Acceptable parts markup for shop?

I know that shops will charge more from parts that you can get online, etc, but how much higher than the normal price is acceptable? My sister took her car to a shop to have a part replaced which was $161 retail at the dealer, and Im not sure what the book time was, but 2 hours labor would be excessive to do the job. The shop said that the part was $360 (the total quote was almost $700), and they didnt care what the dealer charged, they would rather not do the job than buy the part from the dealer. I ended up buying the part for $150 at the dealer and someone else installed it in less than an hour. Is that normal for independent shops? Or is that a bit weird.

Sounds about normal for the accounts I deal with at work. He has us place parts delivery tickets on a nail on the table, upside down. So his customers don't see how much he paid for the part, and see just how much it's marked up. I've heard some claim it's upwards of 50%. YMMV.

Industry standard seems to be 120% markup from cost.

In practice, it's fluid. Some things have a list that is absurdly high relative to cost (highest I've seen was around 1000%!) and other things have a maybe 5% margin.

You do know that some shops will charge an estimate to make sure they DON'T work on it because they don't want to, right?

To directly answer your question, it can be 40% or 300% or more markup, it depends on the original part price.

But the question I have is what part needing replacement on what vehicle? Some shops are better at some things and not others and vice versa.

they have to make up for their lower hourly rates somehow

It totally depends on the shop and the day. I run a transmission shop and if someone comes in asking for a brake job I have to choose carefully. If I'm busy with 10 cars all getting a $2000 tranny job, I can't take two hours out of my tech's day to do a brake job for $150, so I'll try to get more for it to make it profitable. If it means that I won't be able to finish one of the tranny jobs before the week ends, I'll shoot them really high. If they take it, I can maintain my income. If they don't, I still maintain my income. If business is really slow, I'll hit them with a cut-rate deal because some money is better than no money.

Most shops that use flag time will price parts plus about 30-50%. That way they're still under the cost of a dealer part but they are making a profit on it. And of course they pay their techs $25 per flag but charge the customer $90 per labor hour. The rub comes when you have to get a part from a dealer. We often get 15-20% off retail and it looks bad if we charge them more than retail for it.

You can also see that jobs that are heavy on parts we don't make much. Replacing a $300 VW secondary air injection pump which takes 1/2 hour to put in we don't make enough profit to stay open. But, replacing a rear main seal with 9 hours of transmission R&R and a $4 part we make a ton.

My guys at the shop are paid a weekly salary, so our target is no less than 30% parts cost. Of the gross we take in per week, parts cost can't be more than an average of 30% of the week... assuming we made enough gross to turn a profit.

I saw a quote recently where they A-diagnosed a dead starter on a 2000 Ford Focus- and B- wanted to charge 600$ to replace it. I told my friend to get it home and we'd do it ourselves with a reman for less than a 1/3rd that price. What the shop FAILED to diagnose was the 3 giant holes in the block from where the car had dropped a valve and disintegrated one of its rods. We found that out using the ol bash the starter with a hammer to see if it'd crank trick. Cars don't usually blast oil everywhere if its a dead starter.

curtis73 wrote: It totally depends on the shop and the day. I run a transmission shop and if someone comes in asking for a brake job I have to choose carefully. If I'm busy with 10 cars all getting a $2000 tranny job, I can't take two hours out of my tech's day to do a brake job for $150, so I'll try to get more for it to make it profitable. If it means that I won't be able to finish one of the tranny jobs before the week ends, I'll shoot them really high. If they take it, I can maintain my income. If they don't, I still maintain my income. If business is really slow, I'll hit them with a cut-rate deal because some money is better than no money.

I'm trying to learn more about how to run a business; this is absolutely curiosity and not second-guessing: Does it impact return business or whether you get a second chance down the road with a customer if you give them a really high estimate?

I'm assuming (with the normal risks of assumption) that you can't really tell the customer "look, I'm really busy, so to make it worthwhile it's going to have to be this much." So they wander off and if they get an estimate from a similar shop who are having a slow week, they'll just think your prices are high, right?

Perhaps as a transmission specialized shop, any given customer is less likely to be a return customer than at a general repair shop, and even relatively unlikely to be asked for a transmission shop recommendation by friends, and thus turning off the odd customer doesn't matter much?

