Have you decided to take the leap and set up your own auto repair shop? Then, congratulations! You’ve taken the first step toward turning your dreams into reality. But before you jump ship, you need to know if investing in an auto repair business is even profitable, right?
The auto repair industry has been growing, and repair services are always in demand. But that alone doesn’t guarantee that your shop will be a success. In fact, with so many auto repair shops around each state, it can become hard to make your own mark.
The real question is, how profitable are auto repair shops? Are they worth investing your lifelong savings in? Stay with us because this guide will tell you everything you need.
Is It Worth Opening An Auto Repair Shop?
Let’s start by addressing the elephant in the room; is it worth setting up an auto repair shop? Well, there is no easy answer to that; it depends on your goals.
That said, some statistics and reasons tilt the scales in favor of running your auto repair shop. You can find them below:
The Industry Has Promising Statistics
Consider the following facts about the most recent vehicle maintenance trends:
- In the United States, in 2022, there will be an estimated 76 million automobiles aged 16 and up.
- By 2022, 18% of American families will utilize an auto repair service at least once a year.
- The number of 12-year-old and older automobiles on the road is expected to rise by 15%.
- The average length of time that drivers own their cars has climbed by 60% in the last decade.
As you can see, the need for vehicle repairs is set to rise as people prefer to continue with their trusted old automobiles rather than upgrade to a shinier new ride. This means there is potential for setting up your auto repair business, and you can expect to earn a hefty profit margin too.
It Gives You Freedom and Control
Like other business owners, auto repair shop owners have considerable freedom and control over their life and work. You’ll have the ultimate say over the where, how, and “whos” of your firm and a lot of flexibility over your time after the startup burden calms down.
You’ll Get Financial Perks
Setting up a car repair shop also has financial perks, provided that you implement strategies to boost your shop’s profit margins. And if done correctly, you’ll be able to make a good living doing something you’re enthusiastic about. This is a luxury that most individuals do not have, and it is one of the biggest benefits of taking the risk of starting your own business.
How Much Does an Auto Repair Shop Owner Make?
It’s very evident that the quick answer is “it depends.” The first factor to consider that will affect your earnings is the location of your business and the customer you intend to attract. Then you have to consider how many individuals you’re serving and the most frequent jobs in that market.
The profit margins of auto repair shops vary greatly with the location because that impacts labor costs and expected revenue figures.
But, this does not provide a clear response to the question; therefore, let’s look at some statistics:
- The average yearly pay for auto repair shop owners in the United States is $53k.
- This average is within a range that includes a low of $19k and a high of $118.
- Atkinson, NE, has the highest yearly average pay of $65k regarding location.
- A Master Auto Mechanic might earn roughly $83k per year.
So it comes down to whether you’re in the right position with the correct qualifications. You may start your company as a master technician, but chances are you’ll have to accept a cut until the business becomes viable.
Yet, if businesses are paying up to $83k for their top personnel, it’s safe to conclude the owners are making more than this.
Salaries, however, are only one component of the issue. Yours will be calculated from your income, less the money you put back into your firm, so if you’re considering future growth, for example, it’s well worth examining the business’s profitability as a whole.
How To Boost The Profitability of Auto Repair Shops?
If you want to boost the profit margin of your auto repair shop, you can do so by deploying tactful strategies. By controlling your expenses and boosting your revenue, you can easily increase auto repair shop profit.
Now that we’ve already answered how profitable are auto repair shops let’s look at ways you can increase the profit margin for your auto repair shop.
Labor is your most significant asset in vehicle repair. The margins on goods are shrinking and tend to settle at approximately 20-30%. This can be a concern because the parts-to-labor ratio has moved dramatically.
While labor was once more frequent than parts, the ratio is now nearly equal, meaning half of your revenues will come from selling pricey parts for a little margin.
Yet, labor still has a healthy profit margin of about 50%, which indicates that you may average around 38% margin based on these figures.
