Why you're not making money on labor in your auto repair shop

Nov. 12, 2023
Profitability hinges on efficient time management and successful pricing strategies.

Many shop owners struggle to make money on labor sales — this should not be the case! Your expertise in solving automotive problems is why your customers come to you. The automotive industry is changing as new technology evolves. The complexity of newer vehicles and the increased expenses of the current hiring market mean you need to adjust. Profitability hinges on efficient time management and successful pricing strategies.

Unlike parts, labor margin (what you make on the labor you sell) can swing based on several factors. You may feel like your technicians are busy, but you’re not seeing the dollars on the bottom line. Here are some common reasons auto repair shops don’t get the most out of labor charges.

Inefficient workflow

Many auto repair shops struggle to profit from labor because of an inefficient workflow. If your technicians spend excessive time searching for tools, moving vehicles, or waiting for parts, you're losing money.

Solution: reorganize your shop layout to improve workflow. Invest in quality tool organization systems and optimize how you schedule repair jobs by using a scheduling program. Efficient workflow will increase the number of jobs your shop can complete in a day, boosting your labor revenue.

Inaccurate labor estimates

Providing inaccurate labor estimates is a surefire way to erode profitability. If your service manager underestimates the time required for a repair job, you lose money on the labor sale you should have made.

Solution: give your service manager clear guidelines for estimating labor hours. Ask technicians to provide information on any concerns that will need more time (such as rust, excessive leaks, and age of the vehicle.) Be flexible with labor guides — they are guides, not laws. Have your head technician check estimates before calling the customer. Give your service manager (and your technicians) the authority to increase the time.

Neglecting training and skill development

In the auto repair industry, skills and knowledge are crucial. Your technicians must attend continuing education courses to keep up with technology. Poorly trained technicians will take longer to diagnose and repair issues, leading to lost labor revenue.

Solution: Invest in ongoing training, both online and in person. Require your technicians to stay up to date with industry advancements. Find ways to recognize growth in your team — your profitability is your reward.

Insufficient labor rates

Setting your labor rate means making sure you are both profitable and competitive. If your labor rate is too low, you may not cover the payroll, employer taxes, and benefits to have a highly skilled, well-paid team. While high rates can drive away potential customers, this is a rare problem in independent automotive repair shops. Generally, you undervalue your services.

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Solution: Figure out what it costs you for your team, including the benefits you provide, and then figure out what you need your labor rate to be. Make it high enough to take care of your team and be profitable. Consider having multiple labor rates. Schedule labor rate increases at intervals throughout the year. Adjust your rates as needed to reflect your shop's skill level and the quality of service you provide. Effective pricing can help maximize your labor revenue while keeping customers satisfied.

Poor time management

Time management is key to making money on labor. Your profitability suffers if your technicians waste time on things that don't produce labor sales.

Solution: consider digital systems that allow your technicians to clock in and out from each labor job. Use this to identify if your technician is not familiar enough to perform the job. Discuss with them training needs or why they are not producing work for significant amounts of time. Set production expectations for each technician and hold them accountable for their time management. Encourage scheduled breaks, but ensure they are reasonable. Proper time management leads to increased productivity and higher labor revenue.

Inadequate customer communication

Effective communication with customers is essential to your shop's profitability. Customers want to know the status of their vehicle and feel neglected if they don't hear from you.

Solution: invest in customer relationship management (CRM) tools. Train your team to improve communication with customers. Create a procedure with specific times the service manager gets a status update from the technician and when the service manager will contact the customer. Satisfied customers return and recommend your shop to others.

Assess and adapt your strategies

The strategies for making money on labor haven’t changed. You must price it right, estimate it right, and keep your technicians booked solid and well-trained. Customers must have such a great experience they want to come back and bring others. Adopt strategies to stay competitive and profitable in the ever-evolving automotive industry. A well-run auto repair shop that prioritizes efficiency and customer satisfaction will see increased profits from labor charges, ensuring long-term success in the business.

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