How Do Auto Repair Shops Make Money? Proven Strategies for Profitability

The auto repair industry can seem complex, but understanding how shops generate revenue is quite straightforward. If you’re aiming to boost your auto repair shop profit margin or considering opening a new venture, it’s crucial to grasp the core strategies for making money. While launching a shop demands dedication and hard work, the potential rewards are significant. Like any business, you’ll navigate learning curves and unexpected hurdles, but the journey of pursuing your passion is often worth the effort.

You might be wondering if now is a favorable time to enter the auto repair business. Economic uncertainties following a pandemic can be daunting for aspiring entrepreneurs. However, history shows that many successful businesses were established during economic downturns. Despite current economic conditions, the need for vehicle repairs remains constant and even grows in certain areas.

Consider these automotive repair trends:

In 2022, approximately 76 million vehicles in the United States were 16 years or older.
Around 18% of American households are estimated to use auto repair services annually.
The number of vehicles over 12 years old on the road is expected to increase by 15%.
Vehicle ownership duration has increased by 60% in the last decade.

These statistics indicate a rising demand for auto repairs as people choose to maintain their existing vehicles longer. Whether the industry is booming or facing headwinds, sound business practices are essential for adapting to market changes and ensuring long-term success.

Let’s explore the key tactics to enhance your shop’s profitability, both immediately and in the future. These strategies are categorized by business growth stages: seed, start-up, established, and expansion. While presented in a sequential order, each tactic plays a vital role in building a thriving auto repair business.

Fast Facts

1. Strategize Your Shop for Success

Your auto repair shop will operate in a competitive landscape. A well-defined strategy is crucial to differentiate your business and attract customers in your community. Developing a strategy involves creative thinking combined with practical considerations to ensure viability.

Consider these guiding questions when formulating your strategy:

Define Your Shop Type

Will you run a general auto repair shop or specialize? Specialization could focus on exotic vehicles, diesel engines, fleet maintenance, or serving a specific clientele beyond standard independent garage services. Beyond services, your shop’s name is a key strategic element.

Choose a name that’s memorable, creative, and relevant to your services. Examples like Prestige European Auto Service or Turbo Tim’s Anything Automotive cleverly target specific customer bases. Shops like Fix It Forward Auto Care highlight their mission in their name. Always verify that your chosen name isn’t already registered in your state or trademark databases.

Service Offerings

Detail the specific services your shop will provide. Will you concentrate on routine maintenance like oil changes and tune-ups, or offer comprehensive repairs? Consider whether you’ll sublet certain specialized repairs. Subletting can expand your service range without requiring in-house expertise for every niche, but necessitates establishing reliable subcontractor partnerships.

Scalability and Growth

Think about your long-term vision. How many locations do you envision? Where? What’s your scaling strategy and timeline? While a growth plan is valuable for brainstorming, immediate, concrete answers aren’t always necessary at the outset.

A robust strategy defines your brand and your auto repair shop’s unique purpose. This foundation guides subsequent steps, helping you determine when to pursue linear growth or exponential scaling.

How Tekmetric Supports Strategy: Tekmetric assists in implementing and evaluating your strategies. Concerned about making premature decisions? Tekmetric’s reporting features allow you to monitor costs and profits. For instance, if you’re considering offering a service in-house instead of subletting, analyze Tekmetric’s sales, profit, and Accounts Payable reports to compare profitability against subletting expenses.

2. Calculate Capital Expenses

Your initial investments significantly impact your shop’s future profitability. Careful consideration of capital expenses is essential.

Secure Your Garage Location

Location is paramount. Will you operate in a small town, suburb, or major city? Location significantly affects costs. Research existing auto repair shops in your target area, their service offerings, pricing, and any location-specific factors influencing your decision.

Local regulations also vary. If considering a home-based shop, verify local zoning codes to ensure compliance. Most independent shops opt for renting commercial garage space.

Invest in Quality Equipment

While cost-saving on initial equipment purchases is tempting, prioritize quality. Investing in durable, reliable tools ensures your team can confidently and safely perform repairs. Long-lasting tools withstand repetitive use and contribute to efficient operations. Essential equipment includes:

Shop Management System Investment

Beyond physical tools, a robust shop management system is a critical investment. Such systems provide:

The ability to gain experience

Systematic analysis frameworks.
Improved customer experience management.
Digital tools and integrations.
Error prevention safeguards.
Declined job tracking.
Enhanced compliance standards.
Efficient and accurate estimate workflows.
Integration with all shop systems.
Profit goal setting and tracking capabilities.