As a result, profitability is no longer what it once was. This is cause for concern, but it is not the whole picture. The industry’s average figure offers opportunities for development, and as a result, there are strategies to increase revenue for an auto repair shop.
Consider these four fundamental variables that characterize profitability before delving into the solutions.
The precision of your data:
This concerns how well you contact your target audience and convert prospects. The precision of your market research will deliver you the most high-value leads and prospects, and understanding what they want will help you convert them. This decides a big amount of your company’s profitability.
Usually, auto repair shops and local businesses invest in a customer management system to help them maintain customer data. Once they have accurate data, they can make appropriate decisions encouraging repeat business and turning prospects into loyal customers.
Your file and projection arrangement:
Maintaining proper records will enable you to make accurate assessments of your condition. The better organized it is, the more powerful the data, which in turn will expose areas where you’re wasting money or not spending enough fast and correctly.
For example, you need to track your labor costs and rent or mortgage payments (if you rented out the space for your auto repair shop) and ensure it is within your budget. To do this, you need to maintain all the relevant files and projections, ideally in both soft and hard copies.
The effectiveness of your physical space and processes:
These data will allow you to identify bottlenecks and inefficiencies in your processes and work toward streamlining them.
The quality of your employees:
This is a big determinant in the profitability of a car repair shop and necessitates solid management skills. Your employees, including auto mechanics, will drive the quality of your services just as much as you will and represent your brand to clients.
Hence, finding, training, and retaining the appropriate people is important to becoming profitable.
So, how much does an auto body shop earn annually? With the average revenue for auto repair firms around $100,000, there’s certainly some possibility for growth, depending on your situation.
With that in mind, let’s look at some of the things you can do to make them work for you and enhance your profit margins.
Market research: Improved market research should be part of your business plan and include in-depth data collection about your ideal customer and their preferences. Your market research will provide the information you need to stop spending money on customer acquisition and learn how to retain new customers.
You will be able to build your marketing outreach and learn how to offer value for your customers and keep them coming back based on these statistics. This will help you build a loyal customer base, and you can even charge more for an average repair order if you offer value.
Create accurate financial estimates: It’s not a good idea to guess anything financial, but you have to for projections. But, the more precise your assumptions and understanding of the future, the more dependable these forecasts will be.
Improve your physical space use: Using simple space management fundamentals, you can save time and money on redundancies such as equipment searches and garbage management in your auto shop. Making your area more efficient may just save you a few minutes a day, but shared across all personnel and stretched out across the year, they build up.
Reduce Waste – A busy business owner typically lacks time to pay attention to some of the excess trash and inventory that builds up. However, devoting a little time to addressing these can drastically save costs. Inventory can be automated to cut down on over-stocking and ensure replacements are ordered in time for auto repair shops. This is also important to boost your profit margin.
Pay for talent: Talent acquisition is a huge cost to every auto repair shop. Getting quality help that doesn’t require micromanagement is challenging in any organization. The last thing you want to do is spend all that time looking for them only to have them quit because they’re not appropriately compensated. Offer competitive rates to auto mechanics compared to other auto repair shops and make the work fascinating and engaging, and you’ll keep your team and save on rehiring.
Concentrate on fixed overheads: If you can identify where utilities are being wasted or if you’re paying rent on space you’re not using, try cutting these to offer an immediately projectable drop in overheads. Concentrating on what you spend every month allows you to locate better supplier bargains and more efficient methods and eventually improve the quality of your work.
Find the right customers – You should put a lot of energy into holding onto your clients and delivering outstanding customer care to have them suggest people to you. This immediately saves on acquisition expenditures and will bring in more sales too. High-value clients should be given priority service, striving to discover and categorize them.
Have a good business plan – Your business plan should be more than just a collection of ideas and visions for your firm’s future. If you haven’t already put the work into creating a thorough and accurate record, now’s the time to do it. Make sure you also add an effective marketing strategy to your business plan.
