Mar 01, 2021

Crouching Costs, Hidden Burden: How Shops Lose Money

Crouching Costs, Hidden Burden: How Shops Lose Money

How much are you really paying to operate your shop or mobile repair truck?

We don’t just mean rent, utilities, and payroll. Yes, they’re a portion of your costs, but only a portion. There are often other, hidden costs associated with running a heavy-duty repair shop, many of which owners just don’t realize or think about. They’re often referred to as “burden costs,” and while you’re on the hook for them every month, you may not be charging your customers enough to makeup for them.

So what are your burden costs? Are they draining your shop’s finances?

Have no fear: Fullbay is here! Let’s talk about all of this and sort out how to wrestle control of your finances.

What are burden costs?

Burden costs, in a nutshell, are the costs you often don’t consider when you’re doing your financials. A burden on labor cost, for example, would be insurance or payroll taxes. If a shop owner says, “I’m gonna pay this guy $18 an hour, so I can charge $50,” the $18 isn’t the true cost for that employee. You’ve also got to pay taxes on that salary, as well as any benefits.

Another example is inventory parts. Let’s say you buy a spark plug for $28. You put it on your shelf. Someone needs to track that part (parts manager – additional cost). You’re paying rent or a mortgage on the actual storage room (additional cost).

You don’t think about that, because your receipt says $28.

Here’s a third example, this one from the mobile tech world. A brand-new mobile tech is charging $50 an hour for labor. That tech has to drive three hours to get somewhere. If they’re not charging for drive time, they are now on the hook for three hours’ worth of gas that they’d better hope their $50/hour will cover (hint: it probably won’t). That’s why successful mobile techs factor windshield time into their fees.

How do you get that money back? Add a general service fee if you’re mobile, on top of marking up parts and labor.

Many shops just don’t do those things. Or if they do, they don’t mark up or charge enough to cover that extra burden.

That, friends, is how you lose money on your shop.

Aren’t burden costs just part of overhead?

They do sound kind of like overhead, don’t they? But the answer to that is sometimes.

Here’s how to tell the difference:

Burden costs are usually fixed to a specific labor or part that are directly attributable to a repair.

Your overhead is basically anything that didn’t go directly into making a repair happen. Rent, utilities, and such. It’s generally fixed, whereas burden costs can vary based on how much work you do (paying employees for more hours, and so on).

Overhead costs happen regardless of whether you’re doing repairs. You’ll still be on the hook for rent or utilities even if you aren’t actively repairing anything. But if a technician isn’t on the clock making a repair or handling maintenance, you aren’t actively paying their salary or the taxes associated with it.

The point here is not so much that you need to know all of the terminology and be able to talk like an accountant, but that you need to know your total costs. If you can’t cover your costs, then your shop will never survive.

How do I figure out what my total costs are?

The easiest way to sort out your costs is to follow the numbers. If you have an accountant or an accounting system, start there. If you are your own accountant, then pull your bank records at the end of the month. Take a look at what you spent and start writing down how much money you spent on each item. Split the expenses into two categories: needed for a repair (parts, labor, shop supplies, etc.) and overhead/burden (rent, utilities, insurance, salaries for the support staff, parts manager, etc.).

Once you have all your costs written out, you know how much money you need to have to cover your overhead costs at a minimum. So even if you don’t do a single repair in the month, that is the amount needed to keep the lights on.

How can I cover all my costs?

You can cover burden costs by marking up your services a certain percentage.

You can use a simple formula. You will need to have at least a general idea of the following:

  1. Average amount you pay your techs (not how much you charge customers, but how much you have to pay).
  2. Average amount you pay for parts on a normal repair.
  3. Average amount you pay for shop supplies on a normal repair.
  4. Overhead

Then just plug it into this formula:

(Average tech pay x numbers of hours you expect to pay) + (Average part cost x number of jobs you expect to do in the month) + (Average shop supply cost x number of jobs you expect to do in the month) + Overhead

Now you know the total cost to run your shop each month. You have to make sure you are making at least that much money just to keep the lights on and the shop open.

Here’s an example:

A single tech shop pays their tech $25/hour, and the tech is clocked in 40 hours per week. The average job costs $250 in parts and $40 in supplies. The tech completes 50 repairs each month. The shop pays $1,500 in rent, $2,500 in insurance, $300 in utilities, and $1,000 in taxes for payroll and property taxes.

  1. Average cost for tech: $25 x 40 hours per week x 4 weeks per month = $4000
  2. Average parts cost: $250 x 50 repairs = $12,500
  3. Average shop supplies cost: $40 x 50 repairs = $2,000
  4. Overhead: $1,500 + $2,500 + $300 + $1,000 = $5,300
  5. Total Cost: $23,800

Our shop has to ensure that they are making at least $23,500 each month!

If they are not marking up parts and supplies or charging enough for labor to make this much money each month, then they will eventually end up closing.

This might seem like a lot of work, but it’s worth it; once you have the numbers in front of you, you’ll know exactly what you need to make to start recouping the money you’re losing to hidden burden costs. From there, you can experiment with the numbers to see what works and what doesn’t. You can give our ROI Calculator a whirl, plugging in different numbers to see how you can get to the number you need to reach.

How can Fullbay make it easier?

There are also ways you can manage this on your own (usually with the help of many spreadsheets and a lot of time), or you can use the tools that we built in Fullbay to let you see how your shop is performing and ensuring that you are getting paid for the work that you do

For example, Fullbay’s price matrices allow you to mark up parts automatically on repairs you do. You can use velocity reports to find high-velocity cheap parts you could mark up more, which helps cover your markup in other places. No one’s going to complain if you mark up a $1 bolt 400%. They absolutely will complain if you mark up an engine 400% percent.

Best of all, you don’t have to go in and look at each invoice and say, “How do I mark up this part?”

Instead, you go into Fullbay once and say, “We’re going to mark up parts in this range by this much.” You can even mark up specific parts. The bolt you charge $4; the shop towel you charge $1; everything.

Then, when you’re putting together a service order, it factors those prices in immediately. As soon as you add that bolt, the invoice will mark it up as $4.

That’s it. It’s that easy.

Ready for some help?

Here’s the bottom line: you can pull out your bank statements and agonize over all the numbers, or you can let Fullbay do it.

Fullbay tracks everything we just talked about up there. You literally pull it up and look at the dashboard, and there are the numbers you need.

So get in touch with us and give our free demo a whirl. We can’t wait to make your life easier!

Suz Baldwin