The dealers I’ve worked for generally had a sliding scale on the markup with small cheap items being a 100% and tapering off as the price rose.
A 1.00 widget was retailed for 2.00, a 100 dollar item for 175, and so on.
Things really hit the fan when a customer went through the roof (rightly so) over 5 grand for a Subaru transmission. Dealer cost on that unit was a hair under 4 grand so the markup wasn’t that much.
The only real way to compare the cost is total price, parts + labor + fees + tax. Different shops will split it out different ways, it’s the total that matters.
And those fees can be significant. Wish I had known about ‘shop supplies’ and ‘waste disposal fees’ when I worked at the gas station!
It’s too bad that most people have no idea of the expense and headaches involved in running even a small shop. It can all feel like a deluge at times and on the new car dealership level it’s far greater than any small or large independent shop.
Sometimes the mechanics get overcharged too. I need struts on my car, have a mechanic that I am pretty friendly with. He knows I take care of most of the stuff myself. He looked the price for the struts up and his distributor was 60% more than what I could get the part online. We also cross checked part numbers and every detail to make sure it is the same part. He was shocked himself. The reality is I could have it shipped and wait one week to get it. For the mechanic, when a car drives in, he can not say come back next week. Also it is understood that when I provide my own parts, when it breaks, I am on my own as far as labor charges. In the long run I still save a ton but not every shop is willing to do it this way.
We all know repair shops mark up costs,and should,we all have to make a living,but what is a fair percentage?
It is not a matter of what is fair. If it was about what is fair, then prices would change depending on the customers ability to pay.
In the US the primary price determinate is not cost, but competitive price.
Take a look at your alternative options and make a choice. Don't expect the service provider to change their price to meet your needs. Shop around, get the best price for the best product (verify that the service provider is providing good work)."‘shop supplies’ and ‘waste disposal fees’ "
I’ve seen those fees added to bills.
What I’ve seen…is a well respected mechanic can charge almost anything they want…They have good reputations and people trust them. One place I knew of in upstate NY charge almost double what every other mechanic in the area charged…His prices were even more then the dealers…But people LOVED him.
Same with good body-man…
One mechanic I deal with has no problems with me buying the parts and let him do it…Just like galant…struts is one job I won’t do…So I went to him to get a price on new struts after I already checked on-line…His price was within $50 of my on-line price (for the exact same shocks/struts)…So I bought form him. Now if his price was $200 more I’d just buy on-line and let him install it.
So 100% of retail markup is acceptable? I am fairly confident that the shop does not pay retail. I just received an estimate at an independent shop where their markup is 150-200%, the labor rate is $85.50 and there is supplies and hazmat fee too. I am all for paying a fair price, but this seems excessive. I sincerely doubt they are paying mechanic $85.50 an hour, so there must be some proffit built in that number?
As a former service writer I often thought our customers were paying too much for parts.
OEM parts we’d get 20% off list from the dealers, plus they’d dleiver for free. We’d still mark up 40% or more, making our price much higher than the list price you’d pay at the dealer-- plus our shop rate was higher than most of the dealers. always a mystery why people like to get bent over for our mediocre service.
As for aftermarket parts, again, we’d buy wholesale, not from NAPA but form similar, yet we’d always end up charging more than list price.
Now, as a consumer, I’m lucky to have found a mechanic who only charges me $50/hr, takes little or no mark-up on parts, and stands behind his work 100%%.
It is actually off topic, but RLW001 raises a good related point. Mechanics are not paid ‘by the hour’ but what they earn works out to say, $30 an hour, which you need to pay in a major metro area to get someone who you actually want working on your car.
In California, by the time you pay workman’s comp. insurance , unemployment insurance, a half the health insurance, SS , liability insurance for the stuff they break, the cost of finding new people, administrating their paperwork, and getting rid of them when they don’t work out, and various other taxes associated with employing people, you have to charge $85 an hour to break even.
Where I work, we provide our staff with $1000 desktop computers, not $10,000 diagnostic analyzers, no hoists, no tools, no hazardous waste disposal, and we have to charge 2.5 times hourly wage for our people’s labor to break even. I know it hurts, but $85 an hour in today’s market is very reasonable.
If you get a 20% discount for a part…and then mark it up 25% the price the end consumer will pay would be exactly what full retail would be.
I pointed this out earlier…Most mechanics around here get their parts at discounted prices…They then mark them up so the consumer is paying full retail and nothing more. I have no problem with that what-so-ever. Some mechanics will buy their parts at the cheap discount parts stores (PepBoys, ADAP, Advanced Auto) and those places don’t give mechanics discounts. We have local parts places around here that most mechanics use. A few of them have dozens of stores (Robins, Sanel brothers). Their parts quality are top notch…their prices are a little more then the cheap discount parts stores…and the people working behind the counter actually know something about cars.
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Bisbonian June 23 Report
When I worked parts our standard markup was 40%.
Markup is figured differently than what some people think, 40% markup is figured by taking the original price and multiplying by 1.667. In this case the price you paid is almost exactly at 40% markup and is what I would expect it to be."
