A Fistful of Labor Rates
Your labor rate isn’t just what you charge—it’s also a state of mind.
Yes, your labor rate is what you charge your shop’s customers for a technician’s time and expertise. It’s also the basis for what you pay your technicians—and in the current tech shortage, a good wage is more important than ever.
But raising labor rates (and raising rates in general) is a tricky subject for shop owners. How do you make sure that the increase you’re asking for is fair? How do you implement the change once you decide on it?
To help us in this ongoing discussion, we brought in some knowledgeable folks you’ve seen before in our webinars and blogs:
- Jacob Findlay, Co-Founder & Executive Chairman of Fullbay
- Chris O’Brien, Chief Operating Officer of Fullbay
- Robby Gilbert, Director of Finance at Fullbay
Together, the trio discussed the ins and outs of labor rates, providing a thoughtful new way to look at why you should consider raising your labor rate and how it can benefit your shop beyond just bringing in more revenue.
Because this is such a dense topic, we broke what was one very big, very unwieldy article into two more bite-sized pieces (you can thank us later). In the article below, we’re going to get deep into some of the problems shop owners confront when debating raising their labor rate, including a fear of gouging their customers. We’re also going to show you what external factors you should look at when determining what that rate might be. And in the article after this, we’ll provide you with free tools and a tactical process to make things easier.
For now, let’s better understand some of the forces you, as a shop owner, may confront on the never-ending quest for higher pay and revenue.
Your labor rate is directly connected to your technicians’ worth
You should pay people what they’re worth.
On a surface level, this is not a radical idea. Most people probably even agree with it.
Except we don’t all agree on what the worth of a tech is.
Your technicians are the lifeblood of your shop. After all, they’re the ones doing the actual work. It’s been proven time and again that happy employees do better work, whether they’re in a white-collar firm or a blue-collar trade. You know who doesn’t do good work? Employees that are unhappy, underappreciated, underpaid, and a whole lot of other un-adjectives.
If you don’t believe us, maybe you’ll believe Bill Murray:
We bring this up because some shop owners—not all, but enough—just don’t see technicians as a job worth a whole lot of money. That mindset, says Chris and Jacob, has got to change. Owners need to view their technicians as highly skilled professionals who are worth compensating. Just because the owner started out at $7 an hour 50 years ago does not mean an equivalent wage is appropriate today.
It’s a different era and a different market. And because the field hasn’t refilled at a sustainable rate, a crack team of diesel professionals is tough to assemble.
“There’s incredible demand out there for diesel technicians,” Jacob says, “more demand than supply. Market rates should be going up because the demand is so immense.”
Let’s break it down even more. Techs can find jobs elsewhere. They are, at present, holding the cards when it comes to employment. What can your shop offer them that another shop can’t?
- Career pathing?
They are all great reasons for a tech to work at your shop, but honestly, the last one is usually the most popular choice.
The heavily simplified takeaway is this: If you want to boost revenue, charge more for your labor rate and pay your techs as much as you can pay them. The higher the compensation, the more techs you’ll attract and retain, and the better a diesel Avengers team you can assemble.
Good techs do good work. Good work means happy customers. Repeat customers. New customers.
You get the idea.
What impacts your labor rate?
Before going any deeper into this, we want to point out that this process is a whole lot easier if you have a financial plan. That’s because your goals are going to inform your labor rate.
You have a financial plan, right?
Well, we hope you do. If you don’t, we can help you make one.
Our financial whiz, Robby, suggests performing a SWOT analysis—your Strengths, Weaknesses, Opportunities, and Threats—to size up where you stand in your market. Some areas you can look at include:
- What are your local competitors charging for their labor rates?
- Are you sharing turf with several other repair shops, or are you the only one for hundreds of miles?
- Do your technicians have—or are they obtaining—certifications that can help them work on other vehicles?
And so on and so forth. Basically, you’re taking a look at what you can offer and how it stacks up to what those around you can offer. Knowing what your market will support will help you make an informed decision when raising your labor rates.
No, you aren’t gouging people
Let’s address the elephant in the room. Have you ever thought of one of these following things?
- If I raise my rates to/more than X, I’m just ripping people off
- Am I gouging my customers?
- Nobody’s going to pay this rate
We’ve talked to a lot of our customers about the diesel industry and everything that’s going on in it. A common sentiment we’ve heard expressed is a hesitancy about raising rates across the board—not just labor, but shop supplies and so on—because they don’t want to pass the burden onto their customers.
You know what? Generally speaking, not wanting to rip people off is a good trait. You’re emphasizing with your customers because you probably remember a time when someone else raised rates on you.
But that good trait can complicate matters when you’re trying to run a business. If you never raise any of your rates, or you don’t raise them enough to keep up with things like inflation, the parts shortage and its associated expenses, and other things, then you’re going to end up running your operation into the ground. Maybe not this year or next year, but certainly down the line. It’s just a matter of doing business in today’s economy.
More than that, though, your shop is providing a valuable service to customers. Our most recent State of Heavy-Duty Report indicates that 63% percent of you are working on Class 6-8 vehicles—which includes the big rigs that haul food, medicine, clothing, electronics, furniture, and heck, pretty much everything else people want or need across the country. Those trucks need service, not just so they can carry freight, but so they can carry freight safely.
You and your techs are part of the nation’s shipping infrastructure, whether you believe it or not, and safer, more reliable vehicles are good news for everyone involved.
Balancing the books
Fair enough, Fullbay, you may be saying, but how am I going to afford these raises?
Hey, we get it. It’s great to want to pay your techs more, but that money has to come from somewhere else in your budget. Raising your labor rate can go a long way in covering the potential gap between what you bring in and what you pay your techs, but there are other levers you can pull to ensure you’re bringing in enough to make your shop whole.
In our next article, we’re going to discuss those levers and show you a couple of free tools that will help you understand what numbers make the most sense, as well as how to inform your customers of the change.
For now, stay calm and keep truckin’ on. We’re rooting for you!