95 - Mastering Parts Markup Strategy for Auto Repair Shops with Cecil Bullard (Part 1)

95 - Mastering Parts Markup Strategy for Auto Repair Shops with Cecil Bullard (Part 1)

March 27th, 2024 - 00:51:17

 

Show Summary:

In this episode, John Heller from PartsTech is joined by Cecil Bullard of the Institute for Automotive Business Excellence to discuss one of the biggest missed profit opportunities in the auto repair industry; parts markup. With data showing that many shops are leaving between $40,000 and $70,000 per year on the table, Cecil breaks down why most shops are underpricing, how to implement an effective markup strategy using a matrix, and why emotional pricing and fear of customer pushback are holding many shop owners back. The conversation is filled with real-world examples, tactical advice, and encouragement to take control of your margins and profitability.

 

Host(s):

John Heller, PartsTech

 

Guest(s):

Cecil Bullard, Founder & CEO, The Institute

 

Episode Highlights:

[00:01:24] - 67% of shops are losing money by underpricing parts; a problem easily fixed with the right strategy.

[00:02:18] - Many shops leave $40K–$70K on the table annually due to weak parts markup.

[00:04:00] - The Institute has helped 3,000+ shops improve parts margin, aiming for 58% average.

[00:06:15] - A 15% drop in margin on $400K in parts equals $60K in lost profit, math doesn’t lie.

[00:07:17] - Using manufacturer’s list prices leads to 32–38% margins, far below the 58% target.

[00:09:23] - The only consistent way to hit strong margins is by following a parts matrix religiously.

[00:10:31] - Customer pushback is often in your head; shops around you are likely getting 58% already.

[00:11:17] - “Parts are expensive” is a universal reaction; it doesn’t mean customers won’t pay.

[00:14:10] - If you're buying a shop with no markup, go straight to 58% and replace unprofitable customers.

[00:18:20] - Emotional pricing is dangerous: remove fear, build value, and focus on delivering solutions.

 

In every business journey, there are defining moments or challenges that build resilience and milestones that fuel growth. We’d love to hear about yours! What lessons, breakthroughs, or pivotal experiences have shaped your path in the automotive industry?

Share your story with us at info@wearetheinstitute.com, and you might be featured in an upcoming episode.

 

👉 Unlock the full experience - watch the full webinar on YouTube: https://www.youtube.com/watch?v=Do2_b119jsA

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John Heller: Hello, everyone. Welcome. We'll give a few seconds here as more are joining. We've got a lot to cover today. Very exciting topic. So we'll jump into it here in about 10 more seconds.

John Heller: All right. Again, welcome, everyone. We're extremely excited that you've joined us for this very important topic of parts markup. I'm John Heller, product marketing here at PartsTech. And we'll be bringing together with you our guest who I'll introduce here in a moment. Cecil from the Institute, a couple of housekeeping items.

John Heller: We'll use our chat function in this webinar to allow you to post your questions there. We'll be monitoring these questions as we go along. I know a lot of you will have questions as Cecil goes through this information. So please put those in our chat box and we'll do our best to get to as many of them as we can during the course of this conversation.

John Heller: So a brief intro about PartsTech for those of you who are new to PartsTech, we are a platform that makes it fast and easy for auto repair shops to find and order parts and tires across all of your suppliers. in one lookup. We are completely free to get started. No credit card required. And we allow you to connect an unlimited number of suppliers through parts tech so you can quickly find and order the parts you need across multiple, multiple suppliers at once.

John Heller: We recently ran a survey and found that nearly 67 percent of shops are leaving money on the table when it comes to profit. on parts. That is an astounding number, especially as Many of us are looking for ways to save money, make more money in today's economy a very important topic. And so as we put this report together, we thought, hey, let's, let's really dive into this a little bit deeper.

John Heller: And let's bring in an expert who can shed some light into maybe what the thought processes are around getting started with a parts markup strategy. It's not as big and cumbersome as many think, and hopefully Cecil will show us how easy it is to get on your path to better profit margins on your parts.

John Heller: And so without further ado, Cecil made this very interesting statement here that many shops are leaving around 40 to 70, 000 per year on the table due to an insufficient part markup practice and or strategy. And so we are pleased to have Cecil join us today and dive into a little bit more of the specifics behind what he's seeing in our industry and some very practical ways that shops can get on their way.

John Heller: To a more profitable parts markup strategy. So Cecil, thank you for joining us today. We really appreciate your time. I'll turn it over to you now, let you introduce yourself and we'll jump into this great topic and the information that you've put together. 

Cecil Bullard: Thank you, John. As John said my name is Cecil Bullard and I am I've been, you name it, I've been a tech and a service advisor, managed shops, owned multiple shops the last shop that I ran.

Cecil Bullard: We had a 62 percent parts margin, a little higher than what we would recommend because our rent was very, very high or our, our building payment about 23, 000 a month. And so we needed the, the, the profits to pay that. I'm gonna try to really kind of sail through here. I do, however like questions.

Cecil Bullard: If you have questions, we're going to try to get some of those answered. I know we can't answer them all in the time we have, and I'm going to get some foundational stuff in. I also, as part of the Institute for Automotive Business Excellence, which is our company we worked with I would say at this point over 3, 000 shops kind of intimately and improved parts margin.

