What Is a Good Gross Profit for an Auto Repair Shop?

What IRS figures show for automotive repair, and why they don’t set the target

The IRS Statistics of Income Division publishes the closest thing to a neutral income statement for the industry: estimates drawn from a sample of tax returns, sorted by industry. Its latest corporate tables, for tax year 2022, published in September 2025, show the following for all active corporations in automotive repair and maintenance, S corporations included. The percentages are our arithmetic from the IRS tables, as shares of business receipts.

• 120,300 corporate returns, with $130.2 billion of business receipts.
• Cost of goods sold: $64.3 billion, about 49 percent.
• Salaries and wages outside cost of goods sold: $18.4 billion, about 14 percent. Compensation of officers, a separate line: $6.3 billion, about 4.8 percent.
• Net income (less deficit), which the report calls corporate pretax profits: $5.6 billion, about 4.3 percent.
• Returns reporting net income: 82,819 of the 120,300, about 69 percent.

Three things keep these totals from setting any one shop’s target. First, technician pay can sit on either side of the gross profit line. The report defines cost of goods sold to include “direct labor, and a share of overhead expenses,” the cost-of-goods-sold schedule, Form 1125-A, has its own line for “Cost of labor,” and salaries and wages exclude “amounts included in the cost of goods sold.” The sole proprietor tables for tax year 2023 show both at once in automotive mechanical and electrical repair: $0.56 billion of cost of labor inside cost of sales, and $1.57 billion of salaries and wages outside it. A gross margin read off either total is neither a parts margin nor a labor margin. Second, the group is broad. The corporate return’s activity codes for automotive repair take in mechanical and electrical repair; body, paint, interior and glass repair; and other automotive repair, which the instructions say includes oil change and lubrication shops and car washes. The sole proprietor version of the mechanical and electrical group is 261,730 returns averaging about $84,000 of receipts each, a different business from a $1 million shop. Third, the totals add the profitable and the unprofitable together, and an owner’s pay can sit in officers’ compensation or in profit. The figures describe the neighborhood; the shop’s own target still comes from its own overhead.

How to read an auto repair shop P&L with parts and labor apart

A P&L with one line for cost of goods sold, or with technician pay mixed into the same wage line as the advisors and the office, cannot say where a gross profit gap sits. The fix is a chart of accounts that keeps each kind of sale next to its own cost, so each pair produces its own gross profit. The bookkeeper sets it up once, and the sales categories in the shop management system are matched to it line for line.

• Labor sales, less technician labor cost: flat-rate or hourly pay for the techs, minimum-pay top-ups, overtime, and the employer’s payroll taxes, workers’ compensation and benefits for those same people. The result is labor gross profit.
• Parts sales, less the cost of the parts sold, after supplier returns and core credits. The result is parts gross profit.
• Tires, sublet work and fees such as shop supplies, each as its own pair of lines when the shop sells enough of them to matter.
• Below the gross profit lines, overhead: advisors, parts staff, the office, the owner’s salary, rent, insurance, software, equipment and marketing.

Illustrative example, not a client, continuing the hypothetical shop above: its $1.5 million splits into $840,000 of labor sales and $660,000 of parts sales. Technician labor cost was $438,000, so labor gross profit was $402,000, about 48 percent of labor sales. Parts cost was $372,000, so parts gross profit was $288,000, about 44 percent of parts sales. Together they make the same $690,000, but now the owner has two separate questions: is labor cost too high for the hours billed, and did parts sell at the matrix? Each month, before anyone reads the P&L, the bookkeeper ties the parts cost in the shop management system to the parts purchases in the books, after returns and the change in parts on hand. A difference between the two is the first thing to explain.

Labor gross profit when techs are paid flat rate or hourly

Labor gross profit is labor sales minus everything paid for technician time in the same month, taken from payroll, not from the repair orders. The Bureau of Labor Statistics puts the two pay plans plainly: “Some repair shops pay technicians on an hourly basis, while others pay them based on the amount of work completed.” The pay plan changes where the cost hides, not whether it exists.

• Hourly techs: cost follows the clock. Every hour paid and not billed — waiting on parts or an approval, a comeback, shop time — is labor cost with no labor sale against it.
• Flat-rate techs: cost follows flagged hours more closely, but not exactly. Minimum pay in slow weeks, hourly pay for shop time or training, and overtime where it applies are labor cost that no repair order carries.
• Either plan: the employer’s payroll taxes, workers’ compensation and benefits ride on top of the pay, and they belong in technician labor cost, not in overhead.

The figure to distrust is a labor gross profit worked out per repair order, which costs each billed hour at a rate someone entered. Illustrative example, not a client: an hourly tech is paid $32 an hour for 173 hours in a month, and the shop assumes 20 percent on top for payroll taxes, workers’ compensation and benefits, so the month costs about $6,640. The tech’s repair orders bill 130 hours at an effective $140 an hour: $18,200 of labor sales. Labor gross profit for the month is about $11,560, or about 63.5 percent. A screen that costs each billed hour at $32 shows $4,160 of cost and about 77 percent. The difference of about $2,480 is the 43 unbilled hours plus the payroll costs on top, and it repeats every month. The guide to technician efficiency vs. productivity sorts those hours by cause.

