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Labor vs parts


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Running my numbers for the year and saw an issue I'd like to improve on.

As many of you know I'm trying to correct some labor revenue issues and things have gotten much better. Roughly 20k increase between last year to date and this year to date to be exact.

But I'm still 20% shy on my labor revenues from being 50/50 parts/labor.

I use my labor as a tool to discount so this may be part of the problem, but I also feel I'm not billing enough hours per job. We're using book and I'm considering marking all book hours up 20-30% instead of a rate increase (we intend to raise our rates but it will be in a larger time frame).

Has anyone tried something like this? Or have any input?

 

Sent from my SCH-I605 using Tapatalk 2

 

 

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Industry standards state that 50:50 isn't good enough anymore to run a profitable shop.

You should be shooting for 55:45 right now, and eventually 60:40 labour:parts ratio.

 

It's a known fact that for many jobs, book hours are too low, but to mark all of them up by 20-30% might be a bit overkill.

Consider maybe picking and choosing ones that are impossible to meet, and increasing them by a larger margin, but leaving a lot of the "good" ones alone.

 

It sounds to me like your labour rates are too low, and like you said, you aren't billing enough hours.

Do you make 70% gross profit on your unloaded tech's pay/60% on loaded tech pay?

If a job goes over book time because of corrosion or excessive grime, you bill for your time?

Do you have excessive comebacks or unbillable work?

 

A good book to read might be Mitch Schneider's Managing Dollars with Sense.

It shows 2 methods to calculate a suitable and profitable labour rate for YOUR shop based on YOUR numbers.

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Industry standards state that 50:50 isn't good enough anymore to run a profitable shop.

You should be shooting for 55:45 right now, and eventually 60:40 labour:parts ratio.

 

It's a known fact that for many jobs, book hours are too low, but to mark all of them up by 20-30% might be a bit overkill.

Consider maybe picking and choosing ones that are impossible to meet, and increasing them by a larger margin, but leaving a lot of the "good" ones alone.

 

It sounds to me like your labour rates are too low, and like you said, you aren't billing enough hours.

Do you make 70% gross profit on your unloaded tech's pay/60% on loaded tech pay?

If a job goes over book time because of corrosion or excessive grime, you bill for your time?

Do you have excessive comebacks or unbillable work?

 

A good book to read might be Mitch Schneider's Managing Dollars with Sense.

It shows 2 methods to calculate a suitable and profitable labour rate for YOUR shop based on YOUR numbers.

Labor rate is a touch low for my margins but I'm surrounded by 10+ $45.00 shops, so I'm very cautious to get ahead of myself and hurt business. I'm the only tech, and I have a helper so in some ways I'm my own worst enemy. Pull off a job to take a quick look at something or move to another job and have to start back. No come backs, maybe too much helping long term customers that should be billed. It's worth mentioning that after more research I found some accounting errors that closed the gap a good but but labor is still less than parts sales. We try to markup rusty jobs but virtually every vehicle here is a rust bucket. 3 years old and it's starting. As far as labor profits , it's close to 60%. I'm thinking of implementing a sliding scale for labor hour increase that moves with the year. Again, profits are nice right now. Just trying to balance it as much as possible.

 

Sent from my SCH-I605 using Tapatalk 2

 

 

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  • Have you checked out Joe's Latest Blog?

         5 comments
      I recently spoke with a friend of mine who owns a large general repair shop in the Midwest. His father founded the business in 1975. He was telling me that although he’s busy, he’s also very frustrated. When I probed him more about his frustrations, he said that it’s hard to find qualified technicians. My friend employs four technicians and is looking to hire two more. I then asked him, “How long does a technician last working for you.” He looked puzzled and replied, “I never really thought about that, but I can tell that except for one tech, most technicians don’t last working for me longer than a few years.”
      Judging from personal experience as a shop owner and from what I know about the auto repair industry, I can tell you that other than a few exceptions, the turnover rate for technicians in our industry is too high. This makes me think, do we have a technician shortage or a retention problem? Have we done the best we can over the decades to provide great pay plans, benefits packages, great work environments, and the right culture to ensure that the techs we have stay with us?
      Finding and hiring qualified automotive technicians is not a new phenomenon. This problem has been around for as long as I can remember. While we do need to attract people to our industry and provide the necessary training and mentorship, we also need to focus on retention. Having a revolving door and needing to hire techs every few years or so costs your company money. Big money! And that revolving door may be a sign of an even bigger issue: poor leadership, and poor employee management skills.
      Here’s one more thing to consider, for the most part, technicians don’t leave one job to start a new career, they leave one shop as a technician to become a technician at another shop. The reasons why they leave can be debated, but there is one fact that we cannot deny, people don’t quit the company they work for, they usually leave because of the boss or manager they work for.
      Put yourselves in the shoes of your employees. Do you have a workplace that communicates, “We appreciate you and want you to stay!”
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