Are Your Using a Labor Matrix?

[Joe Marconi]

I am hearing more and more about shops using a Labor Matrix to increase labor profit. 

I have been a long time proponent and have used different labor tiers. For example, we worked on passenger vehicles and heavy trucks. The labor rate was higher for an F500 Dump Truck than it was for a Honda Civic.

The labor matrix is a different, it allows your business system to factor in more hours for either longer jobs, vehicles over 20 years old, or any other criteria you decide. For example, if the labor for a job is 8 hours, that job may be billed with an additional 10%, making the job 8.8 hours, not 8.

I would like to hear from shop owners using this strategy and tell about the impact on their labor profit. 

 

[Transmission Repair]

50 minutes ago, Joe Marconi said:

I am hearing more and more about shops using a Labor Matrix to increase labor profit. 

I have been a long time proponent and have used different labor tiers. For example, we worked on passenger vehicles and heavy trucks. The labor rate was higher for an F500 Dump Truck than it was for a Honda Civic.

The labor matrix is a different, it allows your business system to factor in more hours for either longer jobs, vehicles over 20 years old, or any other criteria you decide. For example, if the labor for a job is 8 hours, that job may be billed with an additional 10%, making the job 8.8 hours, not 8.

I would like to hear from shop owners using this strategy and tell about the impact on their labor profit. 

 

We used a labor matrix as a "filter" to filter out jobs we either didn't like, took more time, or were a higher risk as far as warranties go.  We were a transmission shop.  Regular plain vanilla jobs received the lowest labor matrix.  The next step above that were European vehicles.  Above that were highly modified/chipped vehicles.  Above that were older, worn-out vehicles, typically vehicles older than 20 years old and pre-OBDII.

Our invoices didn't show the number of hours or the hourly rate.  It would show only the dollar amount of labor to keep customers from complaining or comparing our shop labor to other shops' labor.  For the most part, it was a successful method.  We all get jobs that go hay-wire somewhere during the repair and I wished I would have billed more hours, but that's just the way it goes.  Win some; lose some, I would say.

I loved writing estimates and I tried to keep it that way for our counter people by giving incentives for well-written estimates.  Generally speaking, the more text an estimate has, the higher perceived value the estimate has in the mind of the consumer.  We rarely under-bid jobs.  Estimates were also rare to be only 1 page.  2 to 3 pages was the norm.  Well-written estimates ensured a successful shop operation.  Most of our competitors would write what I called "1-liners" for estimates and lump everything together, labor, parts and all, into one lump sum.  Pitiful, I'd say.  Invariably, they were the lowest bidders of the neighborhood.

[southendautocare]

We have about 8 different labor matrix's.  We are more and more introducing previously unthinkable labor rates, mixed with little to no parts mark up (that's our "matrix!") . Sometimes we charge a little below our cost on parts, and adjust the labor rate accordingly!  We arrive at the same profit dollars per job, and it is more of a challenge. We do this mainly to avoid the parts "mark up" challenge with extended warranties, as well as customers.  I think a more important number than "gross profit" for the job, is having a gross dollar profit goal per technician hour spent on job.  Hard to achieve on oil changes, and certain jobs, but can make a drastic improvement in bottom line on "no or few parts" jobs, long diagnostic jobs, etc.  Hardest challenge is changing the thinking with service advisors to implement this.  Change is usually hard, but can help alot. 

 

[Joe Marconi]

1 hour ago, southendautocare said:

We have about 8 different labor matrix's.  We are more and more introducing previously unthinkable labor rates, mixed with little to no parts mark up (that's our "matrix!") . Sometimes we charge a little below our cost on parts, and adjust the labor rate accordingly!  We arrive at the same profit dollars per job, and it is more of a challenge. We do this mainly to avoid the parts "mark up" challenge with extended warranties, as well as customers.  I think a more important number than "gross profit" for the job, is having a gross dollar profit goal per technician hour spent on job.  Hard to achieve on oil changes, and certain jobs, but can make a drastic improvement in bottom line on "no or few parts" jobs, long diagnostic jobs, etc.  Hardest challenge is changing the thinking with service advisors to implement this.  Change is usually hard, but can help alot. 

 

Great strategy!  Question, How long have you been using this strategy, and how has it made a difference in overall GP dollars? 

[southendautocare]

Been using it 2-3 years, most commonly on jobs we know might be challenge with the owner or insurance company. Many don't come in as a result of the quote. The ones that do, approximately 50% more gross profit dollars on those jobs. 

[Transmission Repair]

Here is one of our estimates.  We had to buy a reman because there was so much hard part damage due to no ATF.  Notice we use a lot of text even though the estimate is only a "1-pager."

Bradshaw's Mustang Transmission Estimate

[Joe Marconi]

10 hours ago, southendautocare said:

Been using it 2-3 years, most commonly on jobs we know might be challenge with the owner or insurance company. Many don't come in as a result of the quote. The ones that do, approximately 50% more gross profit dollars on those jobs. 

Great feedback, and great strategy! Thanks for sharing. 

[Gary Childs]

Yes we use a strong labor matrix manly being in a salt belt state the labor guides do not compensate for the rust problems around here. Times should not be the same in per say Arizona versa upstate NY. Many techs I know when I lived in Arizona would quite on the spot then work on a upstate NY car or truck. They would run away screaming.  

[Transmission Repair]

1 hour ago, Gary Childs said:

Yes we use a strong labor matrix manly being in a salt belt state the labor guides do not compensate for the rust problems around here. Times should not be the same in per say Arizona versa upstate NY. Many techs I know when I lived in Arizona would quite on the spot then work on a upstate NY car or truck. They would run away screaming.  

Being near Salt Lake City, they use salt on the road quite liberally because salt is so abundant, local, and cheap.  We are in the affluent suburb of Draper, Utah and never see the rust bucket vehicles of other lower income areas.  We were a transmission shop and worked predominantly on 10-year-old and newer vehicles that hardly ever had any rust.  However, I once worked for a shop in a lower income area and we saw quite a few older, rust bucket vehicles.  Change your demographics and you'll change the types of vehicles you work on.

[Joe Marconi]

13 hours ago, Gary Childs said:

Yes we use a strong labor matrix manly being in a salt belt state the labor guides do not compensate for the rust problems around here. Times should not be the same in per say Arizona versa upstate NY. Many techs I know when I lived in Arizona would quite on the spot then work on a upstate NY car or truck. They would run away screaming.  

HA! I bet you are right!  I am in New York, born and raised in the Bronx, but my repair shop was in Putnam Country NY, about 45 minutes north of NYC.  We learned how to use a torch before learning how to use a wrench!

Published book times are a joke for so many operations.  As pros, we need to factor in the variables. As you point out NY is not the same as Arizona.  

In the end it comes down to LABOR DOLLARS, not LABOR TIME.