Again, I know Berekeley-all about this, but I'm curious about how that shakes out.

When I worked up front in a couple shops I would try to keep markup below 30% because I felt bad about trying to get more for the same part. It also hurt when the customer would find out we were charging more for a part than what they could get by walking into a parts store and paying, some would figure that out and get upset about it.

Manager wanted 100% markup as a general average. I still feel that this is not an honest way to price the work out, that kind of markup seems excessive.

It was the plastic fuel reservoir (under the car where the fuel pump goes) on a 1992 Jetta. They wanted 225% of the highest price the dealer would charge for the part brand new. If they had paid $150 for the part and charged $200 for it, plus $60 for diagnosis and $100 for an hour labor to fix it they would have made $210 on the job, instead now she would take it to the dealer before going back there again. IMO i would respect the shop a lot more for charging extra for labor and using dealer retail for the parts cost, but I know it doesnt work that way for most people.

Keep in mind the shop needs to cover not only the cost of the part, but also: the cost of the time to order it receive it in, process the invoice, pay the parts bill to their vendor, the slice the government takes off the top for the part cost charged to the customer, and a couple percent they lose if you pay by credit card.

That's a lot to squeeze out of a mark up on a part.

apples and oranges... at Denny's you're paying for the eggs, the place to cook them, & the expertise to cook them correctly...

you're comparing the complete job at Denny's to the cost of the part....

instead, figure out how much over the 10¢ egg the whole meal cost then compare the cost of the part to the overall cost of the repair job

Travis_K wrote: It was the plastic fuel reservoir (under the car where the fuel pump goes) on a 1992 Jetta.

I needed one of those a few years back. (Digifant car, so probably the same bit) One of the benefits of the job is getting parts at cost, zero markup. My cost from the dealer was nearly $300.

Needless to say, I found a good used one about 80 miles away.

Also needless to say, it's possible that some VW dealers charge independent shops list price and tell them that it's cost.

jstand wrote: Keep in mind the shop needs to cover not only the cost of the part, but also: the cost of the time to order it receive it in, process the invoice, pay the parts bill to their vendor, the slice the government takes off the top for the part cost charged to the customer, and a couple percent they lose if you pay by credit card. That's a lot to squeeze out of a mark up on a part.

And it doesn't stop there, the shop has to make enough off the part as well as labor to also cover rent on the building, many times a note on equipment leases, business taxes, payroll, supplies, liability insurance, advertising, the water bill, electric bill, telephone bill, on and on.

Acceptable markup is whatever the customer is willing to pay. Businesses are around to make money from people who either can't do the job themselves or don't want to do it themselves. If they can make more money by charging a premium for parts, then so be it. If they charge too much, people will stop going there and they will go out of business.

If you're not happy with the markup at a certain business then don't go there, nobody is forcing you to.

Bob

In reply to Datsun:

Poor analogy, and you apparently never had this very thing happen to you. I had it happen about once a week when working a store less than two blocks from an O'Reilly's. It's a pile of fun trying to tell someone that you 'need' to charge $30 for a widget that they charge street customers $20 for.

In reply to jstand:

"the slice the government takes off the top for the part cost charged to the customer"

What? We paid no taxes in receiving the part because we purchased it wholesale, the USA does not have a VAT, and a customer can look at the receipt for work performed and see what we charged them before taxes for the part.

curtis73 wrote: Most shops that use flag time will price parts plus about 30-50%. That way they're still under the cost of a dealer part but they are making a profit on it. And of course they pay their techs $25 per flag but charge the customer $90 per labor hour.

Thanks for the honest response. If I may:

What is "flag time"?

I take it your guys guys are on a hourly?

Thanks!

Travis_K wrote: I know that shops will charge more from parts that you can get online, etc, but how much higher than the normal price is acceptable? My sister took her car to a shop to have a part replaced which was $161 retail at the dealer, and Im not sure what the book time was, but 2 hours labor would be excessive to do the job. The shop said that the part was $360 (the total quote was almost $700), and they didnt care what the dealer charged, they would rather not do the job than buy the part from the dealer. I ended up buying the part for $150 at the dealer and someone else installed it in less than an hour. Is that normal for independent shops? Or is that a bit weird.

