What if I told you that solely relying on sales growth in your shop is a waste of time? A common misconception in the tire industry is that a shop needs to be constantly busy and rapidly growing to be profitable. However, the truth is that shops that are run with an intentional focus on core business fundamentals tend to be the most successful in the long run.
Running a profitable tire dealership takes more than just increasing car count. Shops that focus solely on sales growth often lose sight of what actually matters – managing the business efficiently. Remember the tortoise and the hare parable? The tortoise beats the hare by moving steadily and intentionally towards its goal. Shop owners should adopt that mindset rather than getting distracted by a busy workload.
Several key areas impact shop profitability, one is parts gross margin. To consistently hit your target, aim for a 54% margin on all parts excluding tires, batteries and accessories. But setting that margin goal isn’t enough – you need to monitor it regularly. Address issues like employees’ overriding prices due to discomfort with higher margins – extra training and oversight will get everyone on board.
Labor is another profit opportunity. Don’t just look at your stated hourly rate – track the actual effective rate. Many shops with a posted $139 rate end up at only $109 effective – you figure this by dividing total labor sales by billed tech hours. For example, $4,600 in 42 hours equals a $109.52 rate. But if the posted rate is $126, that’s an 86.9% effective rate. Shops looking to make a profit should consistently exceed 125% – otherwise, that labor gap can cost serious money over time.
You should also leverage your shop management system to improve workflow. Give all staff visibility into scheduled work and individual tasks and set expectations around those tasks. When each member of each department knows what is expected of them, their performance increases.
It also helps to have a vision beyond your shop’s day-to-day grind. Set goals for your personal life and encourage your techs to do the same to help give them extra motivation for hard work.
Rather than focusing solely on sales numbers and volume, your goals should be efficient operations, high-quality work and revenue collection. Simply being overwhelmed with customers does not guarantee success – but running an intentional, strategically managed shop will.
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