Profits and Costs of Auto Repair Shops

You first need to know your employment status as a mechanic before you consider deducting tools and other expenses. You’ll know you’re an employee if you filled out a Form W-4 when you got hired and receive a W-2 at the beginning of each year. The average price of all the goods in stock, regardless of purchase date, is used to value the goods sold. Taking the average product cost over a time period has a smoothing effect that prevents COGS from being highly impacted by the extreme costs of one or more acquisitions or purchases.

Now that you assume 5% will share with other people, you have to estimate how many people they will share with each month. Maybe they only share once every 4 months, so you would estimate that they share with .25 people each month.

What Is Cost of Goods Sold (COGS)?

Cost of goods sold (COGS) refers to the direct costs of producing the goods sold by a company. This amount includes the cost of the materials and labor directly used to create the good. It excludes indirect expenses, such as distribution costs and sales force bookkeeping for auto repair shops costs. A company must shrewdly budget for its operating expenses while maintaining its competitive edge. For example, a donut shop must continue paying rent, utilities, and marketing costs, regardless of the number of French crullers it moves in a given week.

• The Kelley Blue Book site breaks down repair estimates into parts and labor cost, provides an explanation of the repair, and alerts you if there are any open recalls on your vehicle.
• The amount you will spend in marketing will likely higher in the first few months as you will need to acquire new customers.
• Some of the equipment used in an auto repair shop, such as a diagnostic scanner, comes at a significant up-front cost and lasts for several years before it will need to be replaced.
• The law requires that you acquire a business license and all necessary permits to start and operate an auto repair shop.
• Even though all of these industries have business expenses and normally spend money to provide their services, they do not list COGS.
• You can then compare the estimates and read online reviews of each shop, and decide which one you feel most comfortable with.

The ideal GPM will also depend on a number of factors specific to that business and may require some experimentation to find the optimal level. Matrix pricing and other best practices can help, which we cover in the next section. Adding another 25% for bills (electricity, water, gas), the total should be around $8,000 per month instead. Whether you choose to buy or lease the space, you will need to pay a deposit (either to the owner, or a down-payment for the loan to the bank).

Operating Expenses

Bestbuyautoequipment estimates that most auto repair shops will need at a minimum $32,000 and up to $150,000 to cover the costs of equipment alone. The range of equipment depends on the auto repair shop’s business model and the services you plan to offer. Instead, a single car lift will range anywhere from $1,500 to $10,000 for the most robust ones. That figure is an average, which includes cars of all different makes and model years. How much you pay in the long run definitely depends on what you choose to purchase. Buy a brand-new Honda Accord or Chevrolet Impala, and your repair costs will likely be lower than if you invest in a 1960s British sports car or something similar.

This, of course, will vary depending on your location and area of expertise. Cost of Goods Sold (COGS) are the variable expenses incurred to repair the cars such as the spare parts, tools, oil, paint and other such consumables. Next you need to determine what percentage of those people that they shared with will actually come to the shop as a customer.

Auto Repair KPIs to Track (and How to Calculate)

First, you need to know what’s available to you based on your employment status or business structure. Since prices tend to go up over time, a company that uses the FIFO method will sell its least expensive products first, which translates to a lower COGS than the COGS recorded under LIFO. The balance sheet only captures a company’s financial health at the end of an accounting period.

Now it’s time to look at the company’s overheads – are they under control? You should factor in any staff members’ salaries that may be increased regularly. As well as this, check that the existing salary matches up to what your potential competitors are paying their staff members. When assessing the turnover of the auto repair shop you wish to take over, the first question you need to ask yourself is whether it has been increasing over the last three years (or at least been steady).

Through 2023, bonus depreciation will allow you to depreciate certain assets at 100% in the first year you put them into service. After 2023, this is scheduled to phase out by 20% each year and end altogether after 2026. Not all states currently comply with bonus depreciation, so check with your local regulations. You might have one form of depreciation for your federal taxes and a different one for your state taxes.

• Mechanics should be paid hourly or by incentive, and service writers should be salary or hourly plus commission.
• General Steel’s building kits can help you customize your business from the beginning.
• She has worked in multiple cities covering breaking news, politics, education, and more.
• This is the process of spreading out the cost of long-lasting assets over the period of time the assets are used.
• Here, “revenue” refers to the total amount of money generated from the sale of parts, and “cost of goods sold” refers to the total cost of acquiring those parts from suppliers.