Quantcast
Jump to content

Recommended Posts

Posted

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.

  • Like 2
Posted (edited)

Joe, sounds like this shop is paying techs more hours than it is charging the customer. Effective labor rate is labor hours billed/sold to customer divided by labor dollar sales. 100 hours of labor sold/$10,000 in labor sales = $100 ELR. Production doesn't fit in the equation.

 

 

Sent from my iPad using Tapatalk

Edited by chasauto
Posted

Joe, sounds like this shop is paying techs more hours than it is charging the customer. Effective labor rate is labor hours billed/sold to customer divided by labor dollar sales. 100 hours of labor sold/$10,000 in labor sales = $100 ELR. Production doesn't fit in the equation.

 

 

Sent from my iPad using Tapatalk

 

You are right, that is the problem.

Posted

Production doesn't fit in the equation.

 

That's not true.

 

Effective Labor Rate is your total labor sales for a given period divided by the number of hour sold, that is true. Joe had it reversed but if you understand his mistake and that he does know what he's talking about, he is absolutley correct.

 

But the answer I read that Joe's friend was seeking was what his NEEDED labor rate was. That does involve producttion. The greater your production, the greater your ELR is and the lower your posted labor rate needs to be to cover just your expenses let alone provide a return on investment. So in determining your required posted labor rate, your production absolutley fits into the equation. Not just fits, but is required.

Posted

I've found if you take the geometric mean of say 30 shops in your local area the number will show you where the shop needs to be. If it's $50/hr or $150/hr it doesn't matter. Customers like familiarity, if your shop is above their perceived average labor rate but do above average work it will be justified. Price yourself near the bottom percentile and you invite bottom feeders, towards the top percentile brings in better but more demanding clients. Price yourself above the franchised dealers and you might have empty bays.

 

With a target labor rate in mind that suits what the market will bear and where you want to fit in, one can reverse engineer the tech pay rates and work on production and overhead. When I first opened I simply took the total shop overhead (total of all expenses including officer salary, except depreciable assets), divided by 80 hours a week (total reasonable labor production we are capable of) and came up with a number. I added a percentage to keep the labor rate in line with my local expectations and provide the shop with labor profit.

 

Notice that parts are excluded from this calculation. Parts profit adds purely to the bottom line, and it works because I can't estimate or control what parts I'll sell in a future month/year/quarter/whatever. I can control labor.

 

So in a nutshell the labor dollars keep the lights on and provides paychecks for everyone, the parts matrix keeps the shop moving forward and adds a cushion.

 

I think my method is pretty good, it keeps me from cheating the techs out of labor and underselling our time because I need to keep the labor hours up near 100% productivity. It removes the idea of free diagnosis. If I'm paying a guy to work on a customers car the shop is billing for it, with few exceptions. If techs aren't keeping up they can't hide behind the parts profit, produce or get retrained at the donut shop.

  • Like 3

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
  • Available Subscriptions

  • Have you checked out Joe's Latest Blog?

         0 comments
      It always amazes me when I hear about a technician who quits one repair shop to go work at another shop for less money. I know you have heard of this too, and you’ve probably asked yourself, “Can this be true? And Why?” The answer rests within the culture of the company. More specifically, the boss, manager, or a toxic work environment literally pushed the technician out the door.
      While money and benefits tend to attract people to a company, it won’t keep them there. When a technician begins to look over the fence for greener grass, that is usually a sign that something is wrong within the workplace. It also means that his or her heart is probably already gone. If the issue is not resolved, no amount of money will keep that technician for the long term. The heart is always the first to leave. The last thing that leaves is the technician’s toolbox.
      Shop owners: Focus more on employee retention than acquisition. This is not to say that you should not be constantly recruiting. You should. What it does means is that once you hire someone, your job isn’t over, that’s when it begins. Get to know your technicians. Build strong relationships. Have frequent one-on-ones. Engage in meaningful conversation. Find what truly motivates your technicians. You may be surprised that while money is a motivator, it’s usually not the prime motivator.
      One last thing; the cost of technician turnover can be financially devastating. It also affects shop morale. Do all you can to create a workplace where technicians feel they are respected, recognized, and know that their work contributes to the overall success of the company. This will lead to improved morale and team spirit. Remember, when you see a technician’s toolbox rolling out of the bay on its way to another shop, the heart was most likely gone long before that.
  • Similar Topics

