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Labor Rates: A Function of the Business Not the Market [THA 187]

Brian Gillis is the Chief You Net Results Strategist, with 25+ years experience in auto shop operations, hiring, recruiting, systems, processes, multi-store experience, and employee training.

More about Brian Gillis…

  • 25+ Years owning and operating auto repair shops in Texas, Georgia and Colorado, multi-unit stores
  • Hired and Trained over 2000 staff members
  • Budgeting and Profits Brian’s Specialty
  • Smooth as silk with customers

Brian’s previous episodes are HERE.

Bob Greenwood is one of 150 Worldwide AMI approved instructors. He has created Business Management development courses for aftermarket shop employers/managers, Jobbers and Jobber Sales representatives which are recognized as being the most comprehensive, industry-specific courses of their kind in North America. His courses address the creation of measurable bottom-line profitability and not just developing activity to keep busy, by covering the very detailed nuts and bolts issues that are required to be clearly understood by every level of the industry if an independent shop is going to financially prosper and enjoy a professional future. Bob’s previous episodes are HERE.

Link to Automotive Aftermarket E-Learning Centre Ltd. (AAEC) HERE.

Key Talking Points:

  • Must know your true cost of doing business to set your labor rate.
  • Know your numbers. Always review them.
  • Multiple labor rates are needed today. One catch-all labor rate will not support the sustained profits necessary to survive
  • Minimally you need three labor rates:
    • Maintenance Rate 
    • Diagnostic Rate
    • Re-Flash Rate
  • Additional to consider  
    • Fluid Installation Rate
    • Tire Inflation Rate
  • Do not look down the street to set yours. Understand your business
  • A formula is necessary. See below slides
    • Cost Per Billed Hour Formula  (CPBH)
    • Bob. Technicians wages need to be expensed not put into the cost of goods for his formulas to work
  • You may have a productivity problem, and the formula will help you determine that
  •  The only way you can lower your cost per billed hour is to increase the number of hours you bill.
    • The industry is stuck on sales and activity but should be measuring productivity
  • You may have big sales gains, but have little profit to show as a percent of sales
  • Labor rates on diesel and fleets should be different  
  • Rethinking labor rates are critical because when parts are not sold in conjunction with labor you will be making less money at your standard labor rate
  • See slide on show notes page: Setting Your Door Rate for the three basic rates. Below shows two different formulas to discover your three labor rates
    • Maintenance Door Rate
      • 4.5 Times Top Technicians Basic Hourly Wage
      • 85% times your CPBH
    • Diagnostic Door Rate
      • 5.35 Times Top Technicians Basic Hourly Wage
      • 125% Times Your CPBH
    • ReFlash Door Rate
      • 6 Times Top Technician-Basic Hourly Wage
      • 135% Times your CPBH
  • We are in a knowledge base business, and we must be paid to cover your costs to obtain and sustain that knowledge
  • The Cost Per Billed Hour (CPBH) reflects your efficiency
    • If you are inefficient, your cost per billed hour is going to be higher
    • If you are efficient, your cost per billed hour is going to be lower
  • You’ve got to understand your numbers inside and out today
  • Bob recommends twice a year review of labor rates and CPBH
  • Your labor rate should respect the competency of your team
  • You also need to understand the average billed hours per Repair Order (RO)
    • It helps you see how easy it would be to raise your labor rate
  • How many diag hours should we bill vs maintenance hours
    • Measure this.
    • Bob suggests today: 25% of your maintenance hours should be diag hours
      • If you bill 100 hours of maintenance, you should also have 25 hours of diag billing
    • Diag hours are when you interpret or analyze information
      • Test driving you are analyzing
      • Scope time is analyzing
  • Consider using a labor matrix on your shop management system
  • Bill decided years ago to be the cheapest shop in town that has the highest prices. Job was done right the first time
  • He tasks his technicians to recommend the labor time it is going to take to do the job right
  • We need to be courageous enough to charge what we are worth and have a conversation with your customers: why.
  • We work on one of most complicated vehicles that man has ever created
  • Labor is the future focus. Your labor rate reflects the value proposition you bring to the table
    • Safe, reliable, and efficient is what you do for your customer. It requires skills that you need to keep up on.
  • Calibration Labor Rate will need to be calculated as an additional rate necessary as you consider doing calibrations.
  • We are a knowledge-based business. The trade days are gone this is a profession. Bob Greenwood
  • Once you know CPBH, you can calculate your gross margin on every RO
  • If you have a pure labor job you quote the job. Take the cost per billed hours times 20%
  • Become client-focused; use quality parts.
    • Your labor rates will reflect your quality
  • Always consider the investment you must be making, which will require monies; therefore you need to be paid for what you do at the rate that allows you to invest.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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This episode is brought to you buy Shop Marketing Pros. Your guides are Kim and Brian Walker with a rich history as shop owners and industry veterans. When someone searches for a shop, who are they finding? Your competitors? It should be you! The good people over at Shop Marketing Pros know how to drive website traffic and make Google work for you! www.shopmarketingpros.com

About the author, Carm Capriotto, AAP

Carm is the founder and host of the Remarkable Results Radio Podcast; the only one of its type in the automotive aftermarket. Carm calls on his 35 years’ experience in the aftermarket to bring engaging stories from his guests.

Listen to raw, unfiltered, honest, and sincere stories that include insights, trends, best practices and expertise. Each interview brings an opportunity to learn one new thing through the stories of personal achievement. Many podcast guests tell their story of transformation from working in their business to working on it.

As host, Carm uses his enthusiasm and passion for the aftermarket especially the service sector to take his listeners on a journey showcasing successful service professionals’ path to Remarkable Results. He also enjoys interviews with aftermarket industry thought leaders who bring their industry perspectives to his listener.

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