Is It Time to Raise Your Labor Rates?

May 27, 2022

Knowing your costs, productivity, and outside economic factors is key in determining rate increases.

Shop Name: The Detroit Garage Auto Family

Owner: Andy Massoll 

Location: Detroit metro area 

Staff Size: 75-plus

Shop Sizes: From 6 bays to 15 bays 

Average Monthly Car Count: 220 network average

Annual Revenue: ~ $13 million for each of its seven locations

With increasing costs and rising inflation, many shop owners realize it may be time to raise their labor rates. But it’s always a battle. 

There are several factors to consider, including customer satisfaction. Every shop owner needs to keep their pulse on the industry and make sure they're running an effective business, but when do you know, and what steps should you take when you’re considering raising your labor rates

The Backstory

Andy Massoll, founder and CEO of The Detroit Garage, has been working in the auto industry for over 20 years. His father opened their first store, Curt’s Service Center, which Massoll still operates as part of The Detroit Garage auto family. 

Massoll understands the battle shop owners go through when considering raising their labor rates. He also knows there’s a misconception in the industry that gets a lot of shop owners into trouble: the difference between a door rate and an effective labor rate. 

The Problem

It’s difficult to run a shop, and it’s certainly not easy to find and keep professional technicians. It’s vital to know your numbers. Massoll bases his labor rates on his effective labor rate, analyzing his wages and costs. 

Massoll says understanding your effective labor rate is critical and provides a better insight into your true costs, including the costs of obtaining and keeping your skilled labor. 

“If I can’t obtain or retain (professional) talent … that is when, clearly, I need to pay more,” Massoll says.

Shops need to control rates to balance customer expectations and run the business.

The Solution

Massoll keeps a close eye on his shops’ productivity. That means understanding how many billable hours your shop is producing and comparing the number of hours worked. 

Understanding where your productivity is at is crucial in determining raising your labor rates. 

“You can’t begin to make an educated guess on what (the) labor rate you should charge is until you truly know your labor costs,” Massoll says. “And it’s hard to know your labor costs if you don’t understand and know your labor proficiency or productivity.” 

Close supervision is key, but you don’t need to write it all out on a whiteboard. Massoll uses a software program to make sure he has a keen understanding of his shops’ productivity. Their goal at The Detroit Garage is to always be at 100 percent productivity overall. That helps Massoll understand when it’s the right time to raise his rates. 

Additionally, Massoll is on top of his numbers. He spends time in the weeds, analyzing his total number of labor hours and the labor dollars they sell per store over a month, comparing that to his employees’ wages, and understanding the true costs of his business.

Massoll knows when it’s the right time to raise those rates because he’s spent the time analyzing his numbers, working to keep on top of a gross profit goal of 70 percent to 72 percent on labor. 

The Aftermath

Eventually, there comes a time when it’s necessary to increase those rates, and Massoll has done so fairly recently. 

Economic factors are also important to consider—factors like rising parts costs and inflation. As inflation soared to around 7 percent in 2021, Massoll gave all his employees a 7 percent pay rate increase to counter that economic influence. Because of that, he increased his labor rates.

The Takeaway

With prices going up everywhere, Massoll’s biggest piece of advice for other shop owners is to charge appropriately for your work

He says too many shop owners think of the decision emotionally, wanting to help their customers. Massoll acknowledges it needs to be a factual and calculated decision. 

Massoll notes that he once had a long-term customer come in, who, when he paid for his bill, asked, “That’s it? That seems too cheap.” 

Massoll explained to him that he was a good customer, and Massoll wanted to take care of him. The customer told him, “If you don’t charge me appropriately and be profitable in your business, and you go out of business, how does that help me the next time I need your service?”

That’s a lesson that’s stuck with Massoll through the years. 

“This industry is full of very good people; our business is in helping people. People have car problems, and we help them,” Massoll says. “But we do that for a monetary exchange. And too many business owners run their business with their heart, and when it comes to business, you have to be profitable.” 

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