Cecil Bullard: And so what I'm talking, when I'm talking about the numbers, I'm talking about numbers I've been tracking for 20, 25 years. And what my mentors taught me years and years ago and what I'm out teaching the industry and what most of the coaches that I talk to are, are also teaching. So let's, let's go. There is a workbook and there will be a couple of different calculators, including a parts calculator.

Cecil Bullard: That you can download this will come up again for someone who maybe didn't wasn't ready or didn't get prepared, but this way you can download the workbook, which will have the. More description and more information in it. Let's get her done. I make a statement and I think it's a valid statement that parts margin is costing most shops well over 40, 000 a year.

Cecil Bullard: And that's based on us working with different shops when they first come into our company. One of the things we look at is, is parts margin, labor margins, productivity, average repair order. If you are a shop, A small shop today doing about 400, 000 in overall sales. Typically we see especially for general repair 50, 50.

Cecil Bullard: So about half of what you sell is parts and about half of what you sell is labor. Technically, we would tell you that's probably not quite right. You want your labor to be higher than your parts because labor has a higher margins, et cetera. But typically, this is what we see when companies first come to us.

Cecil Bullard: They haven't had coaching or training. So if you are selling you know, 400, 000 in sales in your business, about 200, 000 in parts, and you're off by 15%, which is pretty easy to do it's costing you about 30, 000 a year. If you're selling 800, 000 this would be most shops that we would see with maybe three texts or right around there, maybe four texts, very unproductive, but about 400, 000 in part sales, if you're off by 15%, that's costing you 60, 000 a year.

Cecil Bullard: And if you're over a million, say a million, one you're selling about 550, 000 in parts at 15%. That costing costs you 82, 000 a year. So I think the statement that most shops are losing somewhere between 40 and 70, I think it's a very accurate statement based on what we see in the industry and based on.

Cecil Bullard: New clients coming into us to get coaching and training. Now again, foundationally I'm going to make some statements here and I'm going to try to build a foundation for putting a matrix in place and, and, and improving your parts margin. So I would tell you that the average shop that we look at is somewhere between about 38 percent and 42 percent has a parts margin, and we would like them to be at, at 58 now.

Cecil Bullard: I would also tell you of all the shops that we work with there's always about 10 or 15 percent are that are hitting 58 or higher. But our average in our company is between about 54 and 55 percent for our clients. And so I think that's a, a pretty accurate number based on the number of clients we have in the industry.

Cecil Bullard: Actually if you looked at the clients and the numbers we have, It's, it's, there's more people than your survey the survey that PartsTech did. So I think that number is, is, is a very accurate number. There are three common methodologies for marking up parts that we find. The first methodology is to use manufacturer's list.

Cecil Bullard: And if you are a company that use manufacturer's list, you will end up between about 32 percent and 30%, 38 percent parts margin. And this is, is fairly common. The problem with manufacturer's list is, the manufacturer doesn't know what you need to make. The manufacturer is I used to make a joke when I was training that they put a, they go into a room and blindfold a guy.

Cecil Bullard: There's a bunch of different prices on the walls. They spin him around three times, give him a dart, and he throws the dart, and that's the manufacturer's, you know, suggested list price. That has Never really meant as much as we have put into it in the industry, it really doesn't matter what the manufacturer suggests that you sell the part for it really matters what you need to make in profit in your company.

Cecil Bullard: So that your net profit is right around 20%. And that's the target. The second methodology is to mark everything up 50%. We see this a lot. Oh, if you're using many, as I said, manufacturers list somewhere between 32 and 38%. If you're marking everything up 50%, that will never get you 50 percent because you'll mark up a 4 filter, the 8 all day long, it doesn't bother you.

Cecil Bullard: You think, okay, that's, that that's fair, but when you get a 4, 000 engine. in your shop, you'll never mark it up to 8, 000. I mean, you know, most companies probably get a 4, 000 motor. They might be selling it for five but they're not, you know, and that's not. 50% margin and you can't sell, you can never sell enough filters or whatever else at at 50% and have an engine or a transmission where you made 20%, you can't get to 50%.

Cecil Bullard: So we do see shops a little higher in their overall margins between about 35 and 44% when they're using the. 50 percent methodology. The true and only way to really get your margins is to use a matrix and stick to your matrix. And you know, there are some reasons, you know, there are some parts that we don't put in the matrix.

Cecil Bullard: Obviously tires have their own matrix. Batteries are often not in the matrix. Then on the other side of that, there are some parts that we can because of what they cost us and because of what they might list for, we can actually make more margin than our matrix. So we, we need to be aware of that and we need to pay a attention to that.

Cecil Bullard: Now, if you, if you do have questions we are, someone is monitoring that. John's gonna break in and go, Hey, there's a question. 

John Heller: Yes. 

Cecil Bullard: So, what we find with shops that are following a matrix it's, it's funny to me, we'll have a, a place where we have three or four clients in the general area, and there's a place like that, I have a guy who's a really well known guy, if I mention his name, many of you might know him.

Cecil Bullard: And he's got multiple shops and he always tells me, see, so you can't make where we're at, you can't make 58%. So he shoots for 52 and his business routinely makes 48 to 49. The only problem with that from my point of view is that I have multiple other shops in and around him that are making 58%, 59 percent and even 60 percent part smart.