Seed Stage Costs

During the seed stage, strategy and capital expenses dominate your initial financial outlay.

This phase requires grounding your ambitious vision in reality while refining your shop’s core mission, strategy, and expense planning.

Define your shop’s values. Concerns about capital expenses? Explore equipment financing or leasing to manage initial investment. Thoroughly exploring options is key to setting your shop on the right path.

3. Define Your Labor Goals

Optimizing labor profit margin involves strategically using labor matrices, custom rates, and labor guides.

Maximize Labor Revenue

Establish competitive yet profitable labor rates that satisfy both technicians and customers. Accurate labor times are crucial; utilize a reliable labor guide. When choosing a digital labor guide, consider:

Industry-standard, comprehensive labor times?
Regular updates for new vehicle models?
Integration with shop management software?
User-friendliness?
Responsive customer support?

Once you have a reliable labor guide, implement strategies to maximize labor revenue:

Labor Matrix: Automatically apply markups or multipliers based on job time ranges using a labor matrix.
Custom Labor Rates: Set specific rates for experienced technicians or specialized jobs.
Labor Guide Markup: Apply markups when jobs exceed estimated labor times, compensating technicians fairly for extra effort.

Labor rate strategies should be tailored to your shop and job specifics.

Hiring Strategy

When hiring, you have options: recruit experienced technicians and service writers to reduce upfront training costs, or hire less experienced individuals and invest in training. A blended approach, combining experienced staff with trainees, can be effective, leveraging senior staff for mentorship.

Invest in your team’s development through ongoing training, conferences, regular check-ins, and collaborative sessions. In a labor-scarce industry, training can attract talent. Prioritize system implementation before hiring to ensure new employees learn and utilize systems uniformly from day one, facilitating future team expansion training.

Technician Compensation: Hourly vs. Commission

Technician compensation structure is crucial. Common approaches include:

Hourly Pay: Technicians are paid for hours worked. If a job estimated for one hour takes three, they’re paid for three.
Commission Pay: Variations include:
1. Percent of Sale: Commission based on total sale value, typically 10-20%.
2. Flat-Rate Pay (Book Time): Paid based on estimated job time. A three-hour job completed in one pays for three; a one-hour job taking three only pays for one (in some cases, exceeding the estimated time might be adjusted).
3. Tiered Commission: Incentive-based, with higher commission tiers based on sales or conversion metrics.

No single pay structure is universally superior. Choose a system that aligns with your shop goals and ensure streamlined implementation.

How Tekmetric Maximizes Labor Profits:

Tekmetric’s commission tracking simplifies commission-based pay structures, aligning team incentives.
Labor Matrix markups automate labor pricing, saving service advisor time. Manual adjustments remain possible. Consult the Labor Times for Auto Repair Shops guide for Tekmetric labor pricing details.
Real-time profit reports within Tekmetric clearly display labor and parts profits in both dollars and percentages, accessible on individual repair orders and End-of-Day Reports.

4. Optimize Scheduling Systems

Efficient scheduling directly impacts profitability by maximizing shop time utilization. Optimized scheduling allows you to accept more work and boost revenue.

Preparation is Key

As your shop transitions from seed to start-up phase, increased workload demands preparedness.

The balance between staffing and workload is critical. Overstaffing relative to workload leads to losses. Conversely, insufficient staffing means rejected work and lost revenue. Proactive planning for various scenarios ensures optimal balance.

Select the Right Scheduling System

Numerous scheduling systems are available. Consider these factors when choosing:

Cloud-based accessibility?
Easy customer scheduling?
Integration with other systems?
Customer communication tools?
Trackable repair notes?
Reliable support and customer success?

For optimal scheduling, consider shop management software with integrated scheduling capabilities.

Schedule Monitoring

A robust scheduling system within shop management software allows real-time work monitoring and behind-the-scenes oversight. Cloud-based systems facilitate seamless team coordination without micromanagement. Effective scheduling enables progress tracking, workload reassignment, and prioritization as needed.

