This is a transcript excerpt from a YouTube/podcast episode titled "What is the Ideal Parts-To-Labor Ratio?" (hosts Chris Collins and Jeremy O'Neal). A listener asks whether a shop owner is correct to expect a 60/40 split (labor over parts). The hosts discuss that 60/40 can be a useful benchmark but emphasize that many independent shops misunderstand their effective labor rate, that parts profitability and customer experience both matter, and that future parts fulfillment may shift toward on-demand delivery or 3D printing (reducing the need for large parts inventories).
Questions this video answers
60/40 labor over parts (i.e., $60 of $100 revenue from labor, $40 from parts).
Chapters
Do you know that I helped the voice of God with this car the other day?
You did? You put a battery in it?
I did, yeah. I bet this guy that I would get it fixed that day. He didn't think I could. And we did.
Yeah.
I feel like I would have bet on you.
You do. Isn't that right, voice of God?
Yes, it was very helpful. The voice of God does not know how to change a battery. Apparently.
You know, these younger gods, they're. They're a little.
How would you say, A little soft. A little soft.
It was kind of weird, though, because there was all. There was always a voice over here. Over there. You're doing that.
Voice of God, have you ever shot a gun?
The voice of God has shot a gun.
Oh, that's surprising. It was fun at anything.
Not at anything living, if that's. If that's what you're asking the voice of God.
Yeah. Like hunting?
No, I've never been hunting. Not a lot of wild game in the deserts of California. Okay.
This week's first question.
Hello.
I love the podcast and all the info you give. I work at a small four bay independent shop. My question is that the shop owner is concerned the gross parts is more than gross labor. He said it should be 60, 40 labor over parts. I did inform him that some of the parts costs are going up and some of the dealer parts we get are more expensive than the labor to put them in. Is this okay, or are we doing something wrong? Thank you.
I mean, just because it mentions parts, you should start.
Well, I. I'm a trendsetter here, right? And that's why I bought a shop four years ago. The mystery with the shifts that are coming, my view on this is different than. You guys probably haven't heard a shop owner talk about this. So when it comes to parts revenue, parts profit.
It'S not in my equation. And realistically, we all know you hate parts.
That's not the question.
I do, absolutely.
Like, you should have zero gross on parts. Is that what you mean? No, but if I give the part away, you could. Like, it's like the printer model where you give the printer away and then you sell them the ink.
Ah, but see, that's where my focus is. My focus is driving 100% of my profits through my labor sales. So if I hit my labor targets, it doesn't matter what happens with parts, because I've made the revenue and the profits we need with our talent pool and the labor. So, yes, I do. And I don't want this to be Taken the wrong way. I do focus on parts and I watch our numbers and we have targets and all that. However, there will be a day soon where the customer will print their own part, the car will print the part, or they'll have it delivered for you. And you know, I just, we, I feel that we need to shift more of our profit.
So you think that parts departments will be replaced with 3D printers or other.
Delivery companies that are on time? Amazon, Possibly.
Would you prefer to deal with Amazon than a parts department?
Yes. Interesting.
Yes, I would. So think about this in the future, your shop management program is going to be so smart. Like if Amazon came in and ran a dealership or an independent repair shop when a customer booked an appointment and we put the estimate in, it would be smart and go get all of the parts that are needed for that job. And on Tuesday morning at 8am when that car arrived, the parts would arrive at the same time. Also, Amazon would be smart enough to talk to the car to say, hey, what other concerns car do you have? Like, well, I've got a weak O2 sensor, so I may need one of those. So in that on time, on demand delivery, there'd be the right oxygen sensor at the right time delivered to your technician instantaneously. So you don't need a big warehouse holding your parts because it would just show up on time. That's, that's the future of automotive repair.
The, the interesting thing about, about this to me, and I've done a bunch of strategy sessions with independent shops and this might be the wrong question, honestly, but what's interesting to me is how coming from the dealer side. Right, that's my, that's my basis of, of knowledge that I came up on the dealer side is selling wholesale parts to shops from the dealer side. You don't understand that the independent shops market up more than what you would sell it for. Sometimes they hold more gross than you would on the dealer's side even though you bought it from them. And there is not a big connection between what the independents sell the part for and the customer's perception. If you focus on the customer experience. And so the, the healthiest shops are the ones that are holding gross. They're holding 40% gross on the parts even after they buy it from the dealer. Which is hilarious. Right. And so it's more about the customer experience then it is the part price and what I see.
Correct.
Do you agree with that?
I do.
But you just said to give the part away.
I did not. No, I did not say to give the part away. Did I say that?
You said you could give the part.
I said you could, but I didn't say to give the part away. There's a difference.
60, 40 is on sales or on gross.
They saying gross. So if you have a hundred dollars in revenue, $60 of it comes from labor, $40 of it comes from parts.
Well, that's sales though. Yeah, but that's 100 in gross. $60 comes from labor, $40 comes from.
Correct.
From parts.
Yeah, I don't think that.
But Chris, let me.
That's a good starting point.
In the independent world, the background has always been it's a one to one ratio parts to labor. So half of your revenue comes from labor, half of your revenue comes from.
If I've done shift, If I've done 30 strategy sessions with independent shops, maybe three of them know what their effective labor it is.
I have failed as this, as a trainer in this industry.
I'm not joking.
No, you're right.
They leave it blank on the questionnaire and then when I ask them what it is, they don't know when you.
Calculate scary to see how low it is.
They'll tell. Yeah, they'll tell. Also they don't understand because their texts aren't flat. Rate that their cost of labor is 60 bucks and they think it's 30.
And they're only collecting 75. No wonder they're going out of business.
But most of the time they'll say, oh, it's my effective labor, it's 120. And I'm like, no, that's your posted rate. And they're like, you know, it's like, it's like debating if proficiency and efficiency.
Correct.
It's interesting. So I don't think in answer to the question, voice of God, I don't think he's too far off there. It's a good starting point. Remember though, as an advisor, the price is not. The objection to the price is the quality of service that you're giving and the customer's trust and perception of what you're doing, not where you set the price. Because I see independent shops all the time that are making more money on their their parts than their labor after they figure out what their effective is.
Yep.
And I would say it's more common than not.
Yeah.
I would say another thing too, to use that ratio for is it's going to help you identify what the health is of your repair mix because typically what happens is your preventative maintenance is going to have a higher labor margin than a parts margin. So that could be an indicator of that too. I think it's great to have a benchmark, and I don't even know if it matters exactly what it is, and it could differ from Shop, but I think it's a good place to look.
Yeah.
Thank you so much for watching this clip of Service Drive Revolution. Now you can catch the full episode on YouTube, iTunes, or Spotify, or wherever you consume your podcast. If you have any questions, go ahead and post them in the comments below. Make sure you subscribe and hit the bell icon so you're notified when we post new episodes. I'm Chris Collins and you can find me on Facebook and Instagram at Chris Bulldog Collins and I'll see you again on the next episode.
