How Profitable Are Auto Repair Shops And Revenue Growth Tips

September 12, 2022 by Adam Hoeksema

Auto repair shops can be a work of passion for the right owner. With a good skillset and a bold and attentive approach, they can also amount to a lucrative endeavor. However, the industry isn’t as guaranteed as some, with markets changing rapidly with the advancement of auto technology and adjustments in transport habits. 

Still, for the determined entrepreneur, it’s a way of converting your skillset into its own business entity, and that comes with numerous benefits, not least, the potential for a comfortable income. 

So, how profitable are auto repair shops, exactly, and how much does a mechanic shop owner make? We have the answers to these questions and more right below! 

Thinking about Opening an Auto Repair Shop? 

There are a lot of pros and cons to mull over before setting up a shop. You’re going to want to know what to expect, what your limitations are, and what you can reasonably expect to get out of it in terms of financial and life value. Here are a few of the benefits to starting your own auto repair shop:

Before embarking on any business venture, it’s important to know the whys and why-nots. Without thoroughly weighing the pros and cons against one another you’re likely to be taken by surprise somewhere down the line when your romantic notion turns out to be harder or more boring than you expected. 

how profitable are auto repair shops

Reasons to open a repair shop

  • Running your own company brings with it a certain freedom and control that can be well worth the extra responsibility for the right person. You’ll get to have the final say on the where, how, and "whos" of your business, and, at least once the startup workload dies down a bit, you’ll have a lot of flexibility over your schedule. 
  • Running your own business also comes with potential financial perks (which is why you’re here, right?), and when done right, you’ll be able to make a decent living off doing something you’re passionate about. This is a luxury that most people aren’t afforded and is one of the major rewards for taking the bold step of starting your own company. 
  • There’s also the element of contributing to something larger than yourself. Both in terms of building a business entity and in the way that you’re providing a valuable service to people. Auto repair is a necessary industry, and the psychological effects of filling a valuable role in society shouldn’t be understated. 
  • You’ll likely only be considering this if you’ve got some extensive experience and skills under your belt. This means, that aside from the setup and maintenance tasks of running the business, you’re already more than qualified to jump in and do the work. 

There’s a lot to be gained from setting up an auto repair shop, but the role still involves some risks and drawbacks though, so keep in mind the following: 

Reasons to reconsider starting an auto repair shop

  • The very independence that can be so appealing with owning a startup can also be one of its major drawbacks. Whatever happens, the company buck stops with you. That means if clients don’t show up, or one of your rookies causes some expensive damage to a customer’s property, you’re on the hook. It also means, that if you aren’t bringing in the money you expected, you still have to pay your staff, and you take the hit.   
  • If you go for investor funding, you’re also going to have to consider giving up some control over the project. This could impact the dream you started with and have you at the mercy of shareholders: another kind of boss. 
  • If you choose to go with a loan, you’ll be able to maintain full equity but you will also need to repay the money, even if the business fails. Funding from any source comes with some catch, no matter what. Starting up any business involves knowing what you want to sacrifice, and when. 
  • Auto repair may not be the same industry in ten years. Cars are getting better, have fewer replacement parts, and repairs are more often being handled by dealerships as a customer preference. All of these trends suggest that there may be major market shifts in the coming years, which could require you to alter your business model. 
  • Starting a shop is also an expensive endeavor. We’re going to look at many of the costs later on, but you’ll have to be ready to pay for the space, build up your inventory and acquire appropriately skilled and certified staff to fill the roles. Then there are marketing, networking, and sales costs to take into account.

If none of this is remotely frightening, good for you! You may be closer to getting off the ground. Then you’re probably going to want to know what that looks like. 

How to Get Started with your Auto Repair Shop Business 

Starting any business follows a similar pattern, regardless of the industry. Only the details are different. Each step comes with its own costs to your time and your bank balance, so factor these costs into your judgment:

Find your niche – are you setting up the only shop in town? Dealing with high-end autos or bangers? What’s your specialty? Figure out specifically what you’re capable of, whom you’re reaching, and what specifically you’re offering. 

Build your services list – itemize and put a cost to each service you’ll be offering and identify what you’ll need in order to get it done. Are you going to be charging a flat rate per service, or an hourly rate? Or maybe a combination of the two, depending on the job. Remember the incentives on an hourly rate may be different from those on a fixed rate and find the right model for you and your team. 

how much do auto body shops make per year

Form a business plan – more on this later, but your business plan will be the strongest indicator that you’re worthy of funding, so if you want to take out a loan or get investors, you’ll need to have this in order. Perhaps more importantly, filling one out will provide you with the tools you need to become profitable in a competitive industry. 

Get marketing – from your business plan you’ll develop the right marketing strategy, so now is the time to employ it and start bringing in your first customers. This will involve outreach and networking, as well as discounts, loyalty programs, and so on. 

This might sound easy enough, but we haven’t really addressed the title of this article yet, have we? So: how much are you going to expect to make, and how much do auto body shops make per year?

How much Does a Mechanic Shop Owner Make? 

It’s pretty obvious that the short answer to this is: “it depends”. The first thing to consider that will affect the money you make will be the area you’re setting up in, and the clientele you’re targeting. Then, you’ve got to factor in how many people you’re servicing, and what the common jobs are for that market. 

But, this still doesn’t give a clear answer to the question, so let’s look at some statistics

  • The National average annual salary for auto repair shop owners is $53k.
  • This average is part of a range from a low end of $19k to a high of $118.
  • For location, Atkinson, NE ranks highest in annual average salary at $65k. 
  • A Master Auto Technician could receive a salary of around $83k.  

