Average auto repair parts markup
Here’s why your mechanic isn’t ripping you off on parts markup
An auto repair shop is no different than any other retail service business, it must make profit on labor and parts.
You can buy sump pump at a home center and install it yourself. But the instant you hire a contractor to install the same sump pump, they’re going to buy it from a local supplier, mark it up and include the marked up sump pump as part of their quote— just like every other retail service business
You found the part cheaper online. So what?
Every day in every automotive forum, somebody claims their mechanic is ripping them off because they marked up the parts price. They compare the part price on the quote to what they found online. So what?
First, shops don’t buy their parts online, so the price you found is irrelevant. They buy parts locally from a reputable auto parts store.
Second, then they add a markup to their parts cost. It’s called a profit. Auto repair shops typical mark up auto parts by Businesses can’t stay in business without making a profit.
What the average auto shop parts markup?
Up until around 2010, auto repair shops averaged about a 28% gross profit margin on parts. That’s no longer high enough for an independent shop to stay in business.
For an independent auto shop to survive, they must either raise their hourly labor rates, raise their parts markup, or raise both.
Today, the busy shops average a gross parts profit margin of about 45%. That allows the shop to cover the overall cost of offering parts as a part of their service. It costs money to offer parts.
• Time to order the part
• Cost of waiting for the part to arrive (unbillable bay time)
• Labor/warranty costs to reinstall if the part breaks during the warranty period
• Disposal costs
• Accounting costs to allocate parts costs to customer invoices and pay the parts vendors each month.
To achieve a 45% gross margin, they must mark up the cost of the part.
If the part costs the shop $50 and they sell it for $100, they’ve doubled the cost price. They marked it up 100% but achieved a 50% gross profit margin (5% more than the minimum required to stay in business). That’s common in today’s auto repair business.
How does auto parts markup compare to other industries?
Let’s look at profit margins of two comparable service businesses; HVAC repair/installation and electricians.
Furnace repair and installation average profit
In 2022 the typical installed price for for a baseline 60,000 Btu furnace and 2-ton AC unit is around $8,900. The company’s cost for the furnace, evaporator coil, condensing unit, refrigerant, tubing, sheet metal, piping and city permit averages about $3,300. It takes two workers about 12 man-hours to remove the old furnace and install the new setup.
• 12 hours @ $125/hr =$1,500 – actual fully loaded hourly cost of $55/hr ($660) for a labor profit of $840 (97% markup on labor).
• Salesperson’s commission @ 10%= $890
$8,900 selling price minus $3,300 parts cost = $5,600. Subtract the $890 sales commission and you get $4,710.00. Then subtract the actual cost of the labor $660.00 and the job winds up at $4,050 gross profit or a gross profit margin of 45.5%.
However, since everybody gets bent out of shape over parts markup percentage, let’s look at that by itself.
The HVAC dealer charged $8,900. The parts cost $3,300 for parts cost. When you subtract the other costs, you find that the HVAC company marked up the parts cost by almost double 97.27%.
So the dealer marked up labor by 97% and marked up the parts by 97.27%. Yet, the total gross profit margin on the total job comes out to 45.5% putting it in the ballpark of profit margins from other retail businesses.
Plumber average profit
You hire a plumber to a new 50-gallon atmospheric water heater. The going rate for a water heater installation in 2022 is around $1,800. The plumber’s cost on the water heater and supplies and permit is about $700. It takes about 1.5 hrs to install. The plumber marks up the water heater cost by 100%.
What are the normal gross profit margins for different retail businesses?
Let’s take a look at gross profit margins of different retail businesses.
Women’s clothing 46%
Sporting goods 38%
Home furnishing 47%
auto parts store 37%
The average well-run auto repair shop has a gross profit margin of around 37%. That’s 37% profit margin is one of the lowest of all retail business listed above.
Bring parts to your mechanic and you’re basically asking them to give away profit
Now let’s get down to the real issue. You want to save money on parts. So you buy it online and ask the shop to install it for you for just the cost of labor. In other words, you’re asking them to forfeit the profit they would have made on the part had they bought it and sold it to you at a markup. Why would they do that?
If you’re a regular customer and this is a one-time thing, they might do it as a good-will gesture. But if you’re just looking to save money at the shop’s expense, who needs a customer like you? Nobody. You’re simply trying to game the system.
Some shops won’t install customer parts
A busy shop will tell you to shove your parts where the sun doesn’t shine. And they’d be within their rights. However, if you’re a really good customer, they might make a one time exception to keep you as a customer.
Other auto repair shops increase their labor charge if your bring your own parts
A hungry shop may gladly accept your part because business is slow and they need the billing for the labor to keep the doors open. But if they’re that hungry for business, you should wonder why.
Then there are good shops that will accept customer parts, but they’ll accept the job with two caveats; First, they won’t warrant the part. Even some good parts are defective right out of the box. So if you bring parts to your mechanic and it fails fails or doesn’t fit, they won’t give you your money back and they won’t install the replacement part for free. Second, they’ll most likely charge you a higher hourly rate or a higher flat rate to compensate for the profit they lost by not selling you the part.
The truth is, you really don’t save money by providing your own parts, and you create far more problems for yourself if you bring the wrong part or the part fails.
You’re asking for trouble if you bring in an economy part
Finally, there are parts, and then there are GOOD parts. You can go online and find a part that’s much cheaper than the one the shop quoted. You think the shop is ripping you off. Nope. The part you found is most likely a Chinese made knock off, or it’s the same brand but “service grade” rather than “professional grade.” Most parts manufacturers offer two grades; an economy part for price shoppers and a professional grade for shops that value their reputation. Guess which part is junk? Do you know the difference? Because if you buy an economy part (which is what most of you penny pinchers buy) and then end up paying the shop the same price to install it, you’ll actually come out behind because the part will fail sooner.
Bottom line—every business has to make a profit
Everybody thinks the shop is ripping them off. But how many multimillionaire shop owners do YOU know? Probably none. Sure, they make a decent living. If they didn’t they’d close up shop and work for someone else. But getting rich? Nope.
So think twice about asking a shop to lose money on your next repair job because you want to bring your own parts.
©, 2015 Rick MuscoplatPosted on by Rick Muscoplat