![]() ![]() At that sales point, the company “breaks even” for the month. At breakeven, there is no profit, there is no loss. Why? Let’s look at breakeven sales.īreakeven sales is the point at which the accumulated gross profit dollars = total overhead expense for a month. There should always be a focus on the reduction of overhead cost. Virtually all overhead expenses are negotiable. Many feel you can’t do much about overhead, but you can. Remember, each line of overhead on your P&L is someone else’s sale. There are many overhead items in every business. Dealership collision centers may have different methods of calculating overhead, so dealership managers should work with their controllers to find their overhead costs. Overhead is shown on the P&L as the summation of these expenses. In collision repair, overhead is rent, insurance, lease payments, utilities and other expenses that cannot be directly assigned to an RO. Overhead is the ongoing cost of running a business that cannot be attributed to a sale. The shop has a 30 percent GP% for these parts. Sales and direct cost (the price of labor, parts, paint, etc.) are used in the calculation of GP%:Įxample: A shop sells $1,000 in parts. GP% may be calculated for the business as a whole, or by profit center such as body labor, paint labor, parts, paint, etc. ![]() Knowing and understanding your gross profit percentage (GP%) is vital to successfully running any business. The above math forms the basis of a collision center’s profit and loss (P&L) or operating statement.Ĭost also factors into the generation of Key Performance Indicators (KPIs). Gross Profit – Overhead Cost = Net ProfitĪ clear understanding of costs is critical to getting to a healthy net profit number. And the formula for profit in a collision repair shop is the same as in any business: ![]() If there is no profit, there is no business! Collision repair facility owners and managers must generate profit. In collision repair, just as in any business, the key driver is profit. I only recounted the experience to illustrate the importance of understanding costs. Warning! I do not recommend the above as a negotiation technique in today’s collision environment. He understood his costs and used that information to generate additional revenue If the projected gross profit percentage was not 44 percent, he refused the job. The owner simply loaded the estimate totals into a program that projected profits for the repair. Until that day, I had never seen a computer in a body shop. I added those to the estimate and he “entered it into the computer” again. He pointed out P-page items that had been improperly deleted and some other operations that had been missed such as burn damage, underside refinish and blending. Let’s look at the car again and see what else we can find. There isn’t enough money in the job for me. He came back a moment later and said, “It’s not good enough. The owner placed his hand on mine and said, “Don’t do that yet. ![]() As usual, I arrived at the shop, was handed a copy of the shop’s estimate, inspected the damaged vehicle (a brown 240Z), made a few “adjustments,” ran a tape on the adjusted estimate and sat down to issue a draft. ![]()
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