You could call that a 40% markup but it’s not. It’s a 66.7% markup. If you sold the part to the customer at your price that would be a 40% discount.
30 years ago when I turned a wrench, the cute girl from the parts store delivered parts to the shops for ~30% less than John Q. Public paid for them if he purchased them over the counter. The mechanic then sold the part to the customer’s at full retail price, which the parts stores helpfully noted on the receipts.
Today, on-line vendors have changed the retail marketplace, and the cost difference between what you or I pay on-line, and what the shop has to pay is narrower.
Please don’t confuse percent markup with percent profit. Those terms have been obfuscated a bit in this thread. Using the 30-years-ago example, if a part listed for $100, the mechanic paid $70 for it and sold it to the customer for $100.
Hence, the mechanic got a 30% discount on retail price of the part.
The mechanic then sold the part for full retail, or $100
The markup on the part was $30/$70 = 43%
The profit on the transaction, assuming no cost to the mechanic for handling the part, which is not quite accurate, was:
$30/$100 or 30%
So a 43% parts markup generates a 30% profit on the transaction (or “net retained profit”). That spread grows as the percents get higher, so it does not matter which term we use, it is just important that we don’t confuse them. The customer will normally think in terms of the markup.
First, please make sure you are calculating the profit margin correctly. Many people think that if something costs $100, and it has a 25% profit margin, it sells for $125. The problem with that calculation is that the actual profit, ($25) ends up being 20% of the selling price, not 25% of the selling price. When you add a 25% profit margin to a product, you don’t multiply the cost by 1.25, you should divide the cost by 0.75 (or 1 - 0.25). When you add a 25% profit margin to a $100 item, you want 25% of the selling price to be profit, so $100 / 0.75 = $133.33, and you sell it for $133.33.
For the sake of argument, let’s assume your mechanic pays the same price you do at the corner auto parts store. That means the OP’s part has a 40.9% profit margin. In other words, at a selling price of $193, 40.9% of the selling price was profit. (193 - 114) / 193 = 40.9%
I believe the profit margin should depend on the business’s costs. A business in California, where the minimum wage is higher than the rest of the country, and unions are given more rights than in other states, operating costs are higher, and a profit margin of 40%-50% is probably normal. In the rural south, where minimum wage is set by the federal government, not the state, and unions have less influence, lower profit margins might be the norm.
Lastly, acceptable pricing is not determined by the percentage of the profit margin. It is determined by supply, demand, and competition. If the price you paid is comparable to what you would pay at another garage, the price is fair. Comparing what you pay at an auto parts store to what you pay at a garage is like comparing apples to oranges.
(7/28/2011, edited for correction of terminology)
“Many people think that if something costs $100, and it has a 25% mark-up, it sells for $125.”
And those people are correct.
“The problem with that calculation is that the actual profit, ($25) ends up being 20% of the selling price, not 25% of the selling price.”
It’s not a problem at all. Markup and profit are two different things.
“For the sake of argument, let’s assume your mechanic pays the same price you do at the corner auto parts store. That means the OP’s part was marked-up 40.9%. In other words, at a selling price of $193, 40.9% of the selling price was profit. (193 - 114) / 193 = .049”
Regrettably, no. While the profit was 40.9% of the selling price, the markup was 69%.
And the only numbers that matter at the end of the day are
’‘Retained Gross Profit’'
The final amout kept by the shop, who can choose to get that bottom line in any manner they wish whether it be parts, labor, or add ons.
Stop gawking at the ‘‘mark up’’ numbers and start realizing the r.g.p.
Actually none of this is profit, it is margin. Profit is not measured on the individual part or job, it is figured at the end of a period (monthly for example), where you take into account rents, salaries, utilities etc.
Internet price is so far different than retail counter price.
The best price check for mechanic is against parts store price. Remember a mechanic does not run out and pick up parts. They order them and typically receive them in a few hours
I was having a problem finding spark-plugs for my wifes 07 Lexus. One of the local parts store could get them…but wanted to charge me for delivery…Their parts supplier didn’t have the part in stock, but was able to find it on the internet. I refused to pay delivery…and just ordered them on-line (free delivery with orders over $25).
I have an interesting situation where I can on-line order parts from a local dealer for about 25%+ less price than going to the counter. I think they fill the parts mail orders in down time.
piter_devries, I don’t really care if you think I am wrong. I have worked in business-to-business sales, and I know how businesspeople calculate profit margins. Using the proper method, our salespeoples’ minimum margins were 20%. If they sold merchandise, and the profit margin was less than 20% of the total selling price, our salespeople didn’t get a commission on the sale. If you prefer to use a different method for your personal economic choices, that is fine, but in real business, in any business that calculates profit margins, there is a right way to do it.
If one of our salesmen went out and sold a product that cost $50 at a 20% margin, and calculated his profit margin your way, he would sell the product for $60, and the business would make $10 on the sale. Since 10 / 60 = 16.67% the salesman would not get paid a commission. If the salesman did the calculation the right way, he would sell the product for $62.50, and he would get paid a commission (12.5 / 60 = .21). In the real world, where people resell things they had to buy, calculating the profit margin correctly might mean the difference between getting paid and not getting paid.