Labor Rates – On the Brink of Explosion?Posted by Tom on May 9, 2015 at 9:06 am
The range of labor rates in North America is huge – roughly from $50 to $150 per “hour” with the most commonly mentioned rates in the $80 to $90 range.
As rates rise, like the price of pretty much everything else that is sold, more and more shops are flirting with or crossing the 3 digit mark. Some believe this is significant and could cause rates to rise rapidly. Why? Because of perception. Many shop owners (and customers) view it like this.
Going from $80 to $90 is pretty big jump.
Going from $110 to $120 is a relatively small increase.
Once the “ceiling” is broken, rates could move up much faster than in the past.
What do you think?
- 10 Replies
- MemberMay 12, 2015 at 5:57 am
When I opened my shop in 1979 I had a personal mantra that “I would rather be working for $18 an hour then standing around for $24.”
Tom, you are right on about the $100 labor “ceiling”.
- MemberMay 12, 2015 at 7:42 am
Every dealer in Sf fl is at least 130 porsche is 250 bmw 175 chevy 130 ford 129 .I dont understand . Rent in Mi is most likely lower than many places . Doesn’t it matter where you are located.If you have a avg ticket with 2 hr then hardly any customers will complain about $5-$10 per invoice when the bill is $500 ? Am i missing something ?If the price is 500 or 510 either way people will say it’s to high quite often .What do you think ?
- MemberMay 12, 2015 at 8:00 am
In this day and age, if you’re basing your labor rate off of what the competitors are doing or other shops in the area, then you’re not in business. I’ve spent hours and hours and hours trying to track what my costs are per hour to perform the work we need to do on the vehicles we have in our location. My labor rate is what it is not because the other shops in town are doing it (for the most part they are not) but rather because that is what is costs for us to do the work.I’m on main street in a small town, I pay a lot for rent and I don’t have inexperienced technicians on staff. I guess my point is that if you’re basing your business model on what everyone else is doing you’re not going to be able to do what the others are not doing…
- MemberMay 12, 2015 at 8:03 am
When was the last time a customer asked what your hourly labor rate was?………..Secondly, if a competitor down the street is $15/hr. lower than you are yet charges 3 hr. for a particular job and you charge 2.5 hr. by the book, then who is cheaper?
Labor guides are just as stated: Labor Guides. It does not say Labor Bible. Charge what you need to be profitable, do quality work, stand behind your work, get your customer out first time every time correctly and I guarantee you nobody will ask about what your hourly labor rate is except somebody who is a shopper that either needs to be educated or let them go somewhere else……Not all business is good business.
Spend 100% of your time on the 90% of your customers who pay without complaining, don’t question your ethics, and are happy when they leave your shop. Let the other 10% go to your competitor and let them be his or her headache.
- MemberMay 12, 2015 at 8:23 am
Posted Labor Rates have been just under $100 for nearly 10 years now in the aftermarket while car dealers have no qualms about charging into the three digits regularly. In fact using grid labor rates and multi-tiered rates the posted or factoring rates continue to climb as the jobs get longer and tougher. Appropriate I say! Posted rates are really only a sign on the wall,a calculating factor for estimating the job to the customer based on an estimated time spent, and rarely really represent the time and labor cost of the job. “Effective” Labor Rate and the margins on the parts vs the “loaded” cost to do the job is what pays the bills and puts a little money in your pocket at the end of the day, not the posted Labor Rate. Move your Posted rate appropriately to move your ER where you need it to pay the bills, keep your techs, attract new techs, make some money and grow your business. Never, ever discount Labor. If you must, discount parts. Labor only jobs are less profitable than a job with parts since there are no parts margins and should be higher to compensate for that factor and it makes sense since most labor only jobs are diagnostic in scope and takes the most highly compensated talent. Think about this for a minute, if your posted rate was for each 10th of an hour what would you charge? $20 per 10th? Now it all makes sense, right?
- MemberMay 12, 2015 at 8:28 am
While the overall range of labor rates vary widely, what we often miss is that the overall cost of the job isn’t that much different within a given economic area. There will be discrepancies in high rent areas like NYC or San Francisco… but within those economic micro-climates the overall job costs will be very similar for those shops following all the rules (insurance, licenses, mandatory compliance and so on….)
