Reasonable Shop Labor Rate

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My former employer was a small family-owned company that did some light construction work as part of their business.

I was reading a construction industry trade mag one day and read an article stating that if you ran a small company with less than 20 employees, you could not operate it profitably unless your labor rate was $100 an hour. At the time my company's rate was $85 an hour. Needless to say, I was a little surprised at the difference so I did some calculating and internal researching.

I figured that our "break even" hourly rate was $107 an hour. Anything less than that and we were losing money (and we were, the company was in a terrible financial position). Due to local market competition I could not raise our labor rates so I found other ways to generate more revenue to make up the $22 an hour difference. In the end that wasn't enough and the company was sold, a good thing in this case.

Ultimately, it's up to the business to determine what it takes to turn a profit and stay viable. Every customer wants to pay as little as possible for goods and services but if you let the customer dictate your finances, you'll be out of business in no time. So, what's a "reasonable shop rate"? It's whatever it needs to be in order for the business to remain viable and profitable. Plain and simple.
 
A few things I observed in many independent mechanics in the bay area:

1) successful shops have a very smart owner who could figure out problems that others couldn't figure out. Therefore gain a loyalty among the customers, and could charge the same or more in labor rate than competitors.

2) they buy fixer uppers for idle labor during slow hours

3) many are family businesses to provide employments to family members that couldn't find a higher paying job. They stay open despite not the best way to make money, the owners make salaries/wages.
 
Quote:
Ultimately, it's up to the business to determine what it takes to turn a profit and stay viable. Every customer wants to pay as little as possible for goods and services but if you let the customer dictate your finances, you'll be out of business in no time. So, what's a "reasonable shop rate"? It's whatever it needs to be in order for the business to remain viable and profitable. Plain and simple.


At one time "ROI" wasn't really a rational terms for many small businesses. It was the cost of creating your own job. It's sorta still that way if you look at a franchise. The difference being that anyone doing it now is ONLY looking for ROI in some manner of either gain or avoided losses.

When my parents bought a 2 family house (multi-unit) back in the late 60's ..it wasn't an investment, per se~ , it was a way to pay the taxes and water and sewer when they were in retirement. It cost xx $$ for that utility.


You also can't just run a business on mark up from cost. If you want to see how that gets turned inside out, go to a local hospital and see how they "make very little" at an extreme price. They have the options of writing themselves off to death ..but being immortal at the same time. It ends up being a blank check.

Most of your high hourly rates are due to credit cards. If real cash was exchanging hands ..the whole industry would slow down quite a bit. Real cash would pay for the tools ..the machines ..the labor ..the parts.

Right now you have a mechanic/facility that has tool/machine debt ..a 30 day net parts bill ..blah-blah-blah ..all that include a little fluff in the migration. NAPA charges more for carrying the parts tab ...the tools/machinery costs more to cover the extension in use ..and the customer ends up the whiplash recipient of it all.
 
In a stealership service dept. though we must remember that they may be subsidizing the new car sales or used car sales if the manufacturer has a poor product to sell, sales down etc, lousy sales personnel or the manufacturer was dumb enough to give the public what they wanted, big SUVs and trucks that now have become lead anchors. In that case is it right to charge a larger hourly rate to subsidize a poor manufaturers product and or push unneeded services like injection cleaning, coolant flushes every year etc, etc.

As noted in todays paper, there are far too many new car dealers out there, especially domestic and we need for them to fail to get the market back into shape. Sorry, I have no sympathy for banks, financial institutions, car dealers who rape you when things are going their way and complain complain when things are bad and then want to rape you again. You reap what you sow!
 
One cause of high prices is the number of different models of cars out there. Maybe a shop could cut costs by only taking in a limited variety, and having techs who are really fast at certain jobs.
 
Originally Posted By: PandaBear
[snip]Think of it this way, if there are many mechanics charging the similar price, that means that is the reasonable cost plus reasonable profit for the trade.


...or they are all out to get you!!!
LOL.gif
 
Originally Posted By: benjamming
Originally Posted By: PandaBear
[snip]Think of it this way, if there are many mechanics charging the similar price, that means that is the reasonable cost plus reasonable profit for the trade.


...or they are all out to get you!!!
LOL.gif



Remember, just because you're not paranoid doesn't mean that people aren't out to get you.
 