    • By Joe Marconi
      Many auto repair shops are adding a fee to the final invoice for customers using credit cards. I get it, but don't agree.
      For me it's simple. First, do your best to negotiate the best deal from your credit card provider service.  Next, take that fee and add it to your cost of doing business.  To me, I consider this fee an expenses, just like all other expenses: office supplies, utility bill, insurance, taxes, training, travel expenses, maintenance, etc. etc. 
      From your total average monthly expenses, you will be able to determine your breakeven, and from there, set your net profit goal. In other words, forget about the charging the customer a fee, just build into your overall prices. You will accomplish the same thing, and not bring attention to the customer that small fee that may be a big deal. 
    • By Freestate Auto and Truck
      Hello,
      Does anyone currently use TekMetric and do you recommend it? Any glitches, complaints, or concerns or success?
      If anyone is using a different SMS that you have a great experience with that meets your shops needs?
      We are currently using RO Writer and Autovitals DVI, but the reliability and capabilities of RO Writer are extremely lacking and frustrating. 
      Any input or advice would be greatly appreciated!
      Thank you!
      Michelle
    • By carmcapriotto
      Thanks to our Partners, NAPA TRACS, and Today's Class The "Great Correction" refers to a shift in the industry after a period of relative ease, likely due to pandemic related factors. The key concerns include a decrease in online searches for auto repair, rising costs, increased competition from dealerships, labor shortages, rapid advancements in technology (EVs, ADAS, AI), and the need to explore new revenue opportunities like key services, ADAS calibration, tires, and truck repairs. These issues suggest that the strategies that worked in the past may no longer be effective. Ryan Daily, Business Coach, The Institute Wayne Marshall, Business Coach, The Institute Fred Hule II, Business Coach, The Institute Show Notes Watch Full Video Episode Introduction of Guests (00:00:00) Market Challenges (00:02:14) Customer Education Importance (00:04:01) Effective Communication (00:05:16) Listening to Customers (00:06:49) Value of Language in Services (00:08:34) Customer Trust and Attrition (00:09:21) New Car Sales Impact (00:10:20) Facility Appeal (00:12:26) Investing in Facilities (00:14:09) Profitability Challenges (00:15:17) Mindset Shift in Shop Owners (00:16:16) Value Proposition Discussion (00:17:21) Continuous Improvement in Service (00:18:03) Understanding Profit Targets (00:18:49) Shop Management Systems (00:19:51) Training Service Advisors (00:21:06). Proper Vehicle Inspections (00:22:01) Communication with Customers (00:28:15) Follow  Up Strategies (00:29:45) Educating Customers on Maintenance (00:32:15) Company Culture and Staff Engagement (00:34:02) Understanding Expectations (00:35:59) Customer Engagement (00:36:55) Cultural Impact (00:37:36) Continuous Education (00:39:30) Investment in Staff (00:40:36) Onboarding Process (00:42:33) Industry Transformation (00:44:38) Adapting to Change (00:46:31)
      Thanks to our Partner, NAPA TRACS NAPA TRACS will move your shop into the SMS fast lane with onsite training and six days a week of support and local representation. Find NAPA TRACS on the Web at http://napatracs.com/ Thanks to our Partner, Today's Class Optimize training with Today's Class: In just 5 minutes daily, boost knowledge retention and improve team performance. Find Today's Class on the web at https://www.todaysclass.com/ Connect with the Podcast: -The Aftermarket Radio Network: https://aftermarketradionetwork.com -Follow on Facebook: https://www.facebook.com/RemarkableResultsRadioPodcast/ -Join Our Private Facebook Community: https://www.facebook.com/groups/1734687266778976 -Join Our Virtual Toastmasters Club: https://remarkableresults.biz/toastmasters -Subscribe on YouTube: https://www.youtube.com/carmcapriotto -Follow on LinkedIn: https://www.linkedin.com/in/carmcapriotto/ -Follow on Instagram: https://www.instagram.com/remarkableresultsradiopodcast/ -Follow on X: https://twitter.com/RResultsBiz -Visit the Website: https://remarkableresults.biz/ -Join our Insider List: https://remarkableresults.biz/insider -All books mentioned on our podcasts: https://remarkableresults.biz/books -Our Classroom page for personal or team learning: https://remarkableresults.biz/classroom -Buy Me a Coffee: https://www.buymeacoffee.com/carm -Special episode collections: https://remarkableresults.biz/collections The Aftermarket Radio Network: https://aftermarketradionetwork.com/ Remarkable Results Radio Podcast with Carm Capriotto: Advancing the Aftermarket by Facilitating Wisdom Through Story Telling and Open Discussion. https://remarkableresults.biz/ Diagnosing the Aftermarket A to Z with Matt Fanslow: From Diagnostics to Metallica and Mental Health, Matt Fanslow is Lifting the Hood on Life. https://mattfanslow.captivate.fm/ Business by the Numbers with Hunt Demarest: Understand the Numbers of Your Business with CPA Hunt Demarest. https://huntdemarest.captivate.fm/ The Auto Repair Marketing Podcast with Kim and Brian Walker: Marketing Experts Brian & Kim Walker Work with Shop Owners to Take it to the Next Level. https://autorepairmarketing.captivate.fm/ The Weekly Blitz with Chris Cotton: Weekly Inspiration with Business Coach Chris Cotton from AutoFix - Auto Shop Coaching. https://chriscotton.captivate.fm/ Speak Up! Effective Communication with Craig O'Neill: Develop Interpersonal and Professional Communication Skills when Speaking to Audiences of Any Size. https://craigoneill.captivate.fm/
      Click to go to the Podcast on Remarkable Results Radio
    • By marxautocenter
      Hello everyone,
       
       Currently we use RO Writer and Auto Vitals to manage our shop workflow. It works out very well overall, but I'm looking for a way to keep track of daily/weekly shop numbers in a clean and easy to read format. We found it difficult to get clear numbers in RO writer, and use the punch in/out feature in Auto Vitals for time keeping (which limits our reporting features in RO writer). I'm looking for other shop owners who use this combination to tell me they way they keep track of their daily/weekly numbers, such as technician hours worked/billed, comebacks, declined work, sold recommended (and develop a ratio from declined work/sold recommended).
       