And you now know never to go back there again. A shop can charge whatever they want. It's their shop. And now you know to get a written estimate for parts and labor and check around.

'Flag time' is flat rate. If the Mitchell, Alldata or whatever gives 2 hours for a given job then that's what the tech gets paid for. If he does it in an hour and a half, he's ahead. If it takes him 3 hours, he's screwed.

Parts markup is all over the scale. Most manufacturers pay the dealership a 40% markup over cost on a warranty repair and that's barely scraping by, the overhead costs are huge. An indie shop could probably do OK on that because their OH is generally lower. So generally dealerships will mark up prices over list so they can keep the doors open.

Of course, on a big $$$ part that won't work. It's difficult to take a $3500.00 list price transmission or whatever, buy it for a 20% 'discount' (which means your cost is now $2800.00), then turn around and sell it for a 45% markup because that's now $4060.00. So you swallow hard and take it in the shorts, but you have to make it up on the small stuff to keep the doors open by marking it up 75 or 80 or even 100%. Them's the realities of bidness, folks.

Somewhat related.... http://www.yellowbullet.com/forum/showthread.php?t=411305&highlight=parts+price

pres589 wrote: Poor analogy, and you apparently never had this very thing happen to you. I had it happen about once a week when working a store less than two blocks from an O'Reilly's. It's a pile of fun trying to tell someone that you 'need' to charge $30 for a widget that they charge street customers $20 for.

We just inform those people that we don't like doing work twice, and we've cultivated a lit of suppliers who we can trust to provide high quality parts. (O'Reilly's and Autozone are not on this list)

And that the book-time labor rate goes up ~30% for customer supplied parts, since they're usually incredibly crappy.

Knurled wrote:

Travis_K wrote: It was the plastic fuel reservoir (under the car where the fuel pump goes) on a 1992 Jetta.

Also needless to say, it's possible that some VW dealers charge independent shops list price and tell them that it's cost.

List price was $160, i told the dealer what the shop had said and they said that was the highest price anyone would pay for the part, I believe the shop in question was getting it from worldpac,

Knurled wrote:

pres589 wrote: Poor analogy, and you apparently never had this very thing happen to you. I had it happen about once a week when working a store less than two blocks from an O'Reilly's. It's a pile of fun trying to tell someone that you 'need' to charge $30 for a widget that they charge street customers $20 for.

We just inform those people that we don't like doing work twice, and we've cultivated a lit of suppliers who we can trust to provide high quality parts. (O'Reilly's and Autozone are not on this list) And that the book-time labor rate goes up ~30% for customer supplied parts, since they're usually incredibly crappy.

See, that makes sense to me, If it had been your shop she took it to then she would likely have had the work done. Charging 225% the dealer price for a part, and saying that they do not install customer supplied parts, nor buy parts from other than one source = having the car taken elsewhere and a recommendation to anyone who might ask to not go to that shop, because even the dealer is cheaper.

Q: "What is an acceptable markup." A: "Whatever the market will bear."

Ever looked at how much aspirin costs in an emergency room?

pres589 wrote: In reply to Datsun: Poor analogy, and you apparently never had this very thing happen to you. I had it happen about once a week when working a store less than two blocks from an O'Reilly's. It's a pile of fun trying to tell someone that you 'need' to charge $30 for a widget that they charge street customers $20 for. In reply to jstand: "the slice the government takes off the top for the part cost charged to the customer" What? We paid no taxes in receiving the part because we purchased it wholesale, the USA does not have a VAT, and a customer can look at the receipt for work performed and see what we charged them *before taxes* for the part.

I understand you were purchasing the part wholesale, so on that transaction you didn't pay taxes. But any profit from the mark up is taxed, there are taxes on the wages paid to the employees (not just what you see on your check, but the employer portion of ss ) for any of the tasks I listed and many not listed.

So that markup on parts is reduced by indirect taxes of ss and then once everything else is deducted and you have managed to squeeze out some profit on the part, the government taxes that profit. No VAT required.