service offerings may be the most promising:

  • Air conditioning and heating. If you operate in Palm Beach, your customers will need to maintain their A/C to feel comfortable in their cars all year round. If you are in Alaska, the heating repair would be constantly in demand. In the mild climate, people just need both. So, you’ve got the point. This is one of the non-tire-related services that you’d better have among your offerings.
  • Brake services. Security is of the highest priority to all car owners so they won’t have much doubt to spend money on the brake jobs, especially if your shop has a good reputation. So, don’t miss out on this additional revenue stream.
  • You may not agree that this service is profitable as it requires decent investment in good equipment. That is true but if you look at it from the long-term perspective, reliable diagnostics will help you increase customer loyalty and spread the good word about your business.

Techniques to Make Your Auto Shop More Profitable

Now, let’s have a look at some best practices across the automotive industry that you can use to grow your business:

  • Know your customers’ priorities. Build your service list based not on guesswork but on customer feedback. Go through your loyal customer base and send out emails or automated SMS messages with a review request. You can also use more traditional methods like printed surveys or just talking to your customers directly.
  • Instead of offering general auto repair services, you can become a specialty shop that does only this and that but just incredibly well. And even better if nobody of your competitors can offer the same in the area your business operates. This way, you can charge more for your services and have more loyal customers.
  • Develop your unique approach to customer service. To have additional revenue you sometimes need to get creative and find new ways to impress customers. Various loyalty programs, interesting service packages, or even a cozy waiting area will make a difference and help you attract more visitors to your shop.

5 Mistakes Auto Repair Shop Owners Make When Increasing Profitability
  • No data analysis. If you don’t have a good reporting system to see what services are in demand, what spare parts have the most profit margins, how big are your expenditures, and so on, you cannot really improve anything.
  • Ineffective marketing. Some business owners think that running a marketing campaign is not harder than fixing a broken car. But in fact, if you do not have enough experience with online marketing, you can just lose money. It’s always better to let professionals do their job.
  • Credit card transaction fees. These are just small things but they can negatively impact your bottom line in the long run. Find time to research special offerings for small businesses to reduce your daily expenses.
  • Mess with scheduling. Without a well-thought-out system for scheduling your car repair appointments, you will either experience no-shows from unreliable customers or miss employees when you need them most. Both will result in wasted time and unnecessary expenses.
  • Saving on labor costs. Some business owners can’t resist the temptation to hire inexperienced mechanics with cheap labor rates. This is not a good strategy as you risk your reputation and may lose customers because of low-quality auto repair.

Final Thoughts

The profitability of auto repair businesses depends on many factors but the most important one is the proper calculation of your resources and possibilities against your goal. There is no limit on the amount of money you can make, you just have to think pragmatically, develop your sales skills, and organize all the processes efficiently. You should analyze your business performance metrics on a regular basis so you know what auto repair services make the most profit for you. Adjust your service offerings based on the data analysis, seasonality, and customer feedback.