Cecil Bullard: And so really. What you can mark your parts up for is not necessarily based on what the customer is telling you or, or that feedback that you might be getting. It's, it's mostly in here in your head. And if you don't believe that your clients are willing to pay, they'll never pay. Yes. 

John Heller: We just 

John Heller: had a great question come in, you know, right around that topic here.

John Heller: Someone is asking the question or making the statement perhaps of yes but my customer states that my parts are very expensive. 

Cecil Bullard: Yeah, they are. All parts are expensive. I think, you know, you go to the dentist and they I go to the dentist. I needed a cap. I had to have some work done and the dentist told me what I was going to pay for a cap and I was like, holy crap, that's expensive.

Cecil Bullard: And I even said that to the dentist and. Nobody wakes up in the morning going, Hey, I want to buy brakes and I want to pay a lot for the parts. I think that that is a natural response. Even my shop today calls me and they say, Cecil, you need X, Y, or Z. And you know, it's a couple thousand dollars worth of whatever.

Cecil Bullard: And my first reaction is dang it. That's so expensive. I think you have to be careful of translating that term. That's expensive into, oh my gosh, I got a. Keep my prices down. And there's another thought here. What if you did raise your margin, say, by 10 percent your parts margin? Let's say you're currently at 33 percent and your average repair is, say, 500.

Cecil Bullard: So 25 of that you know, half of it 250 would be parts and 250, say, is, is labor. And if you raise your parts margin by 10% you would have a a 25 increase. So your average repair order wouldn't be 500, it would be 525. And, and what I explained to you, and I, I, Believe me, I've been at the counter.

Cecil Bullard: I currently have, I don't know, hundreds and hundreds of businesses that we work with that, that get it done all day long. That would equate to 525 for your customer. Now tell me what, what decent customer, I mean, not the guy that comes in and always argues with you about price or the guy that you don't really want or need that eats your time up.

Cecil Bullard: But what would a customer that would buy at 500, would they say no at 525? And the answer is no, they would not. I cannot tell you how many times we've been in a seminar and said I've been doing coaching for more than 20 years and every seminar, I'm like, raise your labor rate, every seminar. And all, many of you out there, you're going to say, yeah, yeah, that's what all coaches tell us to do.

Cecil Bullard: Well, you know, it's easy. Number one, number two, we're already. Underpriced as an industry. We have had thousands and thousands, tens of thousands of shops go home and raise their labor rate. Five, ten even. I had one guy raise his labor rate almost 50 an hour. And none of them chased away a bunch of clients.

Cecil Bullard: I mean, most of them will say, I, I, I don't even know who left. And they probably lost a few clients, but those are the bottom, you know, 1 percent or 2%, which are the ones that won't let you make money that eat up your life. You go back to Pareto's Law. So, yeah parts are expensive. Milk's expensive.

Cecil Bullard: Hell, when I go home and I buy a burrito on the way home, I think, God, that was expensive. I mean, I'm, my, my burrito is now 12, 15 bucks. Used to be 6. Of course it's expensive. Everything's expensive. So, I hope I answered that. I'm going to move and keep moving if that's okay. 

John Heller: One more, one more question on this markup.

John Heller: I think this is a really interesting question. We've got someone online who says, I'm buying a shop that currently doesn't have parts markup. What is it or what is a reasonable amount to jump to without freaking out the customer? 

Cecil Bullard: 58%. You put a matrix in place, you're going to do what you got to do.

Cecil Bullard: If you're buying a shop that never marked up a part you may lose some of those clients. You're probably going to lose some of them anyway because they're probably a bunch of people who don't want to pay for automotive repair. You come in, you raise the labor rate a little, you, you're going to lose some of those clients, but the difference that you're going to make in margin will make up for it.

Cecil Bullard: Mathematically I could raise my price by 10 percent and lose 25 percent of my, Customers in most shops and still make more money at the end of the day. I've done the math multiple times. I'm not telling you to do that. Please don't go home and okay. Cecil said, let's raise everything by 10%. But you could, if you, if you ran the math, you would have to lose more than 25 percent of your clients in most shops in order not to make more money by raising your price by 10%.

Cecil Bullard: And by the way, in most shops today, if you raise your price by 10% 95 percent of your clients wouldn't even know it, feel it, touch it, think about it. It would only be those people that are focused on price and it would also depend on your customer base. Here we go. Cecil's ADHD kicking in. If you built your business on discounts and, and more cheap customers, it will definitely affect you more if you built your business on relationships any kind of price increase or anything, it's going to almost not affect you at all. 

And there are plenty of relationship clients out there. I would say that more than 80 percent of the population would like to have a relationship as opposed to have a cheap price on, on their automotive service and repair. Absolutely. All right. Next what's the easiest thing to fix? Often when we you know, we get different kinds of clients that come to us, but we have a lot of clients that come to us that are losing money.

Cecil Bullard: You know, I can, Point to several guy came in, they lost 80, 000 the previous year. Been in business for 15, 16 years was getting worried. Felt like, Hey, I got it. I need a coaching company to help me. We turned that around right away. One of the things we did, of course, raise the labor rate a little bit.

