So what is your real or effective labor rate? That is the number we need to use to see if you are in fact hitting the right 60 percent margin in your labor.
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So how does the higher labor rate affect the customer? The type of shop you own or manage tells us how many hours per vehicle you should be shooting for. Quick lubes would love to have .75 hours with the huge car count. For tire shops and state inspection shops, the goal is 1.5 hours per vehicle. Regular auto repair shops are going for 2.5 hours and Asian and Euro shops go for 4 to 7 hours per shop, with Asian on the low end and Euro on the high end.
So a normal shop is 2.5 hours, and if you raised the labor rate $25 per hour, then the normal increase to the customer would be $62.50 on a 2.5-hour job. Is this a deal breaker? It is if you don’t have your brain attached and you are selling price rather than warranties and benefits.
On a 10-hour job it would be an additional $250, but the bill would already be around $2,000. Is an additional $250 a deal breaker? We may not be able to raise our rate to $25 or $50 an hour all at once right now, but we need to start moving it up — and in the near future — if we are going to attract and pay the best techs and service writers.
In jurisdictions where you have to post your labor rate, you should consider posting it by the half hour, not the hour. Customers love it!
Calculate and track your effective labor rate
When you are quoting your labor rate to a customer, what are you quoting? Your supposed labor rate that you are not collecting? Your effective or real rate? Your blended rate for all the menu jobs and the door rate and the effective or real rate? Don’t we always quote the highest one if we quote the rate at all? Why not say it depends on the job, and we would love to give them a quote once we look at it. Then are you going to sell the labor rate or are you going to sell the value that you bring to make the sale? What if there is rust or any other thing that can get in the way and make the job last or take longer?
The bottom line is that techs and writers are hard to find and keep. I know that most of our good employees don’t make money the only consideration. Don’t you want the loyal great employees who are working for you to know that they are some of the best paid in the industry? Don’t you want them to feel like they are really being taken care of so when they get the call from your competitor to go to work for them, your employee is not interested in even listening to them?
Don’t we owe it to ourselves and our team to be the best? Does the best cost money? Is your competition going to hold you back?
If you are interested in a worksheet that will help you determine what your Effective Labor Rate is, simply go to www.ationlinetraining.com/2016-10 for a limited time to download your own copy.