Service Advisor Talk | Margin, Margin Everywhere!

Profitability is a touchy subject in any business. A lot of people ask just how profitable is the auto repair industry in the age of YouTube and information for all. 

The answer, as most business owners will attest, is so buried in the murky waters of operations and disclosure that on an individual level it is hard to say. In an up economy, shops can make money hand over fist or can fall flat on their faces.

As a service writer, I have my finger on the pulse of my shop’s ability to turn a profit. I am going to go out on a limb and say that my job function is even more important in the profitability structure than the guys who turn wrenches.

I know that every mechanic reading this just did an audible breath intake, got all up in their sass, snapped their fingers and hollered, “Oh no, he didn’t.”

Rest assured, I am not so big of a narcissist to think that mechanics aren’t a key resource in the profitability of my shop. They are the means of production and are responsible for providing the service customers actually pay for. That being said, you can take steps to insulate your shop against poor performance from a mechanic.

The money you might gain or lose from a mechanic is nothing compared to the money you gain or lose with a service writer.

Through my career, I have been in a number of roles. I started specifically in automotive as a tire salesman. I wasn’t a service writer; I was sales. It was my job to get a customer to open their wallet and not much more.

I was also straight commission which means that my paycheck was directly tied to how profitable I was. Suddenly, I became a financial officer for the company. I didn’t get a fancy title or any corporate perks. It happened by default.

If I hadn’t done that, my paychecks would have been at the mercy of whatever screw-up happened to come along behind me.

Unacceptable.

Money in the bank

Sales is as important to a shop as actually doing the work. It is a mechanism to put cash in the till. It doesn’t matter if your monthly revenue is $10,000 or $1,000,000. Closing sales and turning wrenches doesn’t put money in the bank, only in the register.

Never forget that money in the register can still leave it before it gets to your bank account. You have bills to pay after all. Financial types call it overhead. I call it opportunity.

Here is the secret to profitability from my standpoint: the money isn’t made when you sell. The money is made when you buy.

This is where I am in my zone. It is what I get up every morning to do. I have a knack for exploiting margin. It is a game I thoroughly enjoy playing. (For the uninitiated, margin is the spread between what you buy something for and what you sell it for. Net profit.)

In the notoriously low margin tire industry, I had quarterly margin percentages in the mid to high 50s. It is not only possible but easy with the right tools, the right mentality, and effective leadership.

Labor is as close to straight profit as you will get unless someone just leaves a pile of cash on your counter for no reason. Parts are going to be all over the place. Tires could be 25% while a light bulb could be 90% or more.

Every part I estimate has a certain percentage of mark-up. For the sake of easy math, I will say the mark-up is 50%. If I pay $30 for a tie rod I am going to sell it for $45. 

I can try to squeeze an extra 3% to 5% out of the customer but could get push back from the customer price shopping the competition.

Negotiate, negotiate, negotiate…

On almost every part I sell I try and negotiate the price I pay for it lower. If I can get the parts house to discount that part 5% I can pass those savings along to the customer and be their hero or leave the sale price alone and be my boss’s hero.

When I have suggested in the past that my co-workers do this a lot of them have said they feel like an asshole asking for a discount. I don’t mind doing this. One person’s asshole is another person’s a$$hole.

I firmly believe you catch more flies with honey so I walk a fine line between squeezing my suppliers and making their life hell.

I ask for discounts so often that the employees I call know my voice. I have most of them so well trained that they don’t even give me the list price. They will try to discount right out of the gate.

I don’t do much arm twisting, though. I usually start off by asking for a general discount on the part I want and if it isn’t good enough I will ask for a specific price.

Once, a co-worker needed two identical parts to make a sale. One parts store had the parts for $X but a competitor had the same part (same part number) for 40% less.

It was obviously a mistake but my co-worker had sold the estimate using this lower price. Once he realized his mistake, it was too late. We still needed that second part and the other parts houses weren’t budging.

I picked up the phone to the store we did the most business with and told them I was going to fax them a competitors invoice that they were going to match. It took some convincing but they finally sold me the part for less than they paid for it.

I am not saying that you can or should play hardball with your suppliers on a regular basis but it does come in handy in a pinch. I repaid the favor by putting through several orders at list price and gave them a large order I was planning on giving a different shop.

All parts houses can price match their competitors and some are more lax with this policy than others. The most reliable part with the highest discount which I can get delivered to me is the one I will go with ninety-nine percent of the time. 

It is also worth noting that it doesn’t hurt to develop friendly relationships with the people on the other end of the phone. If all you ever present yourself as is an asshole you will get less that ideal results. 

Everyone likes a good horror story, sometimes being friendly is as simple as texting over a picture of an exploded battery or an oil pan with bearing pieces in it.

In the end…

At the end of the day, I have an understanding with my suppliers. When I call to do some arm twisting its nothing personal. I want a discounted part and they want that sale. As long as we can find a comfortable middle ground both sides will end the day with money in their pockets.

Author’s Bio

JJ is a Service Advisor in a full-service shop. He brings a solid understanding of complex systems down to earth for customers who are shy about dealing with the automotive industry.

A teacher at heart, he believes that customers are most satisfied when they understand the issue and the path forward. This results in customers making purchasing decisions from a position of power instead of fear and reluctance. He also enjoys quiet activities like non-traditional board games, reading, YouTube, sarcasm and collecting pre-loved cars the rest of us call ugly junk.