Dealerships charge a lot because their service dept is the money maker. In tough times like now, I doubt they're making much from selling 15-20 cars per month. The profit from that is barely enough to pay salaries, utilities and rent.
 
Originally Posted By: tonycarguy
Dealerships charge a lot because their service dept is the money maker. In tough times like now, I doubt they're making much from selling 15-20 cars per month. The profit from that is barely enough to pay salaries, utilities and rent.


Even in "normal" times a dealership doesn't make enough to keep the doors open from new car sales. With rare exceptions new car sales NET a dealer almost nothing. Profit, in sales department, comes from financing (the big one), add-ons, warranty/service contract sales and used cars.

The service and parts department keep the doors open and the bills paid.
 
Don't forget used car sales. Dealerships typically make money on their used car sales as well.

OH, I see someone mentioned that already.
 
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Gary,

No offense, but why the heck are you taking shots at the Critic?

"The Critic is a neo-generation participant and doesn't much know any better. He sees nothing wrong with spending upteen $$ on a brake job that should never have to be performed."

Loosly translated, to me, that says "Critic is a young dumb punk who wouldn't hesiatate to rip off someone by doing un-necessary work"

I understand your point that you shouldn't have to pay for a garage that buys the latest and greatest equipment 'just because they have to have it' when more basic equipment will suffice.

However, modern cars ARE gettng much more complex to work on, so the line between 'necessary' and 'unnecessay equipment is becoming very blurred.

Getting more to the root of your above coment, your attitude is what is casng a lot of problems in the auto service industry. We hear reports all the time about how there is a labour shortage in this area of work. From what I understand, the Critic is a young man just trying to get into this field. He seems to be a reasonable, above board young man who will be an asset to this profession. But with comments like yours, who would blame him for thinking twice about quitting? He hasn't even started and you're assuming he's a rip-off artist!!!

The reason I am commenting so stressfully on this point is you usually are a very kind, patient member of this board with much wisdom and friendship to spare. This attack seems unlike you!

???
 
Originally Posted By: addyguy
Gary,

No offense, but why the heck are you taking shots at the Critic?

"The Critic is a neo-generation participant and doesn't much know any better. He sees nothing wrong with spending upteen $$ on a brake job that should never have to be performed."

Loosly translated, to me, that says "Critic is a young dumb punk who wouldn't hesiatate to rip off someone by doing un-necessary work"



Aside from the fact the Gary and Michael have an ongoing verbal swashbuckling, I think Gary is saying that Michael doesn't have the frame of reference, due to the era he has lived in, that would indicate that today's business concepts are not rational.

My counterpoint would be - "So?" The assumed context of the question of reasonableness is the current world, not an idealized one. It would be nice if they were different, and they may someday get back to what they once were, or should be, but for now they are what they are.

Gary leaps at opportunities to get on the soapbox. Michael just happened to be the handiest one in this case.
 
True, but the core issue remains that if even if todays concepts 'aren't rational' they are what the generation getting into this trade have to work with. Older 'suspenders' guys just standing there and going 'you kids just don't know how its done', isn't gong to help them gain the confidence they need to get into his trade....
 
Originally Posted By: addyguy
Older 'suspenders' guys just standing there and going 'you kids just don't know how its done', isn't gong to help them gain the confidence they need to get into his trade....


The Critic is going into the car repair business? That's news to me.
 
Quote:
Gary,

No offense, but why the heck are you taking shots at the Critic?


Well, when you were young, you ..at some point ..figured out that you had many things "figured out". Then some guy ..who you were proud as a peacock displaying your take on the full scope of existence would say "suppose "this occurred" is the situation" ..and you hadn't thought of that and were sitting there without an answer. The next time you asserted something, you figured out (a little more, anyway) how to keep the ball in your court.

Michael is in the naivete of youth. I, in this exchange, was merely giving him the other side of the coin that never occurred to him to factor into his assertions.

Michael is very eager and ambitious. Learns lots of technical stuff. Will probably either be an excellent tech or service manager someday if he stays with the trade.

..but occasionally you'll see a statement like this..

Quote:
Unless the transmission has already been replaced with the updated version, you're just wasting your time and money.


So ..I'm wonder what gives him so much confidence with so little experience and I do a little research and I challenge him a little more.

http://www.bobistheoilguy.com/forums/ubbthreads.php?ubb=showflat&Number=1269008#Post1269008

and then we find that the statement doesn't quite have the validation in "assured outcomes" that it had in his original dialog ..and it gets detuned to this..

