Auto Shop Coaching Blog

Why You’re Not Making Money on Labor

Unlike parts, labor margins (what you make on the labor you sell) can swing dramatically based on a number of factors. So if you feel like your technicians in your automotive repair shop are busy but don’t see the dollars on the bottom line, here are some things to look for to increase your labor margin.

1. How You Price It

Your average labor rate (also called your Effective Labor Rate) needs to be high enough to cover not only the wages for your techs but also your employer taxes and any benefits you provide (including paid holidays, vacation, insurance, training, meals, and retirement contributions). Plus, the rate should make money for you to pay other bills and yourself.

If you’ve never sat down to calculate what it really costs you as an employer for each of your employees, take the time to do this now.

Ideas to grow your businessNon-ATI Members: Discover more valuable tips and strategies to increase your bottom line in ATI’s shop owner events. Register at www.atievent.com.

2. How You Pay It

Are you paying your technicians hourly? Flat rate? Salary? We won’t get into the legality of each of those pay plans here, but take a look at what it costs you for each flagged hour a tech is producing.

For example, if you pay a Master Tech $35 per hour on the clock, but they are only flagging (billing out) 4 hours a day, they’re really costing you $70 per hour. If you pay them a flat rate, you still lose 4 hours a day that could be billed hours and money in both of your pockets.

Evaluate whether you have a sales issue, efficiency issue, or training issue so you can get that technician flagging better hours.

3. How You Staff It

If you think having a shop full of Master Technicians is the best way to go, think again for many reasons. The technician shortage makes finding and keeping highly experienced technicians harder and harder. It also drives payroll expenses up, making it difficult to get a strong labor margin on menu-priced services.

Hiring less skilled technicians and apprentices allows you to stay competitive on general service work and maintenance and still make a strong labor margin on that work. For example, I would rather pay my $18/hour apprentice to do oil changes and alignments than my $35/hour Master Technician.

Now is the time to put a training program in place to develop inexperienced technicians.

Take Action

Making money on the labor side of your business involves scheduling properly, having a great team in place, and pricing it to make sure that you, the shop owner, are taken care of as well. At ATI, we teach shop owners how to staff and hire a highly productive team. We train service advisors to educate and serve customers so sales are high and everyone wins. And we help you build a technician training and apprenticeship program to keep you staffed with highly skilled technicians in the future.

Want to learn more? Start with a shop owner event at www.atievent.com.

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Charlene is an Executive Coach at ATI, is a former shop owner, and has been coaching since 2014. Charlene helps clients find the right solutions to their challenges and encourages them to make the changes that result in having the life they dreamed about when they got into business ownership.