• April 9, 2015 at 12:03 pm #64595

    I am trying to find the best way to find out what my labor rate should be? I am assuming this would be my affective labor rate. I now know what I spend on labor per month and per week, now I need to know how I translate that into what I should charge per hour in order to be profitable on the labor side of my expenses. 

    April 9, 2015 at 1:44 pm #73998

    I can’t tell you the right way for your shop without knowing a lot of other information.  I CAN tell you how I figured out MY labor rate for MY shop:

    I added up my fixed expenses, rent, uniforms, small tools, and an average of electric and gas costs over a 36 month period.  I then took all that information and divided it amongst my employees and added that to their hourly pay scale.  Then I picked my jaw up off the floor and set my labor rate just under that amount because it would have pushed me off the charts expensive.

    April 9, 2015 at 2:36 pm #73999
    Frank Scandura III

    We take our tech pay x1.2 (to cover other costs) and divide by .30 to achieve gross profit of 70% 

    example 28.00 per hour x 1.2 = 33.60 / .30 = $112.00  per hour (we pay flat rate)

    32.00 x 1.2 = 38.40 / .30 = 128.00 per hour (we pay flat rate)

    you’ll want to try to average 60% overall  parts and lobor gross profit .You need to know all of your  KPI’s (key performance indicators) Parts gross profit, productivity, efficiency, total expenses as a percent of sales, and so on. it all works together  

    Frank M Scandura III

    April 9, 2015 at 4:03 pm #74000

    We make sure our service adviser and techs don’t surpass 35% of our effective labor rate .

    It also makes a little competition between techs to turn houres.

    Our tech are on base plus a sliding scale every 5 hours they make more $ per hours turned.
    Our shop rates are from 105 to 140 depending on what kind of vehicle.  .
    our effective rate is about 114 per hr We have lots of coupons for a discount on labor so that lowers our gross by about $1000 a week. 
    If you raise your labor rate a little to compensate for rising costs every 6-12 months the customer does not feel it because most invoices are 2.4 hrs. that is 2-5 bucks a invoice. It hurts no one.  
    Fix it right the first time and everyone comes back.  
    Hope that helps.
     PS: The cheapest shops have the worst customers i have found. 
    April 10, 2015 at 11:47 am #74001


    how did you figure out your shops effective labor rate? We pay a base hourly wage also but without the sliding scale, witch is something I would also like to know how you do because it sound like a good idea. But I need to know what my effective labor rate is first and I don’t know how to figure that out. 

    April 10, 2015 at 5:12 pm #74002

    For instance, let’s say that your labor rate is $100 an hour and your monthly labor sales were $50,000. If you have three technicians and you paid each tech 200 hours that month, that’s a total of 600 labor hours. In theory, you should have made $60,000 in labor sales. But since you only made $50,000, that means your effective labor rate is at $83, not $100. You’re paying those 600 hours to your technicians but you’re not collecting them from customers

    April 14, 2015 at 3:04 pm #74003

    So my understanding is the total $ billed divided by the Actual Hours worked  (or paid to the technicians).

    $50,000 / 600 = $83.33 ELR
    Thanks… I’ll be adding it to our new labor logger which I happen to be working on now. This way you can track it per job so you can see right away what’s going on.
    April 21, 2015 at 6:35 pm #74004
    Joseph Van syoc

    While we are on the subject, does anyone know a good source of local labor rate  survey info?  Id like o see how my rates compare in my area without having to call up all my competitors to do a survey, surely this info is available somewhere?

    April 23, 2015 at 8:26 am #74006


    I would recommend that you contact your Parts Vendors (someone you trust) they have other customers in your area also… He knows a lot about his customers and will know area labor rates. Labor Claims for parts failure …. Personally I would want an idea but I would still base My Labor Rate based off what it takes for My Shop to be Profitable. Not what everyone else is charging….All aspects of a Automotive Repair Shop have a Target Number (percentage) that needs to be met for the business to turn a Profit.. Labor is a Key Performance Indicator (KPI). Expenses is another one … Parts Margin is another one .. Average Dollar Per Car is another… So I would recommend that you start with working on these first. If you don’t know how don’t let that get you down. Most don’t. Seek some training from someone then Invest in a Software Management System that will provide you with that information so you can Work On Your Business. Hope this Helps…

    Stan Williamson
    Business Improvement Specialist
    AMS RO Writer

You must be logged in to reply to this topic.