Quote:
On the problematic 5-speed autos, there's no reason to change the fluid more often than what is required by the owner's manual as the unit usually lived an unusually short life.


What you have a hard time seeing is that I like Michael very much. It's nothing to get playfully spanked on an internet forum. It happens to me weekly. If you hang it out there, someone will lop it off if they can.
 
I missed some stuff here, addy.


Quote:
I understand your point that you shouldn't have to pay for a garage that buys the latest and greatest equipment 'just because they have to have it' when more basic equipment will suffice.

However, modern cars ARE gettng much more complex to work on, so the line between 'necessary' and 'unnecessay equipment is becoming very blurred.


Yes, it is blurred. However, I would counter with this... The only reason to buy new tools/equipment is to enable you to service the newer and more technologically "altered" (advanced is a matter of perspective) vehicles. If you can't finance the cost of the new tool/piece of equipment by servicing the very cars that inspired you to buy it ..then it is a poor business decision. You just made every one of your customers pay for those few that you can now service. Now if you want to eat it, fine ..but this goes back to The Critic's assertion that rates are justified, partially, due to investments in tools/equipment. Tools are just that. They "enable" the wrench to make money. Just like any other investment. They may pay ..they may not. To make assured ROI on something by just charging for it ..isn't an investment at all. It's a bill for your tools.

I've seen many sides of this sector. I've gone through exploring becoming a Snap~On tool dealer back in the later 70's and knew dealers and industrial reps. The guy interviewing me asked, "why do you want to be a tool dealer?" ..when I said "because I want to make money" .. smiled a very big smile. I then quickly realized that as an independent tool dealer ..that I was actually a customer of Snap~On. They printed up the price lists ..printed up my costs ..and then attempted to do everything that they could to stretch and strain my resources and turn them into their bottom line. They also conditioned the dealers to think that they needed to do this to the mechanic. The philosophy was, "You need to constantly hammer your customers for MORE money than they can afford. If you don't get that $5 left in his wallet ..he's not going to save it for you. He's going to eat it or drink it ..or drive it to someone else. YOU NEED THAT $5 NOW! You not only need that $5 ..you DESERVE IT." ..and NOW was forever. It was the same deal for the dealers ..the sales manager ..his boss ..and his boss. All hammering for every dime all along the way and with no rationale other than wanting the dime. Gone were the days when you kept your wrench at a reasonable weekly bill ..and then gave them room to take advantage of that month's promotion. Nope, first you stretch them out to max extension ..THEN give them a deal that they can't afford not to bite on.

..and I'm supposed to pay for this "investment"??

Quote:
Getting more to the root of your above coment, your attitude is what is casng a lot of problems in the auto service industry. We hear reports all the time about how there is a labour shortage in this area of work.


I think that more of our problems are due to demographics. Too many retiring from the work force. But my basic point is that we're in for a collision of labor rates and the society's ability to sustain them.

That is, we're "techno'ing" our way out of business.




Quote:
He hasn't even started and you're assuming he's a rip-off artist!!!


No. He's just dancing to the tunes of industry/vendor promoted evolutions. Eventually he'll figure out why they play it.

I attended plenty of clinics "back in the day". When doing a starter replacement, (I forget the vendor) it was recommended to change the battery cables. As starter failures retreated into the brackground, the aftermarket found new "must do's" to fill the wallets.

Take Chris, he's just a regular swinging stroke like the rest of us, but he's already conditioned to replace perfectly good parts at added costs to prevent comebacks. When he says it's not worth it to save the $25 ..it's an ante he's placing upon the customer for his convenience. Not that I'd want to argue with him over it ...since it may indeed prove to reduce the comeback rate ..but it's a customer financed insurance policy.

We're getting "insured to death" due to "must do's".

Perhaps now you'll realize why I resist these programmed evolutions (shop fees ...blah-blah-blah) ..they all shift more costs on to the consumer.


Quote:
Gary leaps at opportunities to get on the soapbox.


No! Say it's not so
shocked2.gif


Quote:
Michael just happened to be the handiest one in this case.


I would not torture him so ..if it wasn't so much fun
grin2.gif
 
Originally Posted By: Gary Allan
I missed some stuff here, addy.


Quote:
I understand your point that you shouldn't have to pay for a garage that buys the latest and greatest equipment 'just because they have to have it' when more basic equipment will suffice.

