Fact: Most people associate low cost with low quality.
Fact: You need to set your diesel repair shop labor rates accordingly.
Great, Fullbay, you’re saying, but how do you set your diesel repair shop labor rates?
Well, friends, that’s what we’re here to help you with today.
Choosing the right labor rate can make or break your business in the long run. We’re going to discuss the three principles that will help you land a rate you and your customers will feel good about – and then we’re going to show you how Fullbay can help you.
Ready to figure out what you should be charging? Let’s go!
1. What Customers Do You Want to Attract?
The customers 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 little hassle. Price is also in the mix, but it’s usually not the main driver. Ultimately these customers want to eliminate unscheduled downtime. Going for the cheapest rate usually 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. Similarly, the customers who don’t have a lot of money to spend on repairs (and may be less likely to fulfill their end of credit terms) will primarily be attracted to shops that offer lower rates.
What customers do you want to attract?
How Fullbay Helps: Set Up Estimates Immediately
Because Fullbay automatically has your labor rates stored and immediately applies them to work orders, you can provide a hyper-accurate estimate right away.
Your time is valuable. If a customer doesn’t like what they see or hear on an estimate, you’re free to lower it if you like, or hold firm.
2. Never Give Something For Nothing
Some people will never pay the quoted price. It’s in their DNA to bargain and get price breaks. You might be wincing a bit to think of customers like that, but you can turn this to your advantage, too. Good negotiation is about creating options, not about making ultimatums. 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.
If someone doesn’t want to pay the full rate but you want to maintain them as a customer, 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 a list of PMs 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.
A customer asking about your labor rate is an excellent opportunity to bring up tracking their PMs. You can say something like, “We charge $99/hour, but for customers who allow us to proactively do PMs, we charge $94/hour.” The customer wins with a lower price. You win by having a guaranteed and pre-authorized stream of business.
How Fullbay Helps: Manage Rates By Customer
When you use Fullbay, you can plug in specific rates for specific customers. Let’s say your labor rate is usually $150/hr. Skywalker Trucking wants you to handle all the PM work for their fleet of ten big rigs. That’s going to be steady work; for that, you lower your labor rate to $100/hr.
Whenever you create a work order for Skywalker Trucking, it will utilize that lower rate.
3. Back Into the Diesel Repair Shop Labor Rates You Need
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. The industry recommends a 55-65% margin on labor rate in order to cover shop costs and to turn a profit. That is after covering the wages and benefits of not only your techs, but their managers, too (think 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 60% profit on labor, you would need to charge customers at least $90/hour.
How Fullbay Helps: Track All This Stuff
Instead of slogging through spreadsheets and breaking out a calculator each time you need to apply a different rate, Fullbay will store them for you. From there, track ROI as well to determine if you need to increase or decrease rates.
The app displays all of your information in real-time. You’ll know what numbers you’re hitting, how far off you are from the numbers you want to hit, and more. It’s an incredible amount of data at your fingertips.
A Caveat: What Will Your Market Bear?
We’ve talked about setting the prices your shop needs to survive and thrive. We do want to remind you to keep an eye on what your market will permit. If your calculations indicate you will end up charging all your customers double what everyone else is charging, you might need to reconsider your rates. Conversely, if you’re charging way below what the other shops in your area are…you might need to reconsider your rates.
If you’d like to properly estimate what your market will bear and set the kind of prices that will help you turn a profit, we’ve got a great new tool for you! Our new spreadsheet is here, and it lets you plug in elements like hourly rate, taxes, and even benefits. It’ll even show you the average prices of competitors within your state. Give it a whirl and meet your margin!
What’s Your Rate?
Diesel repair shop labor rates can make or break your shop. Choosing what customers you want to attract, using good negotiating skills, and doing your homework on your labor costs will help you land on shop labor rates you and your customers will feel good about.