Does the parts matrix deliver the margin it promises, RO by RO?

A parts matrix is a table of markups by cost band that the shop sets in its management system, so every part is priced from its cost the same way. It delivers the margin it promises only if three things hold on every line: the cost on the repair order is the cost on the supplier’s invoice, the price is the matrix price, and every part bought for a customer’s car is on a repair order. Each can fail without anyone deciding it should.

The matrix is written in markup, and the target is a margin. A part that costs $100 and sells for $200 carries a 100 percent markup and a 50 percent margin; a 60 percent markup is a 37.5 percent margin. Margin is markup divided by one plus the markup. Once a week, one named person — the service manager or the parts lead — runs five lists from the shop management system and the supplier invoices, and totals each one in dollars.

• Price check: last week’s part lines with cost, sold price and the matrix price at that cost. Every line sold below the matrix, with the advisor and the reason.
• Cost check: each part line matched to the supplier’s invoice. Every line where the invoice cost is higher than the cost on the RO — a price change, a different brand, a delivery charge — and the difference.
• Missing lines: supplier invoice lines that match no repair order. Each is a part bought and not billed, used on a comeback, or waiting to go back.
• Returns and cores: parts and cores due back to suppliers with no credit yet.
• Zero-dollar parts: parts on warranty, comeback and goodwill ROs, kept as their own total.

Illustrative example, not a client: in one month the hypothetical shop’s lists show 126 part lines sold below the matrix by hand, $3,100 under the matrix price in total; 58 lines where the supplier invoice cost was above the RO cost, $1,450 in total; and 19 supplier invoice lines matching no repair order, $1,900 of parts. That is $6,450 in a month as a ceiling, not a loss: some overrides kept a customer, and some parts went back for credit late. The owner decides which share was avoidable and writes the range down. Week after week, the same five lists with the same definitions become the shop’s own trend.

Changing parts prices, tariffs and quotes already given

An estimate fixes the price the customer approves, and the cost behind it can move before the part is ordered: a supplier price change, a brand out of stock, a delivery fee. Whatever moves after the approval comes out of parts gross profit unless the shop goes back to the customer, and state rules set what going back requires.

California’s Business and Professions Code §9884.9 says “No charge shall be made for work done or parts supplied in excess of the estimated price” without the customer’s oral or written consent, obtained after the shop finds the estimate is not enough and before the added work is done or the added parts are supplied. Florida’s §559.909(3) makes it unlawful to charge more than the written estimate plus $10 or 10 percent, whichever is greater, but not more than $50, without the customer’s authorization. Rules differ by state, this is not legal advice, and the shop’s attorney can say how its own state’s rule applies.

Tariffs are one reason costs move. Proclamation 10908 of March 26, 2025 put a 25 percent tariff on listed imported automobile parts, from a date no later than May 3, 2025, “in addition to any other duties,” exempted parts that qualify under the USMCA until the Secretary of Commerce sets up a process to tax only their non-U.S. content, and kept the tariff in effect “unless such actions are expressly reduced, modified, or terminated.” This guide does not state which rate applies today; the shop’s suppliers can say which of their lines carry it and when their prices change.

• Price each part line from the supplier’s price on the day the estimate is written, and keep the supplier and the quote number on the RO line.
• When approval comes days later, re-check the cost before ordering. If it rose, call the customer with the new total before the part is ordered, and keep the authorization record the same way as for any added repair.
• Put a re-price date on deferred and declined estimates, and re-price the parts at the follow-up call rather than at the counter on the day the customer comes back.
• Keep the matrix keyed to current cost, and look at its bands again whenever a main supplier changes its prices.

The weekly cost check above is where this shows up in dollars: the lines where the invoice cost came in above the RO cost, sorted by supplier. If one supplier’s lines carry the gap, that is a conversation with the supplier, not with the advisors.

When to leave the margin numbers alone

If last year’s gross profit already covered overhead and the planned profit, and the weekly lists turn up small, scattered amounts, the margin is working and the time belongs elsewhere — declined work with no follow-up date, or fleet invoices that wait. If the P&L has only just been split, give the bookkeeper two clean months before reading a trend. And in a small shop where the owner orders every part and writes every ticket, the owner already knows where the matrix was overridden and why.

Parts margin and labor cost are one place an auto repair shop’s money leaves between the repair order and the bank; hours clocked but never billed, comebacks written at $0 and add-ons argued at pickup are others. Our Revenue Review ranks the shop’s repair orders by what they kept once parts and labor cost are counted, and lists parts sold below the shop’s own matrix and price increases absorbed after the estimate, all from the shop’s own records: two weeks, read-only, ending in a written report the shop keeps, with a monthly dollar figure wherever the records support one. Nobody here runs a repair shop, and the Review gives no tax, accounting or legal advice. The next step is a free 20-minute call, which says plainly when the Review is not worth it.