Cecil Bullard: We also put a parts matrix in place, and then we monitored and managed that. And I think last year he came to me about four years in and he said, Hey, Cecil, I, we're going to make a little over a million dollars this year. And I need to know if you have a money manager I can work with. When you get up in those, that range, your typical accountant is not going to be able to take care of your business.

Cecil Bullard: And that's, Not the typical case. The typical case is, you know, we lost 80, 000 and next year we're going to make 120 and it's really is three or four things part smart and simplest thing to fix. So, you have to decide, though. You know what you want your margin to be and for me, there's a whole nother class on, you know, I want to determine that I want 20 percent net out of my business.

Cecil Bullard: That's fair. I don't get to keep all 20%. A third of that will go to the government. I get to pay. Uncle Biden and a third of it will go to the state of Utah. Cause that's where I live. You know, part of that third will go to the state of Utah. Whoever my uncle or aunt is here. I get to put a third back into my business.

Cecil Bullard: The, the the parking lot needs to be resurfaced refinished. The roof might need repair. I might need equipment, et cetera. And then I get to keep a third. So in a way, if I earn 20%, it's like me making 8 percent on an investment that I might put my money into. So to me, that's fair. You have to determine what's fair for you.

Cecil Bullard: If you need help with that, love to, love to talk to you. And help you understand what's, what's fair and what it ought to be. You put a parts matrix in place. We're going to give you an example of one that is I wouldn't call it super aggressive, but it's relatively aggressive. It's not mild, but it will get you to 58.

Cecil Bullard: If you're a typical shop, we'll talk about some of the reasons why we might not get there. As we go. But really, you need to remove your emotions out of this. I mean, nobody wants to buy automotive repair. Frankly, I don't want to go buy groceries. I like to eat, but I hate paying for groceries. I don't want to go to the dentist, but I go to the dentist.

Cecil Bullard: I don't want to go to the doctor, but I go to the doctor. I don't like the price of gas, but I'm gonna go fill up my truck on the way home today. And I'm going to pay it and I'm going to say, wow, that's a lot of money. Actually last time I was at the gas tank, I said, thank you, uncle Biden for these wonderful gas prices.

Cecil Bullard: And we need to get rid of all our emotional attachment. The fact is I didn't, I didn't build the car. I didn't buy the car. I didn't get the value of driving the car. I didn't break the car. It ain't my car. And there are too many shop owners, too many service advisors that are really afraid of the client.

Cecil Bullard: They're afraid the client won't love us. They're afraid the client won't like us. We need to learn sales skills, tactics unique selling proposition. How do I build value around my. My parts and my labor and how do I help the customer understand that while it is expensive, it is the right thing to do in the right way to do it.

Cecil Bullard: And we have a, holy smokes, I'm putting together a big class for SDX WorldPAC's big event. Can't wait. So also I need to understand the difference between markup and margin. If you've confused those two things, it's probably costing you that 40, 000 markup is the multiplier that we use. So I might buy a dollar part, sell it.

Cecil Bullard: Multiply it times four and sell it for four dollars. And margin is the difference between what I bought it for, the dollar and the four dollars. That's that three bucks that I made. That's margin. We're going to do a little math a little later. I want to get to the matrix, but I also want you to understand that when I'm Planning my business, I'm, I'm literally saying to myself, I want to have a certain amount of my money go to parts expense and labor expense.

Cecil Bullard: It's not really a budget, but by doing that, I get margin. So, this is a shop with three techs. They're effective labor. It's about 120. If they're three techs do 1, 960 hours, which they have the capacity to do 2, 080, if they work every week, but they won't they will do 1. 24 million in business with that effective labor rate.

Cecil Bullard: Now in this shop two things happen. They, they focus on their productivity. So they're. Well, three, they make sure their techs are 100 percent productive. That's another class. They price themselves with their labor correctly, and then they religiously follow a parts matrix. And I say religiously, because that's almost what you have to do.

Cecil Bullard: You know, when you have someone that's religious, you have someone that will come to you and, and even though you might be one religion and they're another, they're gonna tell you, you need to change, you need to come here. You need to be kind of have a religious, we're gonna follow our matrix, and you need to manage that.

Cecil Bullard: So, of my total sales, I want my parts expense to be about 18 percent. For rounding math off, making it easier for Cecil, if I did a million in sales, I would have 180, 000 to pay my You know, the people I buy parts from WorldPAC, Napa, you know, CarQuest whatever, wherever I buy my parts. And it, the way I make my margin is by only paying 18%.

Cecil Bullard: And I don't do that by telling the vendor, I only have X to pay for that part. I do that by marking the part up properly and following a matrix. If I follow a matrix and I earn a 58 percent margin. Then what's gonna happen is I'm gonna end up with 18 percent of my money going out for parts that year.

Cecil Bullard: Labor loaded, that's that little L, would cost me about 20%, so in this business I would have about 248, 000 to pay my technicians. Loaded is FICA, FUTA, workers comp, everything. And my margin on that would be about 64%, and that would give me a cost of goods. What does it take for me to produce one hour of parts and labor of about 38 percent and a gross profit of 62?

Cecil Bullard: So that's money left now to pay. Me, that's where my salary comes from in fixed expenses. Money left to pay the banking costs and the rent and the insurance and, you know, the truck and the gas and, and et cetera, the utilities. And, and for training 12 categories. But for training here, to keep it simple and to do it fairly quickly.

