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Build Your Labor Rate From the Ground Up: Part 2 [THA 346]

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carmcapriotto

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Part 2 of our labor rate discussion in the automotive aftermarket industry. Our panel emphasizes the importance of setting labor rates based on the shop's own expenses and profitability, rather than comparing them to competitors. They also stress the need for regular labor rate increases and educating staff about the financial aspects of running a shop. They address fear and mindset issues that can affect labor rates and overall success. The episode provides valuable insights and advice for shop owners in effectively setting and managing their labor rates.

Chris Cotton, AutoFix Auto Shop Coaching, Chris Cotton Weekly Blitz Podcast. Listen to Chris’ previous episodes HERE

Rick White, President and Lead Coach for 180BIZ, Listen to Rick’s previous episodes HERE. Dave Schedin, CompuTrek Automotive Management Systems. Dave’s previous episodes HERE

Show Notes:

  • Build Your Labor Rate From The Ground Up Part 1 [THA 276]: https://remarkableresults.biz/remarkable-results-radio-podcast/a276/
  • Where the Money Goes – The $100 Lesson [THA 210]: https://remarkableresults.biz/remarkable-results-radio-podcast/a210/
  • Labor rates should not be set based on competitors (00:02:10) The importance of setting labor rates based on the shop's own expenses and profitability, rather than comparing them to competitors.
  • Educating staff about where the money goes in the business (00:03:18) The need to teach employees about the various expenses and costs involved in running a shop, to help them understand the labor rates and the owner's income.
  • Fear and mindset issues affecting labor rates and success (00:05:02) The fear and mindset issues that can affect labor rates and the overall success of a shop, and the importance of addressing these issues before setting labor rates.
  • The importance of financials and owner thinking (00:07:46) Discussion on the prevalence of shop owners not having up-to-date financial statements and the need for owners to transition from technician thinking to owner thinking.
  • Raising the Labor Rate (00:15:40) Discussion on the importance of raising labor rates and providing value to clients.
  • Labor Rate and Value (00:17:19) Exploration of flipping the conversation from price to value and the curse of knowledge.
  • Labor as Time vs Value (00:18:05) Insights on how labor is often tied to time, but should be based on value and the skills of technicians.
  • Setting a Higher Standard (00:23:11) Discussion about the importance of qualifying customers and setting a higher standard for the shop's services.
  • Firing Customers for Excellence (00:24:03) Exploration of the concept of firing customers who compromise the shop's level of excellence and professionalism.
  • Running the Business Like a Business (00:25:58) Importance of charging correctly, controlling the schedule, and making every car count to improve the shop's profitability and efficiency.
  • The impact of increasing labor rates on gross profit (00:31:37) The relationship between increasing labor rates and gross profit. It explains that when a technician's pay is increased, the labor rate must also be raised to maintain the same gross profit percentage. It highlights the importance of understanding the math behind labor rates and setting them proactively.
  • The need to compete with other industries for skilled technicians (00:33:42) The challenges of attracting and retaining skilled technicians in the automotive industry. It compares the benefits and compensation offered by other industries, such as Target and emphasizes the need for competitive labor rates to attract and retain talent. It also highlights the importance of providing tools and benefits to technicians to create a profitable and sustainable industry.
  • Building a profitable business (00:42:42) The significance of being profitable and setting labor rates that allow for a 20-25% net profit, as well as the importance of love and grace in running a successful shop.
  • The importance of making changes now (00:44:27) The need to make changes in labor rates immediately instead of waiting and encourages shop owners to trust the advice of coaches.

Thanks to our Partners Shop-Ware and Delphi Technologies

Shop-Ware: More Time. More Profit. Shop-Ware Shop Management https://getshopware.com/

Delphi Technologies: Keeping current on the latest vehicle systems and how to repair them is a must for today’s technicians. http://DelphiAftermarket.com

Connect with the Podcast

-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

-The Aftermarket Radio Network: https://aftermarketradionetwork.com

-Special episode collections: https://remarkableresults.biz/collections

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  • Have you checked out Joe's Latest Blog?

    • Joe Marconi
      Technician Production is More Complicated than You Think
      By Joe Marconi in Joe's Blog
         0 comments
      Auto shop owners are always looking for ways to improve production levels. They focus their attention on their technicians and require certain expectations of performance in billable labor hours. While technicians must know what is expected of them, they have a limited amount of control over production levels. When all factors are considered, the only thing a well-trained technician has control over is his or her actual efficiency.
      As a review, technician efficiency is the amount of labor time it takes a technician to complete a job compared to the labor time being billed to the customer. Productivity is the time the technician is billing labor hours compared to the time the technician is physically at the shop. The reality is that a technician can be very efficient, but not productive if the technician has a lot of downtime waiting for parts, waiting too long between jobs, or poor workflow systems.
      But let’s go deeper into what affects production in the typical auto repair shop. As a business coach, one of the biggest reasons for low shop production is not charging the correct labor time. Labor for extensive jobs is often not being billed accurately. Rust, seized bolts, and wrong published labor times are just a few reasons for lost labor dollars.
      Another common problem is not understanding how to bill for jobs that require extensive diagnostic testing, and complicated procedures to arrive at the root cause for an onboard computer problem, electrical issue, or drivability issue. These jobs usually take time to analyze, using sophisticated tools, and by the shop’s top technician. Typically, these jobs are billed at a standard menu labor charge, instead of at a higher labor rate. This results in less billed labor hours than the actual labor time spent. The amount of lost labor hours here can cripple a shop’s overall profit.
      Many shop owners do a great job at calculating their labor rate but may not understand what their true effective labor is, which is their labor sales divided by the total labor hours sold. In many cases, I have seen a shop that has a shop labor rate of over $150.00 per hour, but the actual effective labor rate is around $100. Not good.
      Lastly, technician production can suffer when the service advisors are too busy or not motivated to build relationships with customers, which results in a low sales closing ratio. And let’s not forget that to be productive, a shop needs to have the right systems, the right tools and equipment, an extensive information system, and of course, great leadership.
      The bottom line is this; many factors need to be considered when looking to increase production levels. While it does start with the technician, it doesn’t end there. Consider all the factors above when looking for ways to improve your shop’s labor production.

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      Raising labor rates is not just about increasing prices. It's about finding more value in the industry and positioning ourselves as professionals. Join our panel as they highlight the need for understanding the concept of effective labor rate, ensuring services are charged appropriately, viewing the business as a professional entity, providing a positive customer experience and addressing core business problems before raising labor rates. Our panelists encourage shop owners to take a comprehensive approach to their business strategy, considering all factors and not just focusing on raising labor rates. Aaron Woods, X-tra Mile Auto Care, Stillwater, OK. Institute for Automotive Business Excellence. Listen to Aaron’s previous episodes HERE Brent Fleischman, Yocum Automotive, Republic, MO. AutoFix Auto Shop Coaching. Listen to Brent's previous episodes HERE Jennifer Hulbert, Service Plus Automotive, Calcium, NY. Institute for Automotive Business Excellence. Listen to Jennifer's previous episodes HERE Show Notes:
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