However, modern cars ARE gettng much more complex to work on, so the line between 'necessary' and 'unnecessay equipment is becoming very blurred.


Yes, it is blurred. However, I would counter with this... The only reason to buy new tools/equipment is to enable you to service the newer and more technologically "altered" (advanced is a matter of perspective) vehicles. If you can't finance the cost of the new tool/piece of equipment by servicing the very cars that inspired you to buy it ..then it is a poor business decision. You just made every one of your customers pay for those few that you can now service. Now if you want to eat it, fine ..but this goes back to The Critic's assertion that rates are justified, partially, due to investments in tools/equipment. Tools are just that. They "enable" the wrench to make money. Just like any other investment. They may pay ..they may not. To make assured ROI on something by just charging for it ..isn't an investment at all. It's a bill for your tools.

I've seen many sides of this sector. I've gone through exploring becoming a Snap~On tool dealer back in the later 70's and knew dealers and industrial reps. The guy interviewing me asked, "why do you want to be a tool dealer?" ..when I said "because I want to make money" .. smiled a very big smile. I then quickly realized that as an independent tool dealer ..that I was actually a customer of Snap~On. They printed up the price lists ..printed up my costs ..and then attempted to do everything that they could to stretch and strain my resources and turn them into their bottom line. They also conditioned the dealers to think that they needed to do this to the mechanic. The philosophy was, "You need to constantly hammer your customers for MORE money than they can afford. If you don't get that $5 left in his wallet ..he's not going to save it for you. He's going to eat it or drink it ..or drive it to someone else. YOU NEED THAT $5 NOW! You not only need that $5 ..you DESERVE IT." ..and NOW was forever. It was the same deal for the dealers ..the sales manager ..his boss ..and his boss. All hammering for every dime all along the way and with no rationale other than wanting the dime. Gone were the days when you kept your wrench at a reasonable weekly bill ..and then gave them room to take advantage of that month's promotion. Nope, first you stretch them out to max extension ..THEN give them a deal that they can't afford not to bite on.

..and I'm supposed to pay for this "investment"??

Quote:
Getting more to the root of your above coment, your attitude is what is casng a lot of problems in the auto service industry. We hear reports all the time about how there is a labour shortage in this area of work.


I think that more of our problems are due to demographics. Too many retiring from the work force. But my basic point is that we're in for a collision of labor rates and the society's ability to sustain them.

That is, we're "techno'ing" our way out of business.




Quote:
He hasn't even started and you're assuming he's a rip-off artist!!!


No. He's just dancing to the tunes of industry/vendor promoted evolutions. Eventually he'll figure out why they play it.

I attended plenty of clinics "back in the day". When doing a starter replacement, (I forget the vendor) it was recommended to change the battery cables. As starter failures retreated into the brackground, the aftermarket found new "must do's" to fill the wallets.

Take Chris, he's just a regular swinging stroke like the rest of us, but he's already conditioned to replace perfectly good parts at added costs to prevent comebacks. When he says it's not worth it to save the $25 ..it's an ante he's placing upon the customer for his convenience. Not that I'd want to argue with him over it ...since it may indeed prove to reduce the comeback rate ..but it's a customer financed insurance policy.

We're getting "insured to death" due to "must do's".

Perhaps now you'll realize why I resist these programmed evolutions (shop fees ...blah-blah-blah) ..they all shift more costs on to the consumer.


Quote:
Gary leaps at opportunities to get on the soapbox.


No! Say it's not so
shocked2.gif


Quote:
Michael just happened to be the handiest one in this case.


I would not torture him so ..if it wasn't so much fun
grin2.gif



You're 100% dead on right in everything you've brought up here, Gary.

32.gif


I looked into becoming a Snap-On dealer years back as well. While I still stand by their tools and think they're the best in the world, I do not like their business ethics nor the way they push their suggestive selling. I was told by the rep that it's taught that if you go to a customer to sell one tool, you're still in the red. If you sell him an additional piece, you broke even. If you added on a third, you just turned a profit. I'm sure this is probably the way a lot of products are sold, but I don't agree with it.

I've seen a lot of agressive Snap-On and Matco dealers price over-eager new shops right out of business. "The dialed-in torque wrench is garbage, a big high-quality shop needs this 600.00 digital one, and you'll want at least three of them." Owner gets "sold" on these new-fangled tools and then tries to pass the buck onto the customer, who is in essence paying for the shops investment.
 
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