How Tekmetric Streamlines Scheduling:

Tekmetric integrates estimate, authorization, parts ordering, work assignment, invoicing, and payment workflows, freeing up team time for customer service. Clear expectation setting, progress monitoring, and work reassignment are facilitated. Pre-set preferences for markups, parts providers, contacts, and employees enhance efficiency.
Tekmetric’s CRM and marketing platform integrations streamline scheduling. Integration with Mechanic Advisor enables real-time appointment slot visibility on your shop’s website. CRM integrations also include KUKUI and MyShopManager.

5. Prioritize Team Management

While shop ownership is demanding, remember the importance of your team. A happy, engaged team translates to enhanced customer service and productivity.

Become an Effective Leader

Leadership development is ongoing. The auto repair industry offers resources to support shop owners in leadership skills. To become a better leader:

Build a Strong Team

Focus on five key areas to strengthen your team, shop, and customer service:

Highlight Strengths & Support Growth: Identify team member strengths and provide support for development areas.
Motivate with Performance Metrics: Use metrics like Car Count or Average Repair Order (ARO) to demonstrate team achievements and shop success.
Foster Collaboration: Encourage teamwork and partnership for idea sharing and mutual inspiration.
Promote Work-Life Balance: Recognize the demands of customer-facing and physically active roles. Support employee well-being and work-life balance to ensure refreshed and engaged team members.
Empower through Mentorship: Mentoring service advisors, technicians, and other staff fosters growth, engagement, and a positive work environment.

Team Management and Profitability

Investing in team development directly impacts profitability. Gallup research indicates that highly engaged teams experience: 17% higher productivity, 41% lower absenteeism, 59% lower turnover, 10% increase in customer ratings, 20% increase in sales, and a 21% increase in profitability.

Start-Up Stage Costs and Profits

The start-up stage prioritizes team, labor, and scheduling optimization to handle growing opportunities. While initial investments might not yield immediate full returns, diligent planning and execution will begin to translate hard work into tangible profits.

How Tekmetric Facilitates Team Management:

Tekmetric provides key performance indicators (KPIs) like Car Count, ARO, and GP Dollars for sharing with your team, demonstrating collective impact and shared goals.
Tekmetric integrates with Shop Owner Coach for leadership development, personalized coaching, training, and accountability.
Team communication tool integrations like Flock and Slack enhance team communication and coordination.

6. Focus on Customer Experience

Exceptional customer service drives repeat business. Providing a VIP experience every time a customer interacts with your shop – even before they arrive – builds loyalty and earns positive reviews.

Digital Vehicle Inspections (DVIs) Build Trust

DVIs enhance transparency. They are more efficient and insightful than traditional inspections. Tablets and smartphones enable technicians to quickly perform and document inspections with photos and videos, clearly showing customers vehicle issues. This visual transparency eliminates the need to bring customers into the shop, addressing potential safety concerns and OSHA violations. DVIs can be easily shared with customers via text or email.

DVIs streamline the repair process and build customer confidence. Visual documentation reassures customers about their vehicle’s condition and the recommended repairs. Consider shop management systems with integrated DVI features to enhance transparency.

Encourage Repeat Business

Customer loyalty is vital for sustainable growth. Expressing gratitude and rewarding repeat customers strengthens relationships.

Consider loyalty programs: e.g., a free oil change after ten paid oil changes, or discounts on services after spending thresholds. Creative incentives can reward loyal customers without compromising profitability. Loyalty programs reinforce customer value even as your shop grows.

Utilize Declined Jobs Reports to identify and re-engage customers. These reports track previously declined services, enabling service writers to proactively remind customers about pending maintenance needs. Referencing DVI findings, especially with supporting photos, can further encourage customers to address deferred repairs.

Prioritizing customer experience through vehicle maintenance guidance fosters vehicle health and boosts your auto repair shop’s profitability.

Modern Customer Experience

DVIs are a modern inspection tool. Extend this modernity to communication and payments. Touchless, curbside service options are increasingly expected. Implement text-to-pay for convenient, contactless payments directly from customer phones.

Two-way texting enhances communication. Texting provides customers with quick, easy access to your team for questions and concerns, improving responsiveness and building trust.

