Modern Tire Dealer

JAN 2019

Magazine for the professional tire industry

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Page 57 of 85

B u s i n e s s I n s i g h t M T D J a n u a r y 2 0 1 9 56 Radial Agriculture Tires Tel: +1 737 231 0670 which has struggled with financial viability since inception, to just pick a price out of thin air based on gut feeling. For sure, a shop in New York City commands a higher rate than one in Norman, Okla. I would not call someone across the country and ask what their labor rate is. Why? Because our costs are different. eir rent is higher. My electricity is lower. We pay different amounts for various services, and we pay our staff differently. I set my labor rate based on what the business needs to create to remain viable. It's relative. But that's the beauty of percentages. We can have the Norman, Okla., labor rate at $100/hr. while the shop in NYC is set at $170. In the Oklahoma store the top tech is making $23/hr. while in New York it's $36 (maybe even higher depending on which borough). Rent is cheaper in Oklahoma, fuel is cheaper… on and on. at's why I don't' compare dollars. It's precisely why I compare percentages, so I can see those businesses on a comparative level. For a true understanding of what it takes to run a small business and charge the "right" prices, let's take a deep look into how the 60% gross profit metric is created, and then let's address why striving to get there is so important. Sixty percent gross profit is driven by much more than labor rates and parts matrixes. Specifically, let's start with what's called "mix of business." Your mix of busi- ness is the recipe of ingredients that makes your gross profit what it is. A shop, to even consider a target of 60% gross profit, must start with equal dollars in tire sales, labor sales and parts sales. Dollar for dollar for dollar. To simplify, let's just state a third of sales in tires, a third of sales in labor, and a third of sales in parts. Sure, there will always be miscellaneous items, but to keep the article short, let's assume 33% in each category. As an example, let's say a shop is 50% tire sales, 25% in labor and 25% in parts. Well, if half of your sales are in tires, and tire sales generally account for 20%-25% in gross profit, you will not be able to achieve 60% gross profit. Tire sales margins are too low, and it will drag the overall GP% to closer to 50%. Please understand, I am not recommend- ing selling fewer tires to balance out your mix of sales. I encourage you to sell more service. Here's why: e tire and automotive business naturally creates an even need of these services, by dollar. Historically, as tires wear out (which are expensive), a customer will have had several services performed out of requirement or suggestion prior to failure. is is not to be micromanaged, per se. You should not estimate every ticket to a balance of 33% in each category. You should estimate tickets based on customer desire and requirement. is is achieved by asking if a customer wants to have their car inspected, for convenience, while they are getting the service that brought them in the door. ere are multiple ways to manage this. You can offer a paid inspection which is in depth and has the wheels come off the car so the brake components can be measured and inspected. is also allows you to get a better check of the suspension. If the customer does not want to pay for an in- depth inspection, you can inform them of

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