For a Few Labor Rates More
Welcome back, friends!
In our previous article, we talked about how difficult it can be to raise your labor rates, addressing both the practical challenges and the uneasy feelings that can accompany the decision.
This post is a continuation of that piece, and is based around a conversation we had with the following knowledgeable folks:
- Jacob Findlay, Co-Founder & Executive Chairman of Fullbay
- Chris O’Brien, Chief Operating Officer of Fullbay
- Robby Gilbert, Director of Finance at Fullbay
If you’ve gotten this far, then you know we believe that your techs are worth a higher salary, and so is the work your shop does. You may be nodding along with this belief, but also be wondering how the heck you’re supposed to boost wages through the labor rate alone.
While your labor rate is indeed the foundation for your techs’ pay rate, it’s not the only thing you can draw from to boost your shop’s overall income (and your pool of revenue from which to pay your techs!). Today, we’ll discuss some other levers you can pull, and then get into the nitty-gritty of how to raise your labor rate and more important, how to inform your customers of the change.
Make no mistake: your labor rate should be the foundation of what you pay your techs. But giving people a significant boost (or even a small one) can make a lot of shop owners nervous.
If this is you, relax and grab a towel!
We’ve talked at length in previous posts about ways to boost revenue, so we’ll just stick with four of our best tips here:
- Create a revenue funnel. A solid funnel helps you build out your income with marketing, strong relationships, and high-quality work. Your techs and service managers can contribute heavily to the revenue funnel, by the way!
- Expand into new areas. Do you have a mobile repair tech yet? Maybe now is the time to invest in one. You might also look at expanding into body work or tires, or offering 24/7 or emergency repair.
- Mark up your supplies and parts appropriately. You should already be charging for shop supplies. Make sure you’re marking up your parts appropriately, too—and on that note, please remember to charge for parts. We keep hearing stories about shops essentially eating thousands of dollars because a part wasn’t invoiced correctly, or at all. (Psst—Fullbay can help with that. Just sayin’.)
- Stick to a financial plan. In our previous article, we emphasized the importance of a financial plan. We’ll repeat it here: a good financial plan can help you determine what you want your revenue to be, and you can work backward to reach it.
Okay: you’ve got additional ways to raise revenue. This is good news for you and everyone working for you. But you’re not quite ready to raise rates yet—there’s one more thing to consider.
Raising rates across the board vs. for services
There’s two ways to raise labor rates: lifting it across the board for everyone, no matter what they’re doing, or raising and/or possibly lowering it for specific services—think charging $100/hour for bodywork vs. $150/hour for electrical. Or perhaps you’ve got varying rates for PM work vs. in-bay work vs.mobile outings.
(By the way, Fullbay lets you charge multiple hourly rates…just sayin’.)
You can also evaluate your canned jobs/global jobs, if you have them, and raise their associated labor rate.
This is ultimately a personal decision. There are shop owners out there who believe that one labor rate is like the one ring: you charge what you charge for everything, and that’s it. If that’s you, then raise that rate and charge it for everything you do. But if you think certain services are worth more than others, that’s also your call.
Labor rate tool
But Fullbay, you may be saying, what should I raise my rate to? What’s reasonable? I HATE MATH.
No worries, friend. We don’t like math, either, which is why we build tools—to help us avoid it.
Seriously, though. Download our free Labor Rate Calculator and start running through the numbers. You can plug in what you’d like to pay your techs per hour and what benefits you provide, as well as what state you’re located in.
(As an aside, we’ve loaded the calculator up with the average labor rates from all the shops in our database, so this is going to be one of the best data sources out there for comparing your rate to the average.)
The calculator will automatically show you the fully-loaded hourly rate based on your shop’s metrics. You also have the option to scout out your local competitors and add in their labor rate to the appropriate areas; if you do this, the calculator will show you where you rank among them.
That last bit is incredibly useful for the shop owner who may still be nervous about potentially ripping off customers. So long as you’re within striking distance of what your competitors are charging, you’re well within market values.
How to raise your labor rate
Are you nervous about raising your labor rates? We won’t tell you not to be, because that won’t help anything. Just understand that this is a routine part of doing business.
“In the current environment, everyone is raising rates,” Jacob adds, “so it won’t be a huge emotional shock.”
In other words, you’re in good company. Your customers may sigh when they hear about the rate change, but if you have a long history of performing good work for them, they will likely stay put. In addition, a higher rate can actually attract customers who fully expect to pay a higher rate for quality service.
Try not to get sucked into the potential emotional turmoil of it all. Chris points out that at the beginning of the COVID-19 pandemic, parts prices were going up, but shops were stubbornly maintaining their margins. As prices continued to rise, though, shops had to start marking things up if they wanted to survive.
“If you recognize that’s how it is with parts,” Chris asks, “why isn’t it that way with techs?”
Once you’ve decided on your new rate, you get to break it to your customers. New customers, as Robby points out, will just get the new labor rate. Your existing customers may be another story.
Whatever you do, he warns, “Don’t surprise them.”
Do not be that guy who charges $2,000 at check-out for a job that previously cost $1,500.
You might post your labor rate increase on your website, if you have one (and you really should…we can help you with that, too). You can send a friendly email, snail mail, or flyer. You can let people know when they make appointments.
Existing agreements can be a bit trickier to manage. Some fleet contracts, for example, permit a client to reconsider their entire arrangement with you if you do something like update your rates. If you’ve done good work for them in the past, it’s very likely they’ll keep you on. If they don’t, well, that’s room for a better-paying client.
And here’s another thought: it’s your labor rate. You can do what you want with it. Maybe this means fleet customers receive a discount if they bring however many vehicles to you per month. Or maybe you can use your labor rate as a negotiation tactic, offering to keep it the same for fleets if they hire you to handle all their PM work.
You aren’t locked into a one-rate-fits-all situation, unless that’s what you want.
Raising rates for a more lucrative industry
There is a bleak reality behind all this. Jacob and Chris have both reported sad stories of shops that shut down because they couldn’t find enough technicians to handle the work.
Don’t be that shop.
The role of the diesel tech already suffers from questionable marketing. Many people believe it to be a dirty, smelly, low-paid (and possibly on the way to obsolescence) job. Efforts are underway to disprove those stereotypes and bring in fresh fuel for the motor (see what we did there?), but this is a place where a shop owner can really help themselves and the industry.
In recent years, there’s been a lot of talk that connects worker satisfaction to things besides pay—good environments, benefits, and so on. That’s great, but money also matters. You know that, your customers know that, and your techs know that. And unless your shop is an absolute horror to work for, the more you raise your pay rates, the more local techs you will attract.
Jacob expanded on that for us: “The more all shops pay, the more techs will be attracted to the industry, globally. Because it’s suddenly a lucrative field.”
(Did we just solve the tech shortage?)
In the end, we’ll reiterate that the best way to help your techs, your shop, and the industry is to know what your techs are worth and to pay them accordingly.
A rising tide lifts all shops. Keep that in mind, and go forth and raise those rates!