Did you know, an indirect factor that impacts tire sales is the cost of gas?
How? High gas prices can influence consumers to switch from driving their vehicles and into alternative modes of transportation, which means they aren’t wearing their cars or tires down as quickly. We can see this as the volatility of gas prices has led to price competition from car dealerships, repair shops and other industry players.
Fortunately, over the period of fluctuating gas prices there has also been declines in the world price of rubber. So while the competition has been fierce, the profit margins did improve slightly over the past five years. According to IBISWorld, during the past five-year period the industry’s average profit margin has been increasing. Their latest Canadian industry statistics for tire dealers report discloses gross margin percentages ranging on average from 32.1% up to as high as 48.6%, as of 2018.
How it applies to you.
If your shop earns $1,000,000 in gross sales then, after paying direct wages and inventory cost for inventory sold, you should be earning a gross margin somewhere between $321,000 (at the low end) and $486,000; and if you’re landing at $403,500 then you’re squarely in the average margin area.
But when we work with clients, we aim to be better than average. Because we can leverage so many things in the tire shop business, we take our clients to doing better than industry average and building a business that builds a future; retirement, sale, whatever you want. I hope you’re grabbing your latest set of monthly closing financials to see how you stack up.
How’d you do?
Were you able to keep your gross sales up through this period? Did you capture strong margins at least in the middle at around 40%? If you didn’t, or you can’t even tell yet because your numbers are behind or inaccurate then you have to get your reporting in order so you can see how your business is performing now and make targeted goals for improvement. We can help you maximize your business potential.