Courtesy Subaru

Making the Most of the ‘Parts’ Portion of Your Business

Parts consistently make up 40% of total repair order dollars, so it’s well worth it for shop owners to pay careful attention to the role parts play within their business.

This month, I wanted to share the first of two columns outlaying some best practices related to parts I think could improve your shop’s operations and bottom line. Best Practice: Make sure you’re accurately tracking your parts profitability.

As almost anyone who has attended one of my classes knows, I’m a big proponent of the value of detailed and dead-on accurate accounting practices and profit and loss statements. That’ s where good P&L account and sub-account categories are needed. come, for example. “Labor” is one account; the sub-accounts include “body labor,” “paint labor,” “frame labor,” “mechanical labor,” etc.

When it comes to your parts account, I believe you need sub-accounts for OEM parts, aftermarket or non-OEM parts—which may also include accessories—and salvage or recycled parts. Some people break out remanufactured parts.

But one often missed sub-account is “stock parts.” Stock parts include things like seam sealer, double-sided tape, weld-through primer and cavity wax. These are not paint materials. They are parts you put on the vehicle.

The old adage of “junk in, junk out” applies in terms of entering parts on estimates and in your shop man

You shouldn’t just track labor in

A “Who Pays for What?” survey last year found that 3 in 10 shops bill the insurer for added labor or materials when a non-OEM part turns out to be unsable

agement and accounting systems. Y ou might list seam sealer as an aftermarket part on your estimate because there’ s not a “stock part” option in that system. But when you transfer that estimate into your management and accounting systems, you need to make sure the systems are mapped properly to reclassify that item into the proper sub-account.

One of the other common accounting mistakes I see centers around parts price-matching, when you choose to use an OEM part in place of an aftermarket part, for example. When that happens, it’s important that whoever inputs your parts invoices understands how to properly change that to an OEM part within your management and accounting systems.

If that doesn’t happen, the accounting system will presume you sold an aftermarket part, but the cost for that part goes into the OEM sub-account. That results in an overstatement of your profit on aftermarket parts, and understates your profit on OEM parts.

Best Practice: Know your gross profit

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