Cecil Bullard: We're gonna break it into three categories. One is sales. So whoever's selling my product we're gonna pay about 8 to 10%. That's also a loaded expense. So it includes FICA and FUTA, workers comp vacation days, holidays, PTO medical, dental, 401k, whatever I'm paying that either the tech in the labor expense or the salesperson in the sales expense.

Cecil Bullard: So here I would have 124, 000 to pay a salesperson or, or one and a half or one in an assistant. Then I would have a marketing expense somewhere between 6 percent and 9 percent depending on am I growing my company or not? And then last but not least, I would have my fixed expenses which again is my rent and utilities and my salary.

Cecil Bullard: Anyone supportive, the guy that cleans the floors or the gal that does the bookkeeping is in the fixed expense, or the guy that does the bookkeeping and the gal that cleans the floors. And that would leave me a net profit of between 20 and 24%. Now, the 24 percent happens when your business exceeds, this business exceeds 1.

Cecil Bullard: 24 million. So if this business were more than 100 percent productive and those techs actually were able to, you know, bill out 1. 4 million, then we might have 24 percent and we might pay those techs. We'd have more money to pay the techs because we'd have more profit. Now John, I cannot see the clock right now.

Cecil Bullard: So you got to tell me where we're going. 

John Heller: I have one interesting question as we're talking about this here from an individual. If a matrix raises your part price above list cost, do you leave it or adjust it down to list? 

Cecil Bullard: The answer is yes. You leave it.

Cecil Bullard: It doesn't matter. I still have to make the money I need to make. We have a lot of people that say, well, I can't like dealer prices. I got news for you. I've been in the business a little over 40 years. We've been competing with outside parts sources for 40 years. As long as I've been in the business, you know, I can go buy it at, at the parts house down the street for cheaper than you can sell it to me.

Cecil Bullard: The answer is yes. I can buy it online for cheaper than you can sell it to me. The answer is yes. I can go down the dealership myself and buy that part for less than you're going to sell it to me. The answer is yes. But what does that part come with, right? The part that comes from me guarantees it's going to fit.

Cecil Bullard: Guarantees that it's going to last. So we have a warranty. I guarantee that it's going to take care of your problem. You get great customer service. You don't have to spend your time going down and trying to get the right part. If I, if that part goes on your car And it doesn't work. If there's a problem with it, I'm going to take care of it because I have that great warranty.

Cecil Bullard: There are a lot of reasons and things that people don't consider at the dealership, most dealerships today. If you go in and buy the part in the parts house, you're going to pay less for it than if you buy it in the service department, because again, in the service department, that part comes with more.

Cecil Bullard: We also have people that are letting their customers bring their parts. There's many reasons not to do that. The, the, the, the, the biggest one is probably I don't make my margin and I go out of business. The, the second one where I starve and I keep working and I work myself to death. The second one is that if my insurance finds out that I'm creating additional liability for them, they may cancel me.

Cecil Bullard: You know, and the third is, you know, by law in, in every state, frankly, federal law whatever warranty I give, I can't not give that warranty to the person. I'm seen as the professional in the courts. So a judge will say, well, you were the professional. Why did you put that part on? You should have known it wouldn't be a good part.

Cecil Bullard: So there's lots of reasons. 

John Heller: And I'm glad. 

John Heller: I'm glad you touched on that because there's actually several questions in the chat around, you know, the demographic of this day is an online demographic. They're out there shopping parts on their own and how do we combat that? And I think the advice you just gave, you know, really speaks to that, that mentality.

Cecil Bullard: I think sales training would really help here because you have to understand what your unique selling proposition. Why can I sell that part for more? And by the way. Almost every shop that we work with, and I don't say almost because I don't know everyone, like, I, all the numbers personally, I couldn't bring them all to mind.

Cecil Bullard: Almost every shop that we work with sells their parts in general, often for more than a dealer would sell them. I, I think sometimes, We might look at that and go, wow, that's ridiculous and bring it down. But there's a whole pricing scheme that we'll get to probably in part two about how to handle that and how to still hold your margin.

Cecil Bullard: When occasionally I'm going to sell something for lower than I probably should sell it for. I'm going to, I'm going to move forward quickly here. This is a company with four techs. That doesn't follow a parts matrix. So, they're going to do 1. 2, 4 million, the same as three texts are not productive. And so what's going to happen here is my percentage of cost of sales.

Cecil Bullard: Cause I'm not following a matrix are going to go up. So instead of paying 18 percent for my parts, I'm going to pay 26 and have a 42 percent margin instead of paying my texts, you know, 20 percent out for my texts, I'm going to pay 25. Because they're not productive. So my, my cost of labor goes up in every shop that is not a flat rate.

Cecil Bullard: And I don't, we, that's another class, another discussion. I want to get into it. I'm not a favorite in favor of flat rate. Frankly, we build other type pay plans today. But if you do this and you're not following a matrix or you're too emotional and your people aren't productive, which is the average shop, 72 percent productivity in the average shop, then your cost of goods is 51 percent of instead of 38 and your gross profit is 49.

Cecil Bullard: This is more typical. Right? And this is what we see with shops coming in that have never had education classes. They don't know how to do this, right? And so we help them fix that because my sales expense then goes up because when I have more cars here and more techs, one service advisor cannot handle that.