How Tekmetric Enhances Customer Loyalty and Trust:

Tekmetric’s built-in DVI feature enables technicians to document findings with photos and videos, color-coded severity indicators, and clear explanations. Service advisors can then efficiently create and send estimates via text or email. Customers can easily review, authorize repairs, and see repair progress within Tekmetric.
Tekmetric offers multi-channel communication options, including two-way texting, phone, and email, providing customer choice and responsiveness. Faster response times and reduced miscommunication build trust.
Tekmetric’s real-time reporting includes a Declined Jobs Report for proactive follow-up and service reminders.
Tekmetric’s customer management features facilitate comprehensive client profiles with history tracking from initial to recent visits. Service advisors and technicians can access customer notes for personalized service.

7. Maximize Parts Margins

Parts markup is a significant profit center for auto repair shops, second only to labor. Optimizing parts margins is key to overall profitability.

Inventory Management System

Transition from spreadsheets to a dedicated inventory management system. This is a transformative step for parts margin growth. Inventory systems provide insights into:

Fast-selling parts.
Preferred brands.
Margin performance.
Underperforming parts.
Pricing optimization opportunities.

Parts Markup Matrix

With inventory management in place, research and implement a [parts markup matrix]. This strategy ensures parts pricing is fair for customers and profitable for your business.

Parts Reporting

Track parts usage through reporting. Identify frequently used parts, long-lasting brands, and preferred vendors. Shop management software with built-in reporting simplifies parts management and optimization.

How Tekmetric Grows Parts Margin:

Tekmetric’s Inventory Table provides a centralized view of parts inventory, stock levels, and ordering integration. Direct stock orders can be placed from the inventory screen or within repair orders using integrations with Worldpac, Nexpart, PartsTech, MyPlace4Parts, and more.
Parts reconciliation is simplified with Tekmetric. Real-time reports cross-referenced with the Inventory Table and just-in-time parts purchasing for repair orders streamline reconciliation. The Parts Purchased Report and Parts Usage Report provide insights for optimizing parts profit margins.
Tekmetric automates parts markups. Flat-rate markups or auto-applied parts matrices can be set for inventory items or repair orders. Pre-defined parts matrices automatically apply markups, saving service advisor time and ensuring consistent pricing. Specialty matrices can be manually selected as needed.

8. Control Common Shop Expenses

Small, recurring expenses accumulate. Managing these expenses is crucial for maintaining profitability. Detailed insight into common expenses allows for informed adjustments. Focus on needs versus wants and identify cost-saving opportunities without compromising essential operations. Categorizing expenses provides clarity and control.

Common expenses include:

Rent or lease payments.
Utilities: phone, internet, electricity, heating.
Maintenance: repairs, equipment upkeep, snow removal, landscaping.
Taxes: income, property, payroll, sales, fuel.
Office equipment: computers, printers, furniture.
Marketing expenses.
License renewals.
Lobby supplies: refreshments.
Employee appreciation: gifts, events, meals.
Training and education.

How Tekmetric Manages Common Expenses:

Tekmetric reports track cost of goods, while accounting tools like QuickBooks manage broader expenses.

Tekmetric integrates with accounting solutions like The Back Office, providing seamless data flow for book management, income/expense tracking, and audit readiness.

9. Establish Effective Marketing Strategies

Marketing is an investment, and maximizing return is essential for profitability. Strategic marketing plans, including branding, promotions, and social media, are crucial for customer acquisition and retention.

Choose the Right Marketing Tactics

Marketing strategies should align with your shop’s mission and values. What works for one shop may not suit another. Consider these marketing avenues:

Website branding.
Local reviews.
Social media presence.
Email marketing campaigns.
Content marketing (blogs, guides).
Referral programs.
Reward programs.
Pay-per-click (PPC) advertising.
Print and physical marketing materials.

Marketing Strategy Monitoring

Track the performance of your marketing investments. Analyze which strategies are effective in driving customer acquisition and revenue.

Measure the impact of campaigns, such as paid social media ads or local flyers. Determine the ROI of each marketing tactic. Data-driven insights are essential for optimizing marketing spend.