The gross profit must be what it must be if you hope to pay the bills and the net for any business should easily exceed what your investments yield, otherwise why be in business….? Just to buy yourself a job? We don’t pay bills with labor rates or percentages we pay our bills with dollars… the rates and the percentages are just there to help us break the data and calculate where we are and where we need to go. We routinely ran a $450.00 average ticket…. in 1987 and 1988… by being the highest priced shop in town… which can also be a marketing strategy when done correctly. Your unique selling points and unique market position can be based on price, quality, warranty, amenities or value, in this case defined to be getting a lot for the money. My philosophy is that every customer starts out thinking that it will be cheaper, faster and easier than it will really end up being and that my job is to help reset those expectations to something more real world. No matter what you charge for your goods and services you must first explain the value before you ask for the money because even if you only charge a dollar for something it’s too much unless the customer sees two dollars in value for your offering. Last thought for today… I’ve been doing this for a long time (why yes, I am slow to learn, thanks for asking….) and when the labor rate was $14 an hour my house was $11,000 and a new car was anywhere from under $2000 to a little over $8000. Now a single family dwelling runs from $75000 to $175000 and a car runs from $20000 to $75000. If we consider just these two economic indicators, a car and a home, we see that the rate should be roughly $140 an hour… up by a factor of ten, just like housing and cars. We won’t talk about food and energy, but we certainly could justify an even higher hourly rate if we did. The flat rate system is archaic and long overdue for replacement, but if we’re going to keep using it, it should at least reflect current economic realities. Best to all, GregMc.
- MemberMay 12, 2015 at 10:34 am
Tom/everyone, consideration of labor rate should also hinge on one HUGE factor, you are going to have to pay techs much more. I wrote an article published in a couple of trade magazines but here is just a part of it concerning this subject –
- 1 – MOST IMPORTANT, save the Techs we have from leaving the industry
by paying Techs like the professionals they are. Even mid-skilled Techs perform
tasks that college educated Engineers perform. With that in mind, right out of
pay scale websites shows an average 5 year experienced Engineer makes $65k to
$75k a year. Upper skilled with 7 plus years experience makes $85k to $95k+.
Great ones should make $125k to $150k a year. Techs by 2016 should be in this
same range. Where will the gross come from to pay these wages? It starts with
ALL SHOPS raising rates. Start
that process soon! By the end of 2016 if you’re not paying your average Tech $50
an hour, you won’t have any.
- (the full article is at http://www.actautostaffing.com/findgoodtechs.asp )
- MemberMay 14, 2015 at 12:46 pm
Interesting that we in the independent shop world tell our customers we’re as good or better than the dealers but sell our services @ a discount every day. We cracked the $100 barrier about 18 months ago and didn’t hear a peep from our customers and I’m considering another $3.23 bump and will give my techs another $1.00 to keep the margins consistent. Do a competitive price shop, not about labor rate but instead common jobs. If you are in the ball park (5-10% on an average ticket) most customers who see the value you offer won’t leave you over $10-20 per ro. The bottom feeder customers will leave the 1st time you aren’t the cheapest anyhow, so charge what you need and stay profitable.
- MemberMay 20, 2015 at 3:35 am
After reading the comments listed above, I as a technician needs to ask a question here. The shop I work for specializes in Batteries, Starters, Alternators, and wiring problems. We have a 75.00 hr. shop rate. The management uses the P***b*y’s and Au**z**n* as examples why we do 98% of all battery installs for free, Free scanning (using my equipment for diagnostics) and if a job is an hour by Mitchells when we have problems with frozen or difficult reasons why an install doesn’t get done in that hour starts reducing the rate he will charge. I am trying to show him how we are actually losing money when we should be kicking ass in profits. I love the field and don’t want to leave because this company has some real potential.
Any tips and suggestions to help and turn this around?
- MemberMay 20, 2015 at 4:52 pm
Invite him here.Everything you mention is covered here somewhere more than once.One can easily spend hours reading and learning.
Log in to reply.