This blog is based on part 2 of 3 of what we’re calling “The Benchmark Episodes” of Business by the Numbers with Hunt Demarest, CPA. In the 2024 Benchmark Report Part 1 (which was last week), we gave an overview of key performance indicators (KPIs) and general industry trends. Today, we’ll talk about how shop size, location, and specialization affect your auto repair shop’s profitability and productivity.
If you missed part 1, be sure to check listen to episode 133 of Business by the Numbers or watch it on our YouTube channel to get the full context. And stay tuned for part 3, where we will explore the big differences between top-performing shops and their less successful counterparts.
#1: Understanding the Data: The 2024 Benchmark Report is an extensive analysis with data from hundreds of auto repair shops across the United States. This report is a powerful tool for shop owners, providing insights into numerous parts of their business as well as a comparison of how similar establishments perform.
#2 Regional Differences in Profitability: One of the standout findings from this year’s report is the significant regional variation in profitability. The Southwest emerged as the most profitable region, with shops in this area averaging the highest returns for their owners. Shops in the Southwest benefit from the ability to charge higher labor rates, with some even surpassing $300 per hour. However, these higher rates are necessary to offset the elevated costs of living, labor, and overhead in the region.
In contrast, the West region, despite having the highest average labor rates, did not achieve comparable profitability. This discrepancy highlights that while high labor rates can be advantageous, they must be balanced against other costs, such as overhead and labor expenses, which can erode profit margins.
This discrepancy highlights that while high labor rates can be advantageous, they must be balanced against other costs
#3 Impact of Shop Size on Profitability: Another critical aspect analyzed in the report is the impact of shop size on profitability. The data shows that larger shops, those generating over $1.2 million in annual revenue, generally have a slight edge in profit margins compared to smaller shops. However, this is not merely a function of size. Larger shops often have more experienced owners who have fine-tuned their operations over the years, leading to more consistent performance.
Interestingly, the report also found less variation in profit margins among larger shops. This suggests that as shops grow, they become more standardized in their operations, reducing the likelihood of significant deviations in performance. However, it’s important to note that larger shops may face unique challenges, such as the need for additional management roles (e.g., quality control managers) and higher staffing costs, which smaller shops may not encounter.
This suggests that as shops grow, they become more standardized in their operations
#4 Specialization and Productivity: Specialization within the auto repair industry can also play a significant role in shop performance. The report identified that European specialty shops are leading the way in productivity, averaging around 78% productivity rates—about 20% higher than their general repair and diesel counterparts. This higher productivity is likely due to the specialized skills and tools required to service European vehicles, as well as the higher labor rates these shops can command.
However, general repair shops maintain a higher average profit margin, partly because they benefit from lower parts costs. For example, while a general repair shop may see lower percentages in parts markup compared to a specialty shop, the overall profitability can still be higher due to the lower costs associated with common parts and repairs.
Conclusion: As we continue to dissect the 2024 Benchmark Report, it’s clear that there is no one-size-fits-all answer to what makes a successful auto repair shop. Regional differences, shop size, and specialization all play crucial roles in determining profitability and productivity. This data provides valuable reference points that can help you compare your performance against industry benchmarks and identify areas for improvement.
Be sure to join us for the final part of this series, where we’ll examine what sets top-performing shops apart from the rest. If you found this analysis helpful, please share it with others in the industry who might benefit from these insights.
