I got a call the other from a shop owner friend asking me to help calculate his labor rate. I told him that before you calculate your labor rate, you should check your labor production (also known as effective labor rate). I asked him to total up his total tech paid hours for the month and then divide those hours by his total labor dollars sold for the month.
He got back to me and was surprised that although he posted a $90.00 labor rate, his actual labor dollars per hour was only $62.00. I pointed out that this is a production problem, not a labor rate price issue.
Raising labor production is equally important as understanding what your labor rate should be. In fact, ensuring your labor production is where it should be will add much needed dollars to the bottom line.
'One thing to consider; low labor production is not just the responsibility of the technician. You need to also take into account: Are you billing enough hours? Are you charging properly for diagnostic time? Are the techs waiting too long for parts or for the service advisors to sell jobs? Is there too much down time between jobs?
Look at the entire shop operations and workflow process. Each minute increase in labor production will add much needed dollars to your bottom line.