Cecil Bullard: So I have to hire another person, buy another computer, have another kiosk, you know, have more parking, you know, blah, blah, blah. Everything goes up because of that. My marketing actually goes down because I don't have any money in the bank. So I cut my marketing when I really need that to kind of build my business and keep it consistent.

Cecil Bullard: And then my fixed expenses go up also because when I have more people, I need more stuff. Right. And so now. I have a 3 percent net now, five years ago, the average net profit in the industry was 3 percent today. It's about four. It's just a little above four. When it should be 20 percent and I, and I just want to make sure that everybody understands this is not a problem of cost.

Cecil Bullard: Most shops do really well with what their costs are. This is a problem of margin. It all happened above the line between parts and labor. And, and if parts is half of what I sell or 45 percent of what I sell, and I give away 15 percent because I don't know how to not do that. It could cost me 000 for a small shop.

Cecil Bullard: You know, 40, 000, a lot of money. It can make a big difference. Now this is the matrix that we use for most of our shops. And this is the matrix. I think, John, that we've worked with you guys on and there are different matrices. I have a different matrix for say diesel. And, and as you can see, I have a different matrix for dealership parts.

Cecil Bullard: So, with my parts, I buy oops. Backup Cecil. I keep I hit the wrong buttons. With, with my parts, like I buy from WorldPak or Napper, whomever if I buy a 2 part, I sell it for eight. That's a 70 of four times or 400 percent multiplier. Markup and a 75 percent profit margin. And what I really want to do kind of, if I could, is look at the average cost of the average part.

Cecil Bullard: And if you were to look at that, it's probably today in a shop, it used to be 26 bucks today, it's probably around 50, 55. And so you notice that the 50 to 100 is a 60 percent margin because if you have some parts lower and some parts higher cost and lower margin, what, where's the balance? And if we want 58%, we have to make adjustments kind of to our matrix dealer parts.

Cecil Bullard: Matrix is it's a little it, it goes down a little faster. And it goes down a little further if you're buying about 20 percent of your parts from a dealership or less and you're buying, you know, 80 percent from other sources which we call jobbers mostly this matrix will get you if you follow it.

Cecil Bullard: 95, 97 percent of the time, this matrix will get you 58 percent in your business. And then, you know, I think we're getting close to the time I'm looking at my watch. So I'm gonna, I'm gonna let you, John take over from this point. Hang on. I'm going to go one more. If you didn't get the matrix, if you didn't get the workbook you can do that.

Cecil Bullard: John, I'm gonna let you ask a couple more questions, and I think we're gonna stay a little longer after you're done for a minute, and then we're gonna answer some more questions if we need to. And then there's a great part two. Believe me, we haven't even, we haven't even scratched the surface here yet, so you want to be at part two also.

John Heller: Absolutely. Absolutely. Cecil and I know, you know, we've looked over the material. This is just scratching the surface. I think of, of what's available here to, to really help shops take a hold of an effective. Markup strategy. So I'm excited about this. I think we've got to continue the conversation with you let's get something on the books here and keep this conversation going 

Cecil Bullard: We will and we'll i'm sure you guys will have an announcement here in the next couple weeks for part two and we'll also run that through our people and everyone that is here and signed up We'll make sure they get that announcement you want me to hand this back over?

Cecil Bullard: There you go. You took it There you go. 

John Heller: All right. So, yes, do thank you all. I'm going to just close out here a little bit with parts tech and then I want to be respectful of everyone's time. We did say this was a 30 minute webinar. Obviously so much information to pack into it. We are going to stay online for a little while longer after I wrap up here.

John Heller: And do a live Q and a with Cecil. I know there's a lot of great questions in the, in the Q and a session here that I'd like to address. So quickly, I just wanted to show you a little bit about parts tech. As I mentioned at the beginning, parts tech brings together all of your part and tire suppliers into one screen and enables you to find parts quickly.

John Heller: across all of your suppliers. So as you see here, pulling in a disc, if you're going to go out and search for a brake pad set, you can quickly pull up all of your pricing and availability across multiple suppliers. In one screen. Now, some of the things that Cecil hit on around a parts matrix. We do provide that capability within parts tech for you to be able to come in in our plus package and be able to set some of these matrices.

John Heller: And of course, we've worked with Cecil to develop some best practices around what those figures are as a good starting point for your shop. And then how that really looks in your cart. Once you've run a search here is that as you are. Oops. Came out on me. Pardon. 

Cecil Bullard: I hate it when 

Cecil Bullard: that happens. 

John Heller: I know it.

John Heller: All right. Quickly got back in it and we'll pull up our vehicle and yes,

John Heller: all right, sorry, had this system kick me out. All right. So as you're building that cart in there, you'll be able to easily see down here at the bottom. Once you've got that parts matrix set up a live gross profit view of your cart. So this really gives you sort of that real time data of how you're tracking in this quote that you're putting together for a customer.

Cecil Bullard: John, I have to say something here because I'm looking at over here on the right here and it says my cost. It looks like my cost was 35 and the list price on this is 45. So I'm making basically 25 percent here. That's actually less than 25%. You make 25 percent profit on your parts. You're not going to be able to pay your bills.