      I'm working on a Google sheet now, but I'm looking for opinions on what you find easiest to read, while limiting entering too much information multiple times.
       
      Thank you for your comments in advance!
       
      Cheers!
    • By carmcapriotto
      The Weekly Blitz is brought to you by our friends over at Shop Marketing Pros. If you want to take your shop to the next level, you need great marketing. Shop Marketing Pros does top-tier marketing for top-tier shops.
      Click here to learn more about Top Tier Marketing by Shop Marketing Pros and schedule a demo: https://shopmarketingpros.com/chris/
      Check out their podcast here: https://autorepairmarketing.captivate.fm/
      If you would like to join their private facebook group go here: https://www.facebook.com/groups/autorepairmarketingmastermind
      In the 200th episode of "The Weekly Blitz," Coach Chris Cotton marks a significant milestone for the podcast by taking a moment to reflect on the journey over the past year. He shares personal anecdotes that resonate with the audience, including a heartfelt update on Kimberly, who made the selfless decision to donate a kidney to her brother, highlighting the profound impact of family and generosity.
      Chris delves into key topics that are crucial for auto repair shop owners, offering insights and advice that are both practical and forward-thinking. One of the main discussions revolves around the concept of adopting a four-day workweek. He explores the potential benefits this can bring, such as improved work-life balance for employees, increased productivity, and enhanced job satisfaction, while also addressing the challenges and considerations that come with implementing such a change.
      Another focal point of the episode is the distinction between commitment and mere interest. Chris emphasizes that true success in business requires a deep commitment, rather than just a passing interest. He encourages shop owners to fully dedicate themselves to their goals and to cultivate a mindset that prioritizes long-term success over short-term gains.
      The benefits of business coaching are also highlighted, with Chris advocating for the value of having a mentor or coach to guide business owners through the complexities of running an auto repair shop. He shares how coaching can provide clarity, accountability, and strategic direction, ultimately leading to more effective decision-making and business growth.
      Throughout the episode, Chris underscores the importance of professionalism within the industry. He stresses that maintaining high standards of professionalism not only enhances the reputation of individual shops but also elevates the industry as a whole.
      In addition, he encourages listeners to take advantage of the marketing resources offered by the podcast's sponsor, Shop Marketing Pros. He explains how utilizing these resources can help shop owners effectively reach their target audience, build their brand, and drive business success.
      Overall, the episode serves as both a retrospective on the past year's achievements and a motivational message aimed at inspiring business improvement. Chris Cotton's insights and stories provide valuable lessons and encouragement for auto repair shop owners looking to elevate their businesses to new heights.
      Introduction to the Podcast (00:00:11)
      Overview of the podcast's purpose and the value it offers to auto repair businesses. Celebrating Episode 200 (00:01:08) Kimberly's Kidney Donation (00:02:06) Highlighting Episode 164 - Unlocking Greatness (00:04:21) Highlighting Episode 170 - Four Day Workweek (00:05:24) Preparing for 2025 (00:07:42) Highlighting Episode 172 - Commitment vs. Interest (00:08:46) Highlighting Episode 175 - The Pumpkin Patch (00:09:58) Highlighting Episode 180 - Profit First (00:11:11) Highlighting Episode 185 - Mom and Pop Shops (00:12:00) Highlighting Episode 186 - Coached vs. Uncoached (00:12:46) Highlighting Episode 187 - Project Alpha (00:13:05) Highlighting Episode 189 - Impact of Politics (00:13:55) Highlighting Episode 192 - Self-Obstruction (00:14:20) Highlighting Episode 193 - Being the Best Shop (00:14:46) Highlighting Episode 197 - Chris's Favorite Things (00:15:30) Looking Ahead to Episodes 201 and 202 (00:15:50)
      Connect with Chris:
      [email protected]
      Phone: 940.400.1008
      www.autoshopcoaching.com
      Facebook: https://www.facebook.com/
      AutoFixAutoShopCoachingYoutube: https://bit.ly/3ClX0ae


      #autofixautoshopcoaching #autofixbeautofixing #autoshopprofits #autoshopprofit #autoshopprofitsfirst #autoshopleadership #autoshopmanagement #autorepairshopcoaching #autorepairshopconsulting #autorepairshoptraining #autorepairshop #autorepair #serviceadvisor #serviceadvisorefficiency #autorepairshopmarketing #theweeklyblitz #autofix #shopmarketingpros #autofixautoshopcoachingbook
      Click to go to the Podcast on Remarkable Results Radio


  • Similar Tagged Content

  • Our Sponsors



×
×
  • Create New...