How do you set your diesel repair shop labor rates? Choosing the right labor rate can make or break your business in the long run. Follow these three principles to land on a rate you and your customers will feel good about:
- What customers do you want to attract?
- Never give something for nothing
- Back into the rate you need
1. What Customers Do You Want to Attract?
The customers that you want will understand that cheap is expensive. If they go for the cheapest labor rate around, chances are they’ll end up spending more in the end.
Good customers are looking for quality, speed, and low hassle. Price is also in the mix but it’s usually not the main driver. Ultimately these customers want to eliminate unscheduled down time. Going only for the cheapest rate will not get them there, and they understand that. Even if they don’t, it’s an easy case for you to make.
So don’t sell yourself short. Your rate determines your clientele. The reality is that the customers you want will view you as lower quality if your labor rate is too low. Meanwhile, customers who are more cash-strapped, and less able to fulfill their end of credit terms, are attracted to shops with lower rates. What customers do you want to attract?
Some people will never pay the quoted price. It’s in their DNA to bargain and get price breaks. Don’t forget that good negotiation is about creating options, not about making ultimatums. So price breaks can make sense as long as they aren’t one-sided. You should never give a price break without some meaningful exchange of value.
Offer up options that will give you value in return. One example is to give a lower labor rate in exchange for the customer allowing you to proactively track their PMs. Ask them to agree to a list of PMs that they will pre-authorize you to do. They are exchanging a lower price for trust in you to do their PMs. Follow this practice when setting your diesel repair shop labor rates.
When customers ask what your labor rate is, this gives you a great opportunity to discuss the possibility of tracking their PMs. “We charge $99 / hour, but for customers who allow us to proactively do PMs we charge $94 / hour.” They win with a lower price. You win by having a guaranteed and pre-authorized stream of business.
If your labor rate doesn’t give you the profit you need, you will not stay in business long. Add up your total cost of labor and back into your minimum labor rate. Based on our profitability model, you should be earning at least 50% profit on labor. That is after covering the wages and benefits of not only your techs but their managers too (e.g. parts and service managers).
For example, if your technicians earn $20 / hour and as a group bill 200 hours / week, your wages for the week will be $4,000. Add in the weekly cost of your service manager and parts manager at $52,000 each, and you’re up to $6,000. Finally, add in taxes and benefits (let’s assume 20%) and you land at $7,200 a week. That’s a total cost of $36 / hour. To get a 50% profit on labor you would need to charge customers at least $72 / hour.
Diesel repair shop labor rates can make or break your shop. Choose what customers you want to attract, use good negotiating skills, and do your homework on your labor costs. You will then land on shop labor rates you and your customers will feel good about.
Fullbay allows you to easily track PMs and use multiple labor rates across multiple customers. Schedule a demo with us today to check out what we’ve built.
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