In today’s competitive diesel repair market it is increasingly more difficult for diesel repair shops to make more money. Rising labor rates, higher taxes, stiff competition, and fixed overhead costs are cutting deep into repair shop’s profits. These issues cause repair shops to take drastic measures, like cutting staff to lower their overhead. But that can have an adverse affect, by causing jobs to take longer than expected to complete, thus adding to overtime costs due to the limited capacity of a minimal work force. It’s a vicious cycle that nearly every shop faces.
However, not all hope is lost. By using a little creativity in how you price your repair parts, it is possible to overcome some of these profit-busting issues. I believe most diesel repair shops can make a lot more money on the diesel engine parts they are currently selling through their shops. Believe it or not, I have seen repair shops that make more money on the heavy diesel engine parts they sell, than what they charge for labor. Think about that – can you double your bottom line without investing anything more into your company?
I have seen too many diesel repair shops work off cost-plus pricing, rather than know the maximum amount they can fairly and competitively sell a part for, and take advantage of that opportunity to increase their revenue.
Here’s a common example:
Caterpillar C12 turbocharger – Caterpillar sells the remanufactured turbocharger for $1,765.79, with a $556.58 core. Remember, this is remanufactured with a one-year parts warranty for $1,765 plus core. We would sell this turbocharger brand new to you for $722. No core, one-year warranty, brand new BorgWarner. Or, I could sell you a brand new turbocharger, again, no core with a two-year parts and labor warranty, and unlimited mileage for $780.
Your pitch to the customer is a new part, rather than a remanufactured one, and it has a better warranty. It’s the same price as a remanufactured one, and you can clear $1,043 on a turbo!
Your price is still in line with the dealer, but the warranty is better. The product is new and you made a lot more money on the part than you did on the labor. This is why it is important not to sell at cost-plus. This is also why it’s important to know the heavy diesel engine parts market. Understanding this method is key to innovating your parts pricing structure to help improve your bottom line.
If you would like further information or clarification on this subject, or if you have particular parts that you are having difficulty selling for a fair profit, I would be happy to help you out. Feel free to call me at (844) 447-5487 and ask for Andy. Or send me an email at email@example.com.