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Parts/labor mix


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I've been working on some yearly numbers for taxes - as many of you know we're a small shop just starting to expand. I've heard in the past the work mix should be close to 50/50 but we're finding ourselves at 64/36 with parts being the 64%. I've always struggled billing enough hours. Is this something I should try and adjust towards, and what methods should be used to improve this?

 

 

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Great Tire Deal

The reason you want to have your Labor sales higher than Parts is simply you make more money off labor. If you are shooting for a 70% GP on labor and parts is around 50%, which would you rather be your biggest profit center. Its damn good that you are getting 55-57% on labor because that probably helps compensate for the off ratio. What is your Hours Per RO?

Edited by mspecperformance
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Two easy ways to get your labor up is 1) raise your labor rate 2) start marking up your labor guide. If you're using mitchell manager, both are easy to do and takes less than a minute.

 

I personally mark up our labor guide 20% (16.67% GP). It's gotten me closer to 50/50, but I still run a little on the high side with parts, mostly due to me doing a poor job at selling diagnostic time

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Something else you might consider is setting higher labor rates for higher labor jobs. This is something I just set up this week and I've used on a few cars so far. It's not much, but an extra $2-4 each hour at the end of the year adds up. This will also increase your GP on labor and effective labor rate. Just an idea

 

https://goo.gl/photos/MbWDGu9FHde3MNAx6

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Something else you might consider is setting higher labor rates for higher labor jobs. This is something I just set up this week and I've used on a few cars so far. It's not much, but an extra $2-4 each hour at the end of the year adds up. This will also increase your GP on labor and effective labor rate. Just an idea

 

https://goo.gl/photos/MbWDGu9FHde3MNAx6

Thanks Matt, that's an awesome management software you have!

With an option like that it'd make it easy to do!

 

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Something else you might consider is setting higher labor rates for higher labor jobs. This is something I just set up this week and I've used on a few cars so far. It's not much, but an extra $2-4 each hour at the end of the year adds up. This will also increase your GP on labor and effective labor rate. Just an idea

 

https://goo.gl/photos/MbWDGu9FHde3MNAx6

I like that idea! Have you had any customer complain / question why there is a sliding scale for labor rate?

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Not at all. Granted I just started using it this week, but I can't imagine how anybody would ever find out that I'm using a labor matrix. My invoices don't print how many labor hours a job took. Also, almost all dealerships use a labor matrix. If a customer did somehow bring it up, I'd simply say I don't believe in charging our full labor rate for a job that only takes 0.5 hours to complete, so we have a lower labor rate for lower paying jobs. I'm pretty sure everyone on this forum doesn't use their shop labor rate for oil changes, so everyone is essentially already manipulating their labor rate, this is just a way to offset that. A job that pays 10+ hours is clearly a very labor intensive job that a C level tech is probably not going to be able to handle and is more prone to delays or mistakes.

 

Another benefit is when someone is price shopping and asks the dreaded question 'So, what is your labor rate?' Now I can honestly say we don't have a set, straight across the board, labor rate. This also happens with extended warranty companies.

 

Something else to keep in mind is that the math is compounding. So when you have a job that pays 3.6 hours, and you increase your labor rate by $4, your not just going to get an extra $4. You're actually going to get an extra $14.40 (3.6 X $4). This can really add up over the course of a year and have a pretty nice impact on your effective labor rate. In the grand scheme of things, The extra $14.40 is not going to sway a customer's decision on a $600 repair estimate.

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Something else you might consider is setting higher labor rates for higher labor jobs. This is something I just set up this week and I've used on a few cars so far. It's not much, but an extra $2-4 each hour at the end of the year adds up. This will also increase your GP on labor and effective labor rate. Just an idea

 

https://goo.gl/photos/MbWDGu9FHde3MNAx6

I think this is a GREAT idea. What management program are you using, though? It looks a lot like Mitchell Manager, but I don't have the ability to use a labor matix in my version of Mitchell.

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Yes, I am using Mitchell manager. It'd been an option ever since I started using it 3 years ago, just never realized how to do it. Technically, it's not a matrix. You have the option to set different labor rates in the program settings. Mitchell says it's for things like diesel work/ fleet work, discounts, etc. I just thought one day, why not set it for labor hour totals and use it that way. So it's not automatic, but if you get in the habit, it's super easy.

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It's easy to know if your labor rate is right. Simply take the flag hour wage of your highest paid tech and divide by .3. My techs make 31 an hour so the minimum correct labor rate is $103. We use coupons to attract new customers, so my rate is higher to compensate for the discounts.

If you're getting 55% on parts (part cost divided by .45) and your labor rate gets you 70% margin on labor, then don't worry about P/L mix. A 4.5 HPRO tells me you're not likely giving away much labor. It's probably due to selling lots of high dollar parts, which is a good thing at 55%.

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      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.
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