Auto Shops: How To Make The Small Shop Profitable

According to the US Census, there are over 25,000 auto shops with fewer than 4 employees, not counting the thousands of 1-man operations spread across the country. Earning a profit owning a small auto shop can be difficult in these economically depressed times. Here are some tips to make a profit.

Hire family or close friends and classify them as officers, not employees. This will help with insurance charges. Check with your insurance agent and your state for particular requirements.

Small footprint – do you really need that 10,000 square foot building? If possible, run out of your shed, garage, or barn. If not, many self-storage facilities now offer storefronts.

Upgrade to CNC milling – If you have all manual machines, consider upgrading to a CNC.

Offer reduced rate services to local manufacturers. Local manufacturers will have hired large shops many miles away to machine their product. There are times when they need to rework, modify, or make changes on the fly. They will head to the nearest and cheapest boat in the area.

Offer reduced-rate services to local hobby clubs: Many hobby clubs, including RC model clubs, model building clubs, and engineering clubs, require prototyping and custom parts and accessories to be built. Offering a group discount hourly rate to these clubs will ensure that all machining requirements reach your shop.

Government Job Quote: The United States government is the world’s largest spender on goods and services. There are hundreds of machining opportunities every day.

Overflow Work – Find the largest stores in town and offer additional work. Many large shops love to work with small shops, the reason being that they can instantly expand their workforce and machining capacity at a lower rate than they already have. This helps them on their critical projects with tight deadlines.

Raw material: group orders as much as possible. Never order cut lengths instead of full lengths. Full lengths of material are always cheaper than cut pieces. If small parts are absolutely necessary, ask your supplier for a “Random” quote. These are leftover parts from a previous cut order and are usually offered at a substantial discount.

Cutting Tools: Never order cutting tools made in China. A $25.00 US made end mill will beat the $10.00 import any day of the week. Expect to go through 3 import endmills for every domestic endmill. This will increase your cutting tool overhead, reduce volume per part, and increase tool change cycle times. Don’t be afraid to shop around for your cutting tools, either. Many tool vendors are in the same boat as you and will sell you tools at a very low margin. If possible, talk to someone from your vendors within the sales department. Many tools can be offered at deep quantity discounts if you put your order together and just ask for a discount.

Recycle Your Tokens – Throw away your stainless steel and aluminum tokens. Also don’t forget your broken and dull carbides.

Many machine tool builders will refer you to customers who are interested in buying the same machine you have but can’t afford it right now. This is especially true with specialized equipment. Just call your tool dealer and ask.

Precision pays: the tighter the tolerance, the slower and more difficult the job. If you are a true journeyman machinist, this niche will always be profitable regardless of the economy.

Welders: Contact all the local welders in your area. If they scratch your back, you’ll scratch theirs. All the welding work he receives is contracted out to them in exchange for all the machining requirements they have.

SBA – Take advantage of all the resources, loans and grants that the SBA offers. (If you have been in business for 2 years)

Accounting – A good CPA will be your best friend in business, always walk the talk financially. If you have any doubts with what they say, ask them and ask them to explain their reasoning.

Promote your business – create business cards, brochures, capacity cards and a website. Let your prospect know exactly what you can do, what you specialize in, and what your capabilities are. You don’t want to waste time quoting for jobs you can’t handle.

Quote: When calculating your hourly rate due, do not include earnings in the rate. That way when you quote a job the price it calculates is your “zero” rate. This is the price you’ll break even if you don’t factor in your profits (sometimes you’ll want to price a job at “zero” to win that new client). Once you have your rates zeroed, you can play around with it. For the first 3 or more jobs quote it with a profit margin of 5%. Then subsequent jobs can increase it up to 12%-15%. With this method, you will always know your breakeven rate and can adjust your markup to the market at any time. When the jobs are good, the profit margin can be high. When jobs aren’t so easy to come by, you can quote with little or no surcharge.

Quote Contingency: Always add a small 3-5% contingency to quotes. This will cover unavoidable price increases or expedited shipping or other unforeseen charges that will break your profit margin.

Niche Markets – A couple of niche examples that come to mind are:

a grinding shop

Equipped with a larger capacity surface grinder

A Blanchard type rotary mill

And an OD/ID grinder and a skilled machinist

A5Axis Store

Don’t be intimidated by 5-axis machining

Equip yourself with a medium capacity VMC

and 1 seat of 5 AXIS Software and you’re done.

Total investment $100,000 new or $50,000-$80,000 used

rapid prototyping shop

Equipped with a CNC VMC a Bridgeport and a lathe. Must be able to make a part of the concept to reality in less than 48 hours. Streamline everything. It only runs 1-2 parts. Absolutely no production can be done using this concept.

Standard walk-in workshop

Equipped with a manual mill and a lathe. This is especially useful and suitable for the repair customer. Best for mechanics and do-it-yourselfers, just need to drill a hole or reduce a diameter or repair a few threads.

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