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What is the Profit Margin on Tires (For Vehicles)?

A display of tires in a shop.

I hadn’t purchased my own tires for years, and I figured it was about time to find out how much replacements cost. In some cases, the price of one tire at retail equals what I pay for one month rent.

I did wonder why, so I became curious and researched the cost of making tires. That does answer some questions I have, but I also have some excellent news.

Profit Margin

Customer and salesman shaking hands in the tire shop.

The good news is, you may have found yourself a profitable business knowing that just about everyone needs tires. Keep in mind, however, that making tires does involve quite a bit of work. It also requires a financial investment that I don’t think anyone should take lightly.

You may earn as much as 20-30 percent profit on each tire selling them at retail, however. Wholesale profit markets measure at 5-10 percent, but you will receive higher volume orders as a wholesaler. 

Retail Price

Starfire Solarus HT All-Season 235/70R16 106T Tire

Even back in 2015, the concern about how much tires cost has risen:

“Whether you’re replacing one tire or all four – the first question that may come to mind is how much money you’re going to have to shell out.”

Set of 4 (FOUR) Venom Power Terra Hunter X/T All-Terrain Off-Road Radial Tires-275/60R20 275/60/20 275/60-20 115T Load Range SL 4-Ply BSW Black Side Wall

Moving on to 2020, 15,000 survey responses indicated a mid-range price of about $167 per tire. Some off-road, high-performance and snow tires may cost at least $300-$1800 new according to multiple sources. You might find online discounts for some mid-tier and high-end tires, which cost about $250-$400 each or about $800-$1000 for a set of four.

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Wholesale Price

Piles of tires close-up

You might save at least $100 on a set of four tires when purchasing them wholesale. However, you may have to buy at least 100-200 pieces. On the other hand, you may not have to pay more than $1.00 each for the inexpensive ones.

If you purchase higher-quality items, you may pay anywhere from $5-$20 per piece. Keep in mind that some places may require a bulk minimum order of 1,000 pieces instead of only 100-200, however. 

Costs to Make

Top view of tires

Some materials may cost more than others, such as rubber instead of synthetic polymer. Labor and operational costs also vary, depending on how many layers the tire has and order sizes. 

Most tires also have a corded fabric layer, which you may have noticed if your tires had worn down enough to show it. Other substances, such as silica fillers, added also may influence the tire material price.

To justify the cost to make tires, one U.S. Tire industry leader says this:

“Safety is the tire industry’s top priority. We are committed to making tires that make driving easier, safer, smarter and more sustainable.”

Labor

Mechanic holding a tire.

This may include some customer service work, but a person does make approximately $16.71 per hour in a tire production plant. Multiply that by 20, 30, or 100 or more employees, and that gives you some idea of how much it making a tire costs. That doesn’t even include the manager or administrative support salaries, nor does it include advertising costs. It takes about two to three hours to make each tire, so some places may have at least three full-time production workers on staff.

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Materials

Closeup of tire with Good Year logo.

In the 1990s, tire materials cost more than $17 per unit already. In some cases, the materials still cost about the same as of 2019 for the lower-end units. You can only imagine the material costs for some higher-end tires, however. In 2017, materials still made up at least 75 percent of production costs.

Just the rubber layers alone could cost $50 or more in 2022 for Goodyear, Firestone, Michelin and other well-known brands. The average material expense might add up to 20 percent of retail costs. This does explain why some new tires cost hundreds of dollars just for one, which I am sometimes shocked to hear.

Admin

General office support may run you about $15-20 per hour, and a manager’s salary may range from about $45,000-$60,000 per year or more. Therefore, expect to pay at least $200,000-$300,000 per year for just a few people working for you. If you want to run an operation with more than just a bare-bones staff, it will cost you.

Marketing

Man using a tablet in a tire shop.

You can set your own advertising budget, but some commercials could run you $10,000 or more, depending on how involved it is. If you run a local shop, you may reduce the video advertising cost to about $300 per ad made. However, that also depends on if you decide to hire a freelancer or staff to make the video ads or just create them yourself.

Think also about how much pay-per-click search engine and social media ads cost too. That may run you thousands of dollars per month or according to your spending allocated for marketing. You also have to factor in time it makes to create coupons or set up email and text message campaigns. However, you might also make progress with word-of-mouth.

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Have customers refer others to you to cut down on advertising costs. Maybe also think about radio instead of television if you want to lower the ad expenses. Of course, you also might need some paper fliers or demos that showcase the benefits of your tires to display in your shops or prototype rooms. 

Other Costs

You might have the chance to purchase your own tire franchise for about $100,000-$300,000. However, that may just include only the right to use the company name. Extra expenses include any new inventory you may need, or you might want to update equipment and supplies. This could cost you at least a few thousand dollars per year.

Tread Carefully (No Pun Intended)

Tires displayed on shelf in a store.

It might take you about two or three years before you make a profit selling tires. However, making sure you have a capital of at least what your building rent and utilities cost per year does help. 

Factor in supplies, repair equipment and related expenses, and about $200,000 for startup costs in addition to what you would pay for the franchise. It’s as profitable venture, but make sure this is how you want to spend your time because you’ll be busy.