Increase Your Labor Sales
SHOP STATS: European Autowerks Location: Virginia Beach, Va. Owner: Eric Svedberg Average Monthly Car Count: 170 Staff Size: 7 Number of lifts: 9 Shop Size: 10,000 square feet ARO: $901 Annual Revenue: $1.7 million (COVID-19), $2 million to $2.2 million (Pre-COVID, invested back into the shop)
If you think about it, shop owners have two, maybe three main revenue streams. Sublets like towing, windshield replacement or detailing can be paths to additional profit, but parts and labor are a shop’s biggest moneymakers.
“Basically in our business, that’s parts and labor if you get down to the nuts and bolts of it.”
That’s how Eric Svedberg, owner of European Autowerks, looks at his business, and it helps him remember the importance of charging the right prices. For Svedberg, labor is of high importance, and leads as the highest amount of gross profit for your business. In his shop, it makes up 55 percent of his shop’s revenue, while 45 percent comes from parts. While other shops may have different needs, this 55:45 ratio allows him to be able to budget for his shop properly, gauge the amount of technicians needed, and overall, make a reasonable profit.
If you’re noticing a dip in your labor sales, no need to fret. Svedberg says there are five easy ways to fix the issue at hand.
Tactic No. 1: Charge for testing.
If you are testing for anything on the vehicle, make sure to charge them. Believe it or not, Svedberg notices a lot of shops still don’t charge customers for testing—a perfect example of emotional discounting. Svedberg says shop owners have a hard time charging for testing because to the customer it’s an intangible item. It’s harder to put a price on something the customer can’t physically see, unlike parts.
When Svedberg’s team gets pushback from customers on this, he tells his service advisors to give them a little bit more perspective.
“We might say something like, ‘the tech’s time is valuable, just like what you do for a living,’ and turn it back on them,” Svedberg says.
Tactic No. 2: Mark up from your labor guide.
This is an easy fix for making sure your labor sales are up to par, according to Svedberg. What Svedberg did in his shop was use the Mitchell 1 labor guide, pulled the numbers over into his estimating system, and set a markup price from the labor guide’s recommendation. For Svedberg, he set a markup that’s usually above 20 percent.
Tactic No. 3: Have multiple labor rates.
Just like in a previous Ratchet+Wrench article, Svedberg always has multiple labor rates depending on a number of different categories.
“Go by the job and have a different labor rate for different things,” Svedberg says.
Svedberg’s base labor rate starts at $129.20. There’s a fleet company that brings him a lot of vehicles to his shop to service, so he gives the company a discounted rate of $119.20, and he also has a Friends and Family Rate starting at $119.20.
He also has set a labor rate for vehicles depending on their age. For vehicles over 10 years old, it starts at $139.20. For vehicles over 20 years old, $149.20, and for vehicles over 30 years old, it starts at $159.20.
From time to time, Svedberg does service specialty vehicles, like Porsches, and because these vehicles can be more difficult to service, he set the rate at $149.20. Similarly, conversion vans and lifted trucks are set at $139.20.
He also has a diagnostic testing rate—if the vehicle requires multiple hours of testing—of $149.20. This is only for a custom problem. When it comes to smaller diagnostic testing, he considers this a can job.
And finally, Svedberg makes sure to charge customers a supplied part rate if they bring in their own parts, charging them $184.82. It’s like a corkage fee in restaurants—it makes up for Svedberg not making money on selling that part.
With multiple labor rates, everything is simply marked up from the base rate. Svedberg says doing this will easily help shop owners hit their target numbers.
Tactic No. 4: Get your technicians’ input.
While you should look at your labor guide for guidance, Svedberg says it’s important to talk to your technicians about the accuracy. Is it taking longer than what is recommended? A tech could come back and say that he’s done the job before and there’s no way he can complete the job in that amount of time. Or the tech could say he’s done the job 100 times before and can do it in an hour when the labor guide says 2.5 hours. Whatever the response may be, Svedberg always goes with the higher number of hours.
“In this instance, you’re shooting yourself in the foot if you don’t go with the labor guide,” Svedberg says.
Tactic No. 5: Don’t forget about retesting.
Let’s say a customer comes in and says the part you just installed doesn’t work properly. It’s an easy fix, and when you go into the labor guide to get the price to replace or fix a part, what it does not take into consideration is the amount of time it takes to retest. All this number includes is the amount of time it takes to take a part off and put it back on. Svedberg says what service advisors forget about is the technician gets the part and puts it on, but still has to go in, fix the problem, and make sure the problem was fixed by retesting it.
For Svedberg, he marks up the price to whatever he feels is fair for both parties, and on the customer’s receipt, the description will then read ‘retesting’.
“Therefore, I can charge whatever I want to charge as long as it’s fair to everyone involved,” Svedberg says.
Svedberg also says this rate has to do with his technicians’ efficiency as well, making sure they test it each and every time.