Cecil Bullard: You're going to be hungry. So that's one of those examples of look and the funny piece too, there, it just got to. Sorry. You know, in the marketplace, I've got shops selling brake pads at 125. I've got other shops selling them at 50. If you know how to talk to your customer, build value, you can get this done and you can make a decent living.

Cecil Bullard: Sorry. Go ahead, John. 

John Heller: No, that's great. All right. So just to wrap up here, we'll pop back in here, start this back up. As we mentioned we're gonna continue this conversation with Cecil. We wanna thank you for your time. I think there's been a lot of valuable information that's been presented here.

John Heller: Got a couple of QR codes up on the screen to find out some more information. We didn't have a chance to share it, but the team here at PartsTech in, in coordination and partnership with the Institute have put together a web page, kind of walking through some of this helpful information. CECL's got some information for you to download as well, and so hopefully you'll find this very helpful for your shop.

John Heller: And, and if, if you found value here we do a complimentary evaluation and I promise you, we won't pound you and pound you, but we'll be happy to do a contra, contra, contra, complimentary evaluation of your business and your finances and tell you where you can improve. 

John Heller: All right. Thank you. All right.

John Heller: For those who are willing to stay on, I know we've still got a lot still here in attendance. So, and a lot of great questions in the Q& A. We'll get to some as much as we can, maybe here over the next 5 to 10 minutes or according to people staying on. Cecil, question here. Do you feel it's more important or profitable to increase your labor rate or do the parts markup?

Cecil Bullard: I think you got to do both. Frankly. We've had lots of shops do both at the same time. No problem. Labor is going to have a higher margin probably, but if you're giving away 40, 000 in parts, why would I let that go? I mean, I might be giving away 40, 000 in labor too. That's 80, 000. You know, if you want to do one before the other parts matrix is really simplest because labor productivity also is an issue.

Cecil Bullard: So just raising your price may not get you where you want. You have to deal with the systems processes for productivity in your business also. 

John Heller: Here's another interesting one. I have a parts matrix, but what is hurting the overall markup is oil changes. We do a lot of oil changes and do thorough inspections and get upsells, but we keep our oil change prices steady.

John Heller: So our markup is low. What would you recommend? 

Cecil Bullard: So we're going to, we're going to talk about this in, in part two, but I'll, I'll, I'll answer it briefly here. If you go to Walmart and buy products from Walmart, they know what you're going to buy. They know you're going to buy three products. They know what the pricing, what it's going to cost you when you walk out, and they know what their margins are going to be.

Cecil Bullard: You're going to buy a discounted item, most likely, and then you're going to buy two higher priced items, like you might walk out with a soda. That cost you 2. 90 or 2. 50 that you could have bought at the grocery store for 0. 50 if you bought it in the giant pack. And so it's really about balance. If you're going to do something that is less expensive, like an inexpensive oil change first of all, you could change the name of that.

Cecil Bullard: You could present it a little differently as an oil service or a minor service. You can, you can up the pricing a little bit which will get you some margin. And then secondly, On the other items in your business, the other parts of things, you have to move the margins up a little bit because like if, let's say I'm selling, I don't know, 5, 000 different things in a month and I don't know, 300 of those are cheap or inexpensive oil changes and I'm not making much margin on those, well I have 4, 700 other items that if I just raise the price by one or two percent, I That would balance that out and still get me the overall margin.

Cecil Bullard: So if you're doing this right, you're actually looking at your overall margin at the end of the day, end of the month, probably at least quarterly, and you're making adjustments to your matrix. And if you have, if you've decided, Hey, I want to be very cost effective on say 10 things. Because the market, because I think the marketplace, that's really important.

Cecil Bullard: That's fine. Be cost effective on those, but raise your margin on the other items. That's the part that gets missed by small companies. It doesn't get missed by big corporations, because if they don't make margin, then they're out of business. That's what I would, I would tell you. Plus, I'd go in and look at your oil change.

Cecil Bullard: Average oil change even at some of the least expensive places here in my town, is probably about 89. And nobody's doing the, you know, 39, 29, 49 oil change anymore. So you might be able to move the oil change price up by 10 or 15, and mark up some of your other items a little bit. And then all of a sudden you've moved your parts margin by 10 percent overall and made yourself an extra 

Cecil Bullard: 30, 000 this year. 

John Heller: Absolutely. We've got several questions. I'll try to kind of summarize into one a lot of interest in understanding what your response would be around. How do you handle the difference between aftermarket parts and dealers? So question, are you using the same matrix for aftermarket parts as you would with dealers or a less aggressive part?

Cecil Bullard: I have two different matrices that you saw in the workbook and you'll see with parts tech online and that if you download our stuff, you'll, you'll get our dealer matrix in my shops was a little different where at the bottom end, very small price parts. We had really high margin. But we had less margin on some of the higher price stuff.

Cecil Bullard: And again, you have to balance it because if you're buying 30 or 40 percent of your parts from a dealer and you do that, then you're not going to have the margins you need. So you have to pay attention to that. So yes. Most of the shops that we work with probably use three or four different matrices or matrices.

Cecil Bullard: But I do have shops really, frankly, that use one matrix and they do it for all their parts and they do just fine. They're not, they don't struggle, they don't lose a bunch of jobs because of it. So you can, you can do either one. But most shops today probably have two or three or maybe four matrixes.

