How to mark up parts in a garage

Cost, trade price and sell price are three different numbers

Cost is what actually leaves your bank account for that part: the invoice, plus carriage, plus anything you spent getting it to the bench.

Trade price is what the factor lists it at for you. It is not the same as cost the moment a delivery charge, a collection run or a special order premium is involved.

Sell price is what the customer pays. The gap between cost and sell price is where a workshop makes the profit that labour rates alone rarely produce, and it is the number most likely to be invisible.

If your system holds only one figure against a part, you cannot see margin per job, you cannot tell a good month from a lucky one and you are pricing blind. Cost and sell price need to be stored separately, on every line, attached to the job.

Margin and markup are not the same thing

Markup is added onto cost. Margin is taken out of the sell price. A part costing £40 sold at £60 carries a 50 per cent markup and a 33 per cent margin. Same transaction, two very different numbers.

This catches people constantly and it is expensive. A garage that wants a 40 per cent margin and types 40 into a markup field sells that £40 part at £56 instead of the £66.67 it needs. That is a tenner given away on one part, repeated across every line on every invoice.

The conversion is straightforward. Margin equals markup divided by one plus markup. A 30 per cent markup is a 23 per cent margin, 50 per cent markup is 33 per cent margin, and 100 per cent markup is a 50 per cent margin.

Decide which one you manage to, say it out loud to whoever prices jobs, and then check which one your system is actually applying. Those three things agreeing is rarer than it sounds.

Price by band, not by one percentage

A single percentage across the whole catalogue is wrong at both ends. Put 40 per cent on a £2 clip and you have earned 80p for ordering it, booking it in and finding it again. Put 40 per cent on a £900 particulate filter and the customer takes the quote somewhere else.

The standard answer, used in motor factoring and in most well run workshops, is a matrix. The markup percentage falls as the trade cost rises.

Small parts carry a high percentage because the handling cost barely changes with the value. Somebody still has to source it, order it, receive it, book it in and fit it. That work costs the same whether the part is two pounds or two hundred.

Expensive parts carry a lower percentage for two reasons. The cash margin is already substantial, and expensive parts are precisely the ones customers price check online before they ring you back.

Customer supplied parts and the liability question

Somebody arrives with a part they bought online and asks you to fit it. You make no parts margin, you carry the risk and you are being asked to do it for labour only.

The liability question is the one that matters. If the part fails, the customer's claim over the part is against whoever sold it, not you, but you are the one they will be standing in front of. And if it fails in a way that means the job has to be done twice, the argument about whose labour that is will not be a pleasant one.

You are also being asked to put your name on a component you cannot vouch for. On anything safety critical, brakes, steering, suspension, airbags, cambelts, the sensible answer is no. That is not being difficult, and most customers accept it immediately once it is explained that way.

If you do take the work, do three things. Charge a fitting rate that reflects the margin you are not making. Put it in writing on both the job card and the invoice that the part was supplied by the customer and carries no warranty from the garage. And inspect the part before you start, refusing it if it is wrong, damaged or not the right specification for that vehicle.

Have one policy and apply it to everybody. The garages that end up in trouble here are the ones that say yes to a regular and no to a stranger, then cannot explain why.

Carriage, returns and core charges

Carriage is a real cost and it is routinely absorbed without anyone deciding to absorb it. Next day delivery on a rush part, a collection run to the factor, a special order from a main dealer: all of that is money, and none of it reaches the invoice unless somebody puts it there.

Either build an allowance into the band or show carriage as its own line. Showing it is usually easier to defend, because a customer who wants the car back tomorrow understands perfectly well why getting the part tomorrow costs something.

Returns are the quieter leak. A part ordered wrong and not sent back inside the factor's window becomes stock you will never use, sitting on a shelf as a permanent write-off. Returns need an owner and a deadline, not a vague intention to sort it out when things are calmer.

Core charges on exchange units work the same way. The surcharge is only refunded when the old unit actually goes back, so a reconditioned starter with the old one still in the corner of the workshop is money you have paid and not reclaimed.

Raise a purchase order against the supplier for anything that matters. It is the only practical way to reconcile what was ordered, what arrived, what it cost and what still needs to go back.