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What are some ways that a shop can determine a realistic retail Labor Rate?
This month, we “ASK MIKE” to discuss ways that a shop can determine a realistic retail Labor Rate. We at Hammer & Dolly hope you find this following exchange useful, and we encourage you to reach out to us if you have a question for Mike on this or any industry-related matter that he can answer in a subsequent issue. Hammer & Dolly: This issue of Hammer & Dolly presents a view into what the WMABA market looks like right now in terms of what people are charging for retail Labor Rates. Since you have the benefit of working with shops all over the country and seeing how different facilities operate, what do you see as some of the
primary things that they should keep in mind when they’re looking to develop a rate away from whatever arrangement they may have with an insurer? Mike Anderson: The first thing that really amazes me is how people raise their Labor Rates. When I had my shop, I saw people raise their rates by $2. I’d say, ‘Where the heck did you come up with $2?’ They seemed to grab this fictitious number out of the sky to determine their rates, and it didn’t make sense at all. What I would do was look at the profit I would need to make so I wouldn’t have cash flow problems. Then, I would look at the equipment and training I would need to invest in over the year. I would also ask myself a series of questions. Were there any upgrades that I needed to make to my computers? How much did I need to spend on I-CAR, OEM certification and other training? Did health insurance go up? Did my utilities trend upwards? That way, I would figure out how my expenses would increase for the next year. I developed a spreadsheet that would track my sales and my gross and net profits. If I wanted to make the same net, I would have to determine how much my sales would need to increase to offset any costs I had for equipment and other things. That was how I came up with my Labor Rate. I can tell you
that I never, ever came up with just a flat $2 amount for my Labor Rate to go up; it was always a number like $2.53 or $4.89. I based it off of my specific shop. Another thing that always amazes me is property taxes. What are the taxes in your area versus a place that’s two or 20 miles down the road? Everybody should determine their prices for doing business in their specific area. As I travel the country, I see a wide range of Labor Rates. In San Francisco, I’ll see a Labor Rate of $95 or more, and I’ve been in some shops up in Vermont, Maine and Massachusetts that are still in the $35-$45 range. In the Midwest, it might be $70. What I will say is that I do see a wide variety of repair times. What is hypothetically a six-hour dent in one area might only be a two-hour dent in California because of the higher Labor Rates. In a lot of my classes, I have people bring in estimates and photos of damaged vehicles, and I see what they charge for repair time. Those repair times do vary quite a bit around the country, and some of that is influenced by Labor Rates. Also, I think your aluminum rate can’t be this fictitious number. It needs to be based on how much you invested in training and equipment, how many of those vehicles you think you’re going to fix over the lifespan of