Ron Ananian Reveals a Practical Approach to Auto Repair Shop Management

Running an auto repair shop is about more than just fixing cars. While providing top-notch service is essential, a truly successful business also depends on understanding the financial aspects of the operation. One of the most important concepts to grasp is the cost of doing business (CODB). CODB represents the cost of keeping your doors open and your shop running—whether you’re working on vehicles or not. Understanding this number is essential for ensuring your shop’s financial health and long-term success.

In this article, we’ll dive into a practical approach to calculating CODB, how it can help you make smarter business decisions, and why it’s a critical metric for achieving profitability. To be fair, I am using generic numbers to show the math and concept. Labor rates alone vary from one end of the scale to the other for a variety of reasons. None of these numbers are suggested costs or rates and are for example only. What is CODB, and why does It matter?

The cost of doing business refers to the fixed expenses that your shop incurs regardless of whether or not you’re fixing cars. These are the costs that come with operating your business, and they must be covered before your shop can begin making a profit. Understanding your CODB allows you to better assess your shop’s financial health and ensures that you are setting your prices and revenue goals appropriately to stay profitable.

If you don’t track and understand your CODB, you risk operating your business in the dark, which could lead to missed opportunities for growth or, worse, financial trouble. Fortunately, calculating CODB isn’t as difficult as it may sound, and it can provide valuable insight into your shop’s financial operations.

Step 1: Understand Your Shop’s Hours

Before you can calculate CODB, the first thing you need to know is how many hours per year your shop is open. This seems simple at first — just multiply the number of hours per day by the number of days your shop is open. However, there are a few important factors to consider. Let’s take the example of a typical auto repair shop:

• Open Monday through Friday
• Operating from 8 a.m. to 5 p.m. (with a one-hour (unpaid) lunch break and two paid 15-minute breaks)

At first glance, you will see this adds up to 2,080 hours per year (8 hours per day x 5 days per week x 52 weeks). However, it’s essential to account for time off, such as vacation days and holidays. Subtracting two weeks of time off for vacation and holidays (which is typical for most businesses), you’re left with 2,000 hours per year that your shop is actually open for business.

This number may vary slightly depending on your shop’s policies, but using the 2,000-hour figure ensures that you’re including time off in your calculations, which will give you a more accurate representation of your actual operating hours. In case anyone notices, we are also planning a 7 ½ hour workday but calculating based on 8 hours. Paid coffee breaks are a nice perk for the shop.

Step 2: List and Total Your Fixed Expenses

Now that we know how many hours your shop is open, let’s look at your fixed expenses. These are the costs you incur to keep your shop running, whether or not you’re repairing vehicles. Examples of fixed expenses include:

• Rent or mortgage
• Property taxes
• Garage keeper’s insurance
• Telephone and internet costs
• Advertising expenses
• Utilities (electricity, water, etc.)

Essentially, these are all the costs that don’t fluctuate based on how much work is being done in the shop. Once you have a complete list of all your fixed expenses, you can move on to the next step.

Step 3: Calculate Your CODB

With your total fixed expenses in hand, let’s calculate your CODB. The formula is simple:

Total Fixed Expenses ÷ Total Open Hours (2,000 hours) = CODB per Hour

Let’s say your fixed expenses for the year total $218,580. Divide that by 2,000 hours, and you get a CODB of $109.29 per hour.

What does this mean? It means that, just to cover your basic operating expenses, your shop needs to generate $109.29 in revenue for each hour it’s open, regardless of whether you’re working on vehicles or not.

It’s important to note that you might be tempted to use 2,080 hours for a lower CODB figure, but using 2,000 hours is more efficient and will give you a clearer picture of the true cost of doing business. The 2,000 hours account for the two weeks of vacation and holidays that you’ve considered.

Step 4: Monitor and Adjust Your Numbers

Once you’ve calculated your CODB, the work doesn’t stop there. Managing the financial health of your shop requires continuous monitoring and adjusting of your numbers. By using a spreadsheet or accounting software, you can easily track your expenses, revenue, and CODB over time. With this tool, you’ll be able to adjust your pricing, labor rates, and other business practices to ensure that you’re always covering your costs and maximizing profitability. For example, if your shop is running efficiently and expenses stay steady, you may find room to increase labor rates or even reduce certain overhead costs.

Example Breakdown:

Let’s take a closer look at a hypothetical example of a shop’s expenses:

• Monthly Expenses: $18,215
• Yearly Expenses: $218,580 (18,215 x 12)
• Weekly Expenses: $4,203.46 (218,580 ÷ 52 weeks)

This sample shop has a true CODB of $109.29 per hour and requires 9.34 fixed labor hours billed per day at an hourly rate of $90 to break even before making a profit. It’s essential to understand that these numbers are not set in stone — adjustments to pricing or operating hours can change these figures but knowing them allows you to make informed decisions.

Conclusion: Why Knowing Your CODB is Crucial

Calculating your cost of doing business is one of the most important financial exercises you can do for your auto repair shop. It provides clarity on how much revenue you need to generate just to cover your expenses and ensures that you are pricing your services appropriately. Without this knowledge, it’s easy to fall into the trap of underpricing services or mismanaging your overhead.

Understanding your fixed expenses, accounting for time off, and continuously monitoring your numbers ensures that your shop is running efficiently. CODB allows you to make smarter decisions about pricing, employee costs, and other operational aspects that contribute to profitability.

In future articles, we’ll explore how employees play a crucial role in managing these numbers, as well as dive into the important topic of parts profit and how to provide technicians with paid training time during the weekday. Knowing your costs upfront can help simplify the process. Stay tuned and start mastering the numbers to drive your business forward.

Ron Ananian, The Car Doctor™ Renowned automotive expert and the owner of R/A Automotive in New Jersey, a trusted repair shop serving drivers since 1978, Ron Ananian has been on air since 1991. Ron Ananian, The Car Doctor Radio Show, is syndicated in 200 markets. Streaming around the world, the podcast provides expert car repair advice, industry insights, and practical tips to listeners through iHeart Radio, Amazon, Google, Apple, and more. Tune in or learn more at www.cardoctorshow.com.