Parts Margin vs Labour Margin in a Workshop
Most workshops make their money on parts and believe they make it on labour. Separating the two changes what you quote, what you chase, and which jobs you turn away — and it needs one thing the system does not give you: a line-level budget.
A workshop owner will tell you their labour rate and then quote a job as one number. Inside that number, parts are usually marked up 25 to 40 per cent and labour is charged at a rate that has not moved in three years — which means the business is a parts retailer with a workshop attached, running the workshop at close to cost as a way of selling parts.
That is a legitimate business model. It is a problem only when it is accidental, because then every decision about capacity, hiring and pricing is being made against the wrong picture.
Why the split matters more than the total
If your margin is mostly parts
- Turning away a job because the bay is full costs you a parts sale, which is the expensive loss.
- Hiring another mechanic is worth it at a much lower labour recovery than you think.
- A customer who supplies their own parts is barely worth serving, and you should price that accordingly.
- Your real constraint is parts availability, so stock investment beats bay investment.
If your margin is mostly labour
- Bay hours are the scarce resource, and every hour lost to waiting for a part is direct margin.
- A customer supplying their own parts is fine — you are selling time.
- Your rate is the lever, and it is almost certainly too low if it has not moved in three years.
- Your real constraint is skilled hours, so training and retention beat stock investment.
Notice that the two columns recommend opposite investments. A workshop that has never split the two is making capital decisions by instinct against a model it has not tested.
How to split it with what the system gives you
Parts issued to a job carry a stamped cost at the moment of issue, and labour arrives as time entries against tasks. Both roll into the job's actual cost — as one figure. Which is the limitation: a project holds a single budget amount and a single actual, so "quoted parts against actual parts, separately from labour" is not a comparison the system draws.
A brake overhaul, split by hand
The overhead line is the one workshops omit and it is what turns an apparently healthy 60% labour margin into 13%. A rough attribution is enough: total monthly workshop overhead divided by billable hours available. Do it once, use the figure for a year, and it will change how you think about turning work away.
Getting an overhead-per-hour figure
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Add up one month of workshop overhead
Rent for the workshop portion, power, water, tools and consumable tooling, supervision salary, insurance, security. Not parts, not mechanic wages — those are direct.
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Count billable hours available, not hours worked
Mechanics × working days × hours, then reduced by a realistic utilisation. Sixty to seventy per cent is normal; assuming 100% produces an overhead rate that flatters every job.
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Divide, and use the number
Overhead divided by billable hours. In a small Nairobi workshop this typically lands between KES 500 and KES 900 an hour, and it is the number missing from every job margin you have ever calculated.
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Recalculate once a year, or after a rent change
Not monthly — the figure is a planning tool, not an accounting entry, and monthly recalculation produces noise that nobody acts on.
The customer who brings their own parts
This is where the split becomes an operational policy rather than an analysis. A customer arriving with parts bought elsewhere is asking you to sell only the part of the job with the thinner true margin, and to accept the warranty risk on a component you did not supply.
If parts carry your margin
Charge a higher labour rate for customer-supplied parts
Not a penalty — a correction. You are now selling only labour, so labour has to carry the overhead alone. A 30–50% higher rate on those jobs is defensible and easy to explain.
If labour carries your margin
Accept it happily
You are selling time and the customer has removed your working capital requirement. Be explicit in writing about warranty on parts you did not supply, and otherwise this is good business.
Either way
Record the part on the job at zero cost
So the job shows what was fitted even when you did not supply it. Otherwise the record is incomplete and the next mechanic to look at that car cannot see what is on it.
Either way
Refuse the ones that will come back
A cheap counterfeit brake component fitted by you becomes your reputation regardless of who bought it. This is a judgement call and it should be a stated policy rather than a per-job argument.
The line-level budget gap, and the workaround
Since a project carries one budget figure, the way to keep parts and labour separate is to record the quote as two numbers outside the system and compare each against what the job actually consumed. A single spreadsheet with four columns — quoted parts, actual parts, quoted labour, actual labour — reviewed monthly across all jobs, gives you the pattern. It is not elegant and twenty minutes a month is a real answer.
What the monthly review should show
- Parts margin percentage, across all jobs. Should be stable. A fall means either supplier price creep or discounting at the counter, and the two need different responses.
- Labour recovery — hours billed against hours available. This is the utilisation figure everything else depends on, and it is almost always lower than anyone believes.
- Jobs where actual parts exceeded quoted parts. Usually a diagnosis problem rather than a pricing one: something was found once the car was open. Frequent enough and it is a quoting habit to change.
- Jobs where labour hours exceeded the estimate by more than half. Either the estimate was optimistic or the job was harder than described. Both are worth knowing per job type.
- The proportion of jobs with customer-supplied parts. Rising is a signal — usually about your parts pricing rather than about your customers.
Our take
Work out one overhead-per-billable-hour figure and apply it to every job, because without it your labour margin is roughly four times better than it really is. Then find out which side of the business actually carries your profit, because the two answers recommend opposite investments — stock or bays, availability or skilled hours. Keep the parts-versus-labour split in a four-column spreadsheet beside the system, since a project holds one budget figure and will not draw that comparison for you.
Cost the job, then split it
Parts issued at stamped cost, labour logged against tasks, actuals against a job budget — with the line-level split stated as something you keep alongside rather than something we compute.
See plans & pricingFrequently asked questions
Why separate parts margin from labour margin?
Because the two answers recommend opposite investments. If parts carry your profit, turning work away costs you a parts sale, another mechanic pays for himself at low labour recovery, and stock investment beats bay investment. If labour carries it, bay hours are the scarce resource, every hour lost waiting for a part is direct margin, and training and retention matter more than stock. A workshop that has never split them is making capital decisions against an untested model.
What overhead rate should we apply to labour?
Your own: one month of workshop overhead — rent for the workshop portion, power, tools, supervision, insurance, security — divided by realistically available billable hours at 60–70% utilisation. In a small Nairobi workshop that typically lands between KES 500 and KES 900 an hour, and it is the figure missing from every job margin most workshops have ever calculated. It turns an apparent 60% labour margin into something closer to 13%.
Can the system compare quoted parts against actual parts separately from labour?
No. A project holds one budget amount and one actual, so the split is not a comparison the system draws. The workaround is a four-column spreadsheet — quoted parts, actual parts, quoted labour, actual labour — reviewed monthly across all jobs. Not elegant, and twenty minutes a month is a real answer.
How should we handle customers who bring their own parts?
If parts carry your margin, charge a higher labour rate on those jobs — 30–50% is defensible, and it is a correction rather than a penalty, since labour now has to carry the overhead alone. If labour carries your margin, accept it happily and put the warranty position in writing. Either way, record the part on the job at zero cost so the job history shows what was actually fitted.
What should a monthly workshop review look at?
Parts margin percentage across all jobs, which should be stable — a fall is either supplier price creep or counter discounting, and those need different responses. Labour recovery as hours billed against hours available, which is almost always lower than believed. Jobs where actual parts or labour hours overran the estimate. And the proportion of jobs with customer-supplied parts, which if rising is usually telling you something about your parts pricing.
