How to Build an Effective Parts Markup Chart

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One of the most important aspects of running a business is making profits to keep it sustainable. Unfortunately, most business owners are not very keen-eyed when it comes to churning profits efficiently. While selling a particular product or item, they just raise its price to make a profit on it. But automotive experts consider it an incorrect method as there is a whole auto parts markup matrix that revolves around pricing different automotive components. 

If you don’t follow these auto parts markup charts, you may miss out on incredible profit opportunities. That’s why you need to understand how to price your parts or components according to the parts markup calculator.

Margins and Markups

Before moving onto the parts markup chart, one of the first things you, as an automotive repair business owner, need to understand is the difference between markup and margin. 

The top line of your income statement may show a term called revenue. It is the income generated by selling the products and services and is shown in the statement before any deductions. 

Another significant term is the COGS or cost of goods sold. COGS is the number of expenses incurred in the manufacturing, marketing, and selling of a particular product. It includes the material as well as labour costs at different stages of the process. 

Then, there are gross profits, which is the amount left after you have paid for the manufacturing, marketing, and selling costs of that product. So it is essentially the cost of goods sold or COGS deducted from the revenue. 

These three terms, revenue, cost of goods sold, and gross profit, are quite crucial in understanding the difference between margin and markup, and ultimately the auto parts markup matrix. 

Calculating Margins 

The revenue left after paying the cost of goods sold or COGS is called a gross margin. But it starts with gross profit, which is COGS subtracted from revenue. After that, you may find the margin by dividing the gross profit from the revenue. Let’s take an example-

A bicycle costs you 150 AED. But you are selling it for 200 AED. To find the gross profit, which is the difference between selling price (or revenue) and cost price. So the gross profit is 50 AED.

After that, you can find the margin by dividing this gross profit by revenue. So the margin is 50 AED / 200 AED, i.e. 0.25 or 25%. 

It means that you will have the privilege to keep 25% of the revenue from the bicycle you have sold as a profit. It is also called your profit margin. 

Calculate Markup

After margin, there’s markup. But, again, there is a difference between the two terms. Markup is a term for indicating how much more you are selling a particular product than its cost. 

Like margin, start with the gross profit, in which the COGS is subtracted from the revenue. Then, you may find the markup by dividing the gross profit by the COGS. Let’s take this with the same example as with the margin. 

A bicycle costs you 150 AED. But you are selling it for 200 AED. To find the gross profit, which is the difference between selling price (or revenue) and cost price. So the gross profit is 50 AED.

After that, you can find the markup by dividing this gross profit by COGS or cost price. So the markup is 50 AED / 150 AED, i.e. 0.33 or 33%. It means that the selling price of your bicycle is 33% more than the cost price. 

You may also convert the margin to markup with the formula mentioned below:

Markup = [Margin / (1 – Margin)] X 100

For the example mentioned above, the margin is 25% or 0.25. 

So, markup = [0.25 / (1 – 0.25)] X 100 = [0.25 / 0.75] X 100 = 33%

You need to have an appropriately processed auto parts markup matrix to ensure the best business analytics. To construct this matrix, you will need to know the following things:

  • Value of every part: It is crucial to understand that the revenue for your shop comes from the different parts and components you sell. So you need to know the exact price of these parts. It will help you price it effectively. Knowing the cost price will help you set a profitable selling price according to a simple markup percentage. But there is a flaw in this plan. While calculating the selling price according to this simple percentage, you might forget about the utilities and insurance of your shop. Also, this strategy may help you sell products at a higher price, but the lower-priced products will still sit on the shelves. So you need to come up with an efficient auto parts markup chart, which can help you make a profit but also drive the products to the public. 
  • Strategies for the parts markup chart: Automotive repair industry has thousands of different parts and components ranging from simple nuts and bolts to a finished transmission box pricing from just a few AEDs to thousands. So you need to devise effective strategies for making the auto parts markup matrix. These strategies are as follows:
  • Price the articles based on how popular and fast-moving they are. For example, if a part is not being bought as much as the others, take a higher markup on it to maximize the profits.
  • With respect to the parts markup calculator, put a price on every item based on the profit margin you desire. It will help you attain the final objective more efficiently. 
  • Components like nuts and bolts don’t cost too much to the shop, so they sit pretty low on the auto parts markup matrix. So you may put a higher price on items like these, as a few AEDs won’t make much difference to a customer. 

Keep these strategies in mind while devising an auto parts markup chart. 

  • Drive-in the customers: Driving the business is not just about pricing the parts and components according to the parts markup calculator to increase the revenue. Revenue will only be there as long as there are customers in your shop. So you will need to construct an enticing loyalty and rewards program to drive the customers to your auto parts and repair shop. To do that, you may get in touch with a professional marketing agency to promote the products and services provided by your business effectively. Handle the customers’ reviews and improve your business to ensure you attract new customers and retain the current ones as well.

If you have any more queries about the auto parts markup matrix, get in touch with the experts at Garage Plug. We can help you increase your revenue and improve your business engagements. So log on to www.garageplug.com and book an appointment with us today!

Our workshop management platform will vastly help you with managing your inventory and calculating your profit – along with other such calculations. 

Stay tuned! We are about to launch the world’s most advanced Business Intelligence Platform that will redefine the way you see your business. 

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