Then primary responsibility of management is to achieve profit goals. Sales must be generated to cover all operating costs and then supply the desired profit. All other aspects of management support this primary objective. Increasing sales will always increase profit but assuming the auto repair shop is running at capacity the most effective way to increase profit is through cost containment. Following are points on achieving profit goals through cost management:
- Direct vs. Indirect Costs – When looking at profitability costs can be separated into 2 types. One type is direct costs which are expenditures directly related to the repair process such as labor and parts. The second type is indirect costs. These are costs that aren’t incurred as part of the repair process but nevertheless need to be considered when looking at profitability goals. These costs include employees that aren’t directly involved in repair, office supplies, etc.
- Containing Costs – When attempting to contain costs to achieve the desired profit, recognizing which costs are direct vs. indirect can be helpful. It’s often more practical to trim indirect costs and not so easy with direct.
- Achieving Profit Goals – Selling prices are generally dictated by the market as are the cost of labor. The cost of parts is also set by outside forces and is less easily controlled. So when attempting to recognize profit goals the manager will be well served to focus on indirect costs and achieving results through well designed and efficient business processes.