So, what this amounts to is whether you’re in the right place with the right qualifications. You may start your company as a master technician, but chances are that you’ll have to take a cut until the business becomes profitable, however, if shops are paying up to $83k for their top talent, it’s safe to say the owners are making more than this. 

Salaries are just one part of the equation, though. You’ll be calculating yours from your revenue, minus the money you’re putting back into your business, so if you’re thinking of a future expansion, for example, it’s well worth considering the profitability of the business as a whole. 

How Profitable are Auto Repair Shops, and How to Boost Revenue

For auto repair, labor is your most valuable asset. The margins on goods are a lost slimmer and tend to settle at around 20-30%. This can be a problem since the ratio of parts to labor has shifted significantly. While labor used to be more common than parts, it’s not close to even, meaning that half your profits will come from selling expensive parts for a small margin. 

However, labor is still met with a decent profit margin at over 50%, and this means that you can average around 38% margin based on these statistics. 

So, the profitability isn’t what it once was. This might be a concern, but it’s not the full story. The average figure leaves room for improvement within the industry and consequently, there are ways to improve revenue for an auto repair shop. 

Before we look into the solutions, consider these four major factors that define profitability. 

  • The accuracy of your data – What this comes down to is how well you’re reaching your target audience and converting prospects. The accuracy of your market research is what will bring you the most high-value leads and prospects, and understanding what they want is how you’ll convert them. This is what determines a large portion of the profitability for your company.
  • The organization of your files and projections – Keeping good records will allow you to make accurate assessments of your situation. The more organized it is, the more powerful the data will be, and this in turn will illuminate more quickly and accurately, areas in which you’re wasting money or you’re not spending enough. 
  • The efficiency of your physical space and processes – From these records you’ll be able to tell where the bottlenecks and inefficiencies are in your processes, and work towards streamlining them. 
  • The quality of your team – This is a major factor in profitability, and requires good management know-how. The team will drive the quality of your services as much as you will, and will represent your brand to customers, so finding, training, and holding onto the right people is a big part of becoming profitable. 

So, how much do auto body shops make per year? Well, with the average revenue for auto repair shops around $100k, there’s clearly some room to boost this, depending on your situation. 

With that in mind, let’s take a look at some of the things you can do to make them work for you and increase your profit margins. 

How to Make your Auto Repair Shop More Profitable

Better market research – this should be a part of your business plan and should also include in-depth data collection relating to your ideal customer and their preferences. Your market research is the information you need to stop wasting money finding customers and learn how to hold onto them. From these data, you’ll be able to design you marketing outreach and understand how to create value for your customers and keep them coming back. 

Make accurate financial projections – It’s not a good idea to guess at anything financial, but for projections, you kind of has to. Still, the more accurate your presumptions and understanding of what the future holds, the more reliable these estimates will be. 

When making your financial projections, let us help out here at ProjectionHub. You’ll find customizable templates, specifically for auto repair shops, and they come with 5 years of projection capability, a tutorial video, and customer support included.

Make better use of your physical space – By making use of some space management basics, you can save time and money on redundancies such as searching for equipment or waste management. Making your space more efficient may only save you a few minutes a day, but split across all staff, and spread out across the year, they mount up. 

Reduce Waste – a busy business owner often lacks the time to pay attention to some of the excess waste and inventory that builds up, but putting a short amount of time into addressing these can dramatically cut costs. Inventory can be automated to cut down on over-stocking and make sure that replacements are ordered in time. 

Pay for talent – one big cost to any company is talent acquisition. Finding qualified help that doesn’t need micromanaging is a challenge in every business, and the last thing you want is to spend all that time finding them just to have them leave because they’re not compensated fairly. Pay competitive wages and make the work stimulating and engaging, and you’ll retain your staff and save on rehiring. 

Focus on fixed overheads – if you can identify where utilities are being wasted, or you’re paying rent on space you’re not making use of, consider cutting these down to provide you with an easily-projectable drop in overheads. Focusing on the things you spend on every month allows you to find better supply deals, more efficient processes and ultimately improve the quality of your work. 

Find the right customers – You should put a lot of work into holding onto the customers you have, and offering good customer care to have them refer people to you. This immediately saves on acquisition costs and will bring in more sales too. High-value customers should get priority treatment, so try to make use of a way of identifying and categorizing them.

Have a good business plan – Your business plan should be more than just a compilation of ideas and dreams of your company’s direction. If you haven’t already put the work into making it a complete and accurate document, now’s the time to do so. 

The research that goes into a business plan is in itself going to bring you improved revenue, but with a completed document you’ll also be able to show funders that you’re worthy of investing in or loaning to. 

how much does a mechanic shop owner make

If you can factor in some regular reviewing and improvement processes that cover these bases, you’ll be sure to boost your revenue across all fronts over time. Not everything has to be done at once, but as part of a scheduled series of improvements, it’s important that these areas are maintained and adjusted with profits in mind.

Conclusion

Auto repair shops can bring in good business. While the future may not be certain for the industry, the average profit margins aren’t bad, and can easily be improved with a bit of conscious effort. 

An auto repair shop can bring in a very decent salary for the most skilled workers and owners, and the main factors that affect its revenue are related to location and range of services. How much do auto body shops make per year? The answer depends on how well your run them and what you do to stand out. 

Start with understanding your niche, and make sure your market research is extensive and accurate. Then, build a good business plan with professional financial projections using our auto repair shop template here at ProjectionHub and watch your business boom!  

About the Author

Adam is the Co-founder of ProjectionHub which helps entrepreneurs create financial projections for potential investors, lenders and internal business planning. Since 2012, over 50,000 entrepreneurs from around the world have used ProjectionHub to help create financial projections.

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