How Profitable Are Auto Shops? And How Can They Lower Expenses?

Auto body and repair shops keep the gears of the automotive industry greased, providing essential services to millions of vehicle owners nationwide. 

Unfortunately, auto repair is also a notoriously low-profit margin business. Success depends on balancing numerous factors, such as location, competition, and business niches.

In this post, we’ll go over just how much auto body and repair shop owners can reasonably expect to make—as well as how to keep overhead and expenses low so they can take home more at the end of the day.

How much do auto repair and body shop owners make?

Determining the income of mechanic shop owners can be challenging due to the varying factors influencing earnings. 

On average, experienced mechanic shop owners can earn a substantial income…at least in terms of gross revenue. In 2022, the 282,637 auto repair businesses in the U.S. earned an average revenue of $275,972 per shop. At a glance, this seems about right.

But it's important to note that these figures are approximate and can vary depending on the specific circumstances of each auto repair shop. 

For example, a three-year-old collision center can expect to sell around $80,000 per month, according to Body Shop Business, assuming it’s well run. And auto repair shops that offer specialty services for luxury or sports vehicles can expect to earn significantly more (e.g., into seven figures).

Profit margins after expenses, however, are another story. By the time all is said and done, the median annual income for an auto shop owner after expenses is around $75,000 for a well-run “mid-sized shop,” according to Body Shop Business. 

Notably, an owner’s take-home income, after payroll and expenses, should be around the salary of a good general manager for the shop.

Average profit margin for auto repair shops

According to CSI Accounting & Payroll, the “generally accepted” answer when it comes to the net profit margin for a decently run auto shop is between 20–40% of revenue from sales of parts and up to 50% on labor costs.

Apart from annual income, auto shop owners also benefit from the potential for business growth and expansion. As auto shops gain a loyal customer base and build up their reputation, income can increase substantially. 

The profitability of any auto repair shop primarily depends on how many customers it serves monthly and how efficient operations are. By providing quality services and building a strong reputation, you can attract a steady flow of customers. 

Additionally, offering specialized services or targeting niche markets can create a competitive edge, leading to higher profits. However, it's important to note that profitability may vary based on the size of the shop, the range of services offered, and the local market conditions.

Calculating monthly expenses for an auto repair shop

Running an auto repair shop incurs various monthly expenses that need to be accounted for. Key expenses for an auto repair shop include rent, utilities, employee wages, insurance, equipment maintenance, marketing, and inventory costs.

Typical auto repair shop startup costs can range from $67,200–$225,000, not counting the cost of labor, so don’t expect to make any money at all in your first 6–12 months. 

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By the way, that’s on top of $84,000–$96,000 in average operating costs per month to keep the business running (read: payroll and rent).

However, it's important to consider that this figure can fluctuate significantly based on the location, reputation, and customer base of the shop. It's important to note that these figures are approximate and can vary depending on the specific circumstances of each auto repair shop.

• Rent* typically represents a significant portion of the monthly expenses for an auto repair shop. The cost of rent depends on the size and location of the shop. Prime locations in busy areas may demand higher rent, but they can also attract more customers. 

It's crucial to consider the balance between rent costs and potential customer traffic when selecting a location for your shop.

• Utilities, such as electricity, water, and gas, also contribute to monthly expenses. These costs can vary based on the size of the shop, the equipment used, and the local utility rates.

• Wages are another significant expense, as skilled technicians (and, at a certain size, a general manager) will always be essential for providing quality services. 

• Insurance will never go away, either. For a business in which so much depends on physical parts and a space in which to conduct business, protecting the shop from potential liabilities and risks is non-negotiable.

• Marketing expenses, including online advertising and promotional materials, are also crucial for attracting new customers and maintaining a competitive edge. That being said, many auto shops typically ignore marketing costs beyond the bare minimum (like having a Google store location and info) and rely on word-of-mouth promotions instead to keep costs low.

*NOTE: To strike a balance between rent costs and customer traffic, consider conducting thorough market research. Analyze the demographics, competition, and potential customer base in different areas. Additionally, evaluate the accessibility and visibility of the location to ensure maximum exposure. By carefully assessing these factors, you can select a location that offers a reasonable rent cost while still attracting a steady flow of customers.

Furthermore, negotiating favorable lease terms with the landlord can help reduce rent costs. Explore options for long-term leases or discuss the possibility of rent adjustments based on the shop's performance. By effectively managing rent and location costs, you can optimize your shop's profitability.

Strategies for lowering expenses in an auto repair shop

Minimizing expenses is crucial for maximizing profitability in the auto repair industry. Implementing effective cost-control strategies can help reduce overhead costs and increase the shop's bottom line. 

Here are some strategies to consider:

• Optimize inventory management: Properly managing inventory can prevent overstocking or understocking of parts, minimizing waste and unnecessary expenses. Utilize inventory management software to track stock levels, identify fast-moving items, and streamline the ordering process.

• Invest in efficient equipment: Upgrading to modern, energy-efficient equipment can reduce utility costs and improve productivity. Newer equipment often requires less maintenance and consumes less energy, resulting in long-term cost savings.

• Implement preventive maintenance: Regularly maintaining tools, machinery, and vehicles can prevent breakdowns and costly repairs. Create a preventive maintenance schedule and follow it diligently to avoid unexpected expenses.

• Train and retain skilled technicians: Skilled technicians are valuable assets for an auto repair shop. Invest in training programs to enhance their skills and provide a competitive edge. Retaining skilled technicians reduces recruitment and training costs, ensuring consistent service quality.

• Negotiate with suppliers: Building strong relationships with suppliers can lead to favorable pricing and bulk purchase discounts. Negotiate pricing terms and explore alternative suppliers to obtain the best deals for parts and supplies.

• Get rid of credit card processing fees: In this day and age, few customers are going to be willing to pay all cash for a multi-thousand-dollar transaction. So you have to accept credit cards—but that doesn’t mean you have to pay card processing fees (more on this later).

By implementing these strategies, auto repair shop owners can effectively lower expenses and increase profitability.

Maximizing profitability in the auto repair industry

Auto repair shops can be highly profitable ventures if managed effectively. 

While the income of mechanic shop owners varies depending on various factors, experienced owners can earn a substantial income above typical industry averages.

To maximize profit margins, auto repair shop owners need to carefully manage their expenses and optimize revenue streams.

By implementing strategies to lower expenses, such as optimizing inventory management and investing in efficient equipment, auto repair shop owners can increase their profit margins.

Nadapayments can help you cover some of those pesky expenses (like credit card processing fees) and help you put your hard-earned money back into your pocket, where it belongs.

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