Cecil Bullard: Obviously we have a different one for tires. 

John Heller: Okay. Yeah. And that's a, that's a great clarification to make. One thing I'm looking through, a lot of the questions are asking, you know, does your gross profit recommendations include tires or do you do it differently there? 

Cecil Bullard: I've worked with a lot of different tire stores over the years, and it's funny one of the more local guys, three, three tire stores we started the tire margins about 23%.

Cecil Bullard: We, we wanted to have 40, frankly, and all of his people told me I was nuts at the end of a year. We were actually at 38%. And we didn't lose a bunch of clients. So we were able to, There's, there's ways to do that around tires. Most of the shops that I'm dealing with are probably looking for a 35 to 40 percent margin on tires.

Cecil Bullard: If you're an automotive shop and you're not a tire store, the customers buying tires from you mainly as a convenience, they're there. They need tires. They know they're going to pay a little more from you. You can be a little more than the discount tire guy down the street. If you are a tire store, there are other methodologies that we can move margins up by 10, 12 you know, percent on tires.

Cecil Bullard: That have been very successful. So yes tires have a different matrix, but at the end, depending on again, if I'm a tire store where I'm selling 50, 60, 70 percent tires, then I'm never going to have a 58 percent margin. If I'm only selling 10 percent tires or, or 15 percent tires, then I want you to have a 58 percent gross margin.

Cecil Bullard: And I still want either way. I want you to have a 20 percent net. 

John Heller: Great. Well, I think we've got time for one more question. I apologize to everyone. There were so many great questions in here. We could literally price spend the next hour answering, but we are going to be back with a part two where we hope to answer more of these questions and also do another Q and a last question here.

John Heller: Cecil, how do you know if your market can handle it? Can you price yourself out of business? 

Cecil Bullard: I've never in my entire life price anyone out of business. I've never seen it. When I ran my last shop, we were in a fairly wealthy area, but we were 58 higher in labor rate than any other shop in town, and we were the busiest shop of all the shops I work with.

Cecil Bullard: And that I've had experience with the shops that have higher labor rates and fall in, in higher parts margins. actually have a better, steadier, more profitable business. I had a guy we went in and raised put a matrix in place and we actually raised the labor rate about 8 six months of really great progress.

Cecil Bullard: Then all of a sudden it's, it's, it's February and he's like, Oh my God, everybody realized that I raised my prices. And and I want to lower my prices. And I said, look, dude, just bear with it. It's February. And and all of a sudden he just raised his labor at another 15. If your customer is leaving you, they're not leaving you based on the fact that you're 5 more than somebody else on a part, they're leaving you because you didn't build the value for them, where they believe that they're getting what they need from you.

Cecil Bullard: We have a a really inexpensive grocery store in town. Din, din, din a can, you do all your own stuff. We have another grocery store that's a mid range. And we have a very expensive grocery store in town. Guess which one's the busiest grocery store? Now, they all make money. And you could do the same thing for, for, for, if I'm gonna go have a steak.

Cecil Bullard: Or I'm gonna go have a hamburger. You know, you can get a cheap hamburger. You know where that's at. And you can get an expensive hamburger and you know, they're different. If your customer is leaving you based on price. It isn't about price. Look at your service. Look at at how your shop looks. Oh my gosh, you need sales training.

Cecil Bullard: You need they're not leaving you based on price. So no, we have never priced a shop at a business in any area ever. And, and I'm also just on this point, someday I'm going to write a book and it's going to the title is Cecil, You Don't Understand because I have been in almost every city in the United States, I swear to you and everywhere I go, someone says, well, you don't understand my market or, you know, my clients are different than other clients.

Cecil Bullard: No, they're not they want value. They want to understand what you do for them. They want a relationship. They want to know that that That when you do that job, it's going to be done correctly. They want to have a good experience. If you look at all surveys, convenience and trust are at the top of the survey prices at the bottom.

Cecil Bullard: So if that's where most people go, and I would tell you 90%, that's where they go. There's plenty of people for me to make a good living on that want what I have, which is again, we're not the cheapest coaching company. We just happen to be the best. So, we deliver the best results. We have the best customers, blah, blah, blah, blah, blah.

Cecil Bullard: Right. So I, again, man, ah, I could go on for an hour on that. I'm that's all you get John . 

John Heller: We'll continue this conversation. Cecil, it has been fantastic to have you join us. Today for this conversation, such great knowledge, great input and help for shops. Hopefully you all have found this helpful again.

John Heller: I apologize. We didn't get to all the questions, but please come back for more in part two. And we'll dive into more of the specifics of the calculator, looking at some of these different strategies, as well as, you know, what are some simple steps you can start taking to really make some progress in this area.

Cecil Bullard: I promise you we'll get all, we'll get to all that in part two. So be there. 

John Heller: That's right. Again, we've got the info up on the screen. We will send this recording out. Even if you missed this webinar and you registered, we will send this out. Again, If you're looking for a better way to order your parts, parts tech is your solution.

John Heller: We put all your suppliers on one screen. Cecil and the Institute have put together some fabulous materials and they have coaches standing by ready to help you improve the profitability of your shop. As well. Thank you all appreciate your time. Have a great rest of your day. Thank you.