Established Stage Costs

The established stage signifies progress beyond the seed and start-up phases. Profits begin to materialize. Maintain momentum as you approach the expansion stage. Remember to prioritize work-life balance for yourself and your team to sustain long-term success and excellent customer service.

How Tekmetric Refines Marketing Strategies:

Tekmetric’s Marketing Source Report tracks the effectiveness of marketing initiatives. Analyze new vs. repeat customer business and identify top-performing marketing channels.
Tekmetric integrates with marketing solutions like Mechanic Advisor, KUKUI, MyShopManager, MechanicNet, RepairPal, and others, expanding marketing reach.

10. Increase Average Repair Order (ARO)

Improving ARO enhances profitability. Optimizing productivity through efficient systems creates capacity for more customers and larger repair orders. Rising ARO is a strong indicator of growing profit margins. Strategies to increase ARO include:

Targeting new customers.
Comprehensive vehicle inspections for every customer.
Converting declined jobs into sales.
Pre-scheduling future maintenance.
Effective communication to build trust and recommend services.
Upselling add-ons: e.g., key fob batteries, interior bulbs. Small add-on sales contribute significantly to overall revenue when multiplied across numerous customers.

How Tekmetric Boosts ARO:

Tekmetric’s End-of-Day Report provides ARO metrics, including ARO Sales, ARO Profit, and ARO Profit Margin. Monitoring ARO facilitates efficiency improvements and profit maximization.

Reporting: Key to Profitability

Business reports are essential for monitoring the impact of each profit-enhancing tactic. Tekmetric’s Real-Time Reports provide a comprehensive overview of shop performance from day one.

Financial reports within Tekmetric include:

End-of-Day Report
Sales and Profit Report
Discount and Fees Report
Sales Tax Report
Accounts Payable Report
Accounts Receivable Report

Employee performance reports:

Real-Time Service Writer Report
Real-Time Technician Report
Technician Hours Report
Commission Tracking Report

Customer reports:

Customer List Report
Declined Jobs Report
Customer Leads Report
Marketing Sources Report

Parts reports:

Parts Purchased Report
Parts Usage Report

This is just a glimpse of Tekmetric’s reporting capabilities. Clear, organized insights into shop performance are invaluable for informed decision-making and profit optimization.

“If I go to reports, I have so many metrics that I can look at that tell me what’s going on. Tekmetric breaks out all of those metrics and shows me what we’re selling and what we’re not selling. It gives me the breakdown I need to measure what I’m doing.” – Henderson Johnson, Owner of Toyo Automotive

Routine Shop Health Checks

Just as vehicles require regular maintenance, so does your shop. Utilize the reports discussed above for routine health checks. Conduct monthly, quarterly, or annual reviews to assess shop performance and identify areas for improvement. A quick checklist for these reviews:

❏ Revenue Check: Is revenue meeting expectations? Is there potential for profit margin growth?

❏ Customer Base Analysis: Are you attracting new customers? Is customer acquisition plateauing? What are your top marketing sources, and what other avenues could you explore?

❏ Expense Review: Are parts costs optimized? Are you maximizing value for expenses? Are there cost-saving opportunities?

❏ Budget Assessment: Does your budget adequately cover expenses? Are there areas for budget adjustments to prioritize critical expenses?

❏ Bookkeeper/Accountant Check-in: Is your accounting system reliable? Are there outstanding payments? Are collection procedures effective?

❏ Team Check-in: Is training sufficient? What further support can be provided for professional development?

❏ Self Check-in: Is work-life balance sustainable? Can you disconnect from the shop when needed?

Remember that business growth is demanding. Running an auto repair shop is challenging but rewarding. Reaching a stage where you can effectively monitor performance through a shop management system signifies significant progress and achievement of initial goals. Celebrate successes and continue to strive for growth.

Auto Repair Shop Profitability: Key Takeaways

Upon reaching the established stage, consider expansion – new locations, expanded services, or team growth. Congratulations on reaching the growth and expansion phase!

Ultimately, auto repair shop profitability hinges on diligent financial oversight. If profit margins are a concern, focus on cost reduction, customer experience enhancement, and streamlining daily operations.

Shop management systems provide the data and tools to monitor these critical areas and inform strategic decisions. Thinking about starting an auto repair shop? This guide offers valuable insights to consider as you embark on or continue your journey as a shop owner.