The Standard Profit Margins in Collision Shops
Understanding the margins for profit centers in a collision shop can help an owner determine what activities will benefit his business the most. The success of a shop typically depends on controlling costs and allocating resources effectively to generate revenue. Historically, these actions focused only on repairing the damage caused in an accident, but now up-selling alternative services has become an attractive option for owners looking to increase profits.
Labor costs typically account for the largest expense related to operating a collision shop. Costs range from 36 to 44 percent of the price of a repair job and can generate gross profit margins of 50 to 65 percent per job. The main factor driving profit margins on labor is the accuracy of the estimate to repair a vehicle, especially when working with insurance companies that typically use standard industry rates to determine how much a collision shop is reimbursed for each item that has to be repaired or replaced. If the work is more involved than originally estimated, the insurance company might force the collision shop to absorb the cost or try to get the difference in costs from the customer to achieve the margins it wants on a repair job.
Parts are the second-leading expense related to repairing a vehicle and can generate gross profit margins between 20 to 40 percent for each part installed. The gross profit margins typically are higher for after-market and reconditioned products than they are for original equipment parts. An owner who takes the time to research suppliers might be able to locate quality parts for a cheaper price than he would by relying on one or two suppliers to provide parts.
Paint and other materials generally account for up to 35 percent of gross profits in a collision shop. The factors driving these margins usually are tied to how much paint is used per job, how well the paint is mixed together, the amount of waste generated per paint job and the quality of the paint job. Jobs done poorly might result in having to do the work over again without charging the customer. This can dramatically decrease the amount of profit created on a paint job.
A collision shop doing a thorough inspection of the vehicle can benefit in other ways. For instance, an inspection can uncover small cosmetic repairs that can be fixed quickly with little effort. Some shops have even begun to carry new and used tires in case the ones on the damaged vehicle need replacing. Add-on services can help a collision increase their revenue and profits with minimal investment.