Opinion: Don’t under sell your time and remember to make a profit

Industry author, lecturer and GW columnist Graham Stoakes puts forward his case for separate diagnostic labour rates

Opinion: Don’t under sell your time and remember to make a profit
Image: Bigstock.

Recently, while teaching one of my professional evening courses, the topic of labour rates was raised as part of a general discussion about how businesses are coping during these challenging times.

Graham Stoakes: Industry author, lecturer and GW columnist.

It was initiated from one classmate to another, and as most of the candidates on the course manage or run their own business it soon overtook the technical topic being taught and developed into a quite a complex exchange of views.

As we had reached a natural pause in the lesson, I decided to stop for a break in the anticipation of being able to continue with the subject upon my return, but as it turned out, I was simply dragged into the debate.

I was happy to offer an opinion, but explained that as I did not work directly in the industry anymore, I would be the wrong person from which to seek business advice.

If they were after guidance relating to how they run their financial operations they’d definitely be better off talking to experts in this area such as Andy Savva, ‘The Garage Inspector’.

Related: Average independent garage labour rates revealed

We are a service industry, and we make our money selling our skills and labour, and a recent IGA survey indicated that the average independent UK hourly rate is £47.47.

There are many factors that need to be considered when setting a labour rate, and it is debatable whether there is a right answer, however, there’s definitely a wrong answer.

The outcome should always come back solely to individual circumstances, and you must not use other people’s labour rates as a basis to calculate your own.

Although it is important to consider local market factors, this shouldn’t be the sole influence of your choice.

It’s also worth remembering that the chosen labour rate can affect other areas and services your business provides.

For example, a local prestige marque has stopped conducting its own MOT’s as it is no longer financially viable when compared to the rest of their hourly income.

Instead, it is cheaper to subcontract them to a local garage who’s main source of income is provided by MOT work.

This may sound as if the dealership is giving work away, but provides a symbiotic relationship which has become beneficial for both organisations.

Garage labour rate considerations

  • Be honest with yourself as to how hard you work and don’t undersell your time.
  • One labour rate may not be enough to cover the different levels of skill needed to undertake the diagnosis and repair of modern vehicles.
  • You can’t just increase your labour rates overnight if you’re currently undercharging.
  • Very few customers ask the labour rate, they often only ask for an estimate of the cost of a job and it’s how you sell that job that will determine if you get the work.

Another factor that should be considered when deciding on a labour rate, is the option to have a different rate for diagnostics.

Many vehicle issues present themselves as a diagnosis and repair for which there is no prescribed method.

As the first person to undertake such a task, how do you promote your skills, and demonstrate that this is not something that is within everybody’s capabilities.

Many businesses charge out their diagnosis at the same as their normal hourly rate; and some even discount.

Unfortunately, by doing this, it helps perpetuate the myth in the mind of the customer that diagnosis is easy; “you just plug the computer in and it tells you what’s wrong”.

Opinion: Know your worth and charge accordingly

We are one of the only trades where it is expected that we will be able to tell the customer what’s wrong before we’ve even seen the car, or at least before we start charging them for the privilege of working on their vehicle.

Many other trades will charge an upfront fee or call out, just to engage their services, but if our industry were to change to this method, we’d potentially be accused of profiteering.

Our work is no less demanding or difficult than any other, and in fact when you consider the investment in time, equipment, training and knowledge that many organisations or technicians have undertaken, it often far outstrips those of other trades.

Therefore, how do we recover that investment, and differentiate the complexity of diagnosis in the eyes of the public if we charge the same or even less for this service.

Although it is only my opinion, I feel that a different labour rate should be considered for diagnostic work, to help separate and contrast it with other types of mechanical work or repair.

I’m not saying that the difference has to be significant, but it should be enough to reflect the difficulties and issues modern diagnosis demands.

Historically there was a very basic estimation that could be used to provide a basis for an hourly rate.

In the simplest terms, it is the sum of three components – the hourly wage rate of the technician, overheads (or running costs) and profit margin.

Related: Don’t underestimate Block Exemption, IAAF says in stark warning to UK aftermarket

The hourly wage rate of the technician is a direct cost incurred while undertaking the repair.

Overheads are indirect costs, and are all of the costs involved with running a business.

Finally, profit is the percentage margin which makes the business viable.

Unless you add profit, you’re only invoicing enough to break even.

Parts sales should not be included in this calculation as they are an external factor, not directly related to labour, and be careful if you include any fixed price work that is inclusive of parts, as this can artificially inflate workshop efficiency.

A percentage of the enterprise costs per hour can be calculated by dividing the overheads by the wage costs and multiplying the result by one hundred.

Annual overheads ÷ annual wage bill x 100 = an annual enterprise cost %

Once the annual enterprise cost percentage is calculated, an initial labour rate can be estimated.

This can be achieved by multiplying the technicians hourly wage rate by the enterprise cost and adding the desired percentage profit margin.

Technicians hourly wage rate x enterprise cost + profit margin percentage

In reality, this is far too basic to provide sound guidance as it does not take into account any of the individual business factors or workshop efficiency (which many people overestimate).

It is worthwhile undertaking professional courses that can examine your personal operation and offer advice tailored to your own situation.

In most cases, regardless of labour rate, there’s no doubt that many businesses provide exceptional value for money, considering the extremely high level of skill required when working on modern vehicles.

Graham Stoakes

With a long history working in an independent garage, Graham now teaches motor vehicle technology at Chichester College.

He’s a renowned author too, with ten books and three CD ROMS to his name so far, covering a range of vehicle technology topics from levels one to four.

To find out more about Graham Stoakes and his automotive books, visit his website.

Home Page Forums Opinion: Don’t under sell your time and remember to make a profit

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  • #204054 Reply

    Recently, while teaching one of my professional evening courses, the topic of labour rates was raised as part of a general discussion about how busine
    [See the full post at: Opinion: Don’t under sell your time and remember to make a profit]

    #205513 Reply
    Peter
    Guest

    I am consistently measured as least efficient technician in a busy franchised dealer .
    Joining the trade at 15 now 44 with almost 30 years experience my targeted efficiency is becoming evermore difficult to attain with the complex systems I am responsible for working on .
    It is demoralising being singled out to increase my efficiency (therefore overall workshop efficiency) every other month with no support on effecting it other than work harder , longer or just be faster on the ever decreasing run of the mill servicing and repair work .
    A pressure not afforded on the technicians churning out maintenance/repairs day after day .
    I value my knowledge and skill set however I do not feel valued as part of the team .
    In fact ostracised is closer to reality .
    The restrictions on holidays and lack of quality downtime this year has been enormously challenging only serving to add more questions than answers .
    Here comes the question!!
    Would it be wrong for the younger generation coming through to think they would be better spinning filters all day long for effectively the same pay without the stresses and responsibilities of being one of the 20% currently up to current training requirements ?
    It’s not an old debate this is it really …
    Trouble for the industry is minimum wage is coming up to meet us all with our transferable skills .
    Today I got to the bottom of another in-depth diagnostic repair using my initiative after exhausting any technical support offered .
    Outcome vehicle fixed with time allotted to time taken anyone’s guess but I can guarantee it won’t be time taken on my scorecard .
    Yeah I’ve been called difficult or arrogant even for expressing my views but I know I’m not the only one in this position . (for now)
    I agree know your worth … and if you are luckier than me you’ll be supported by people around you who value it too (AND CHARGE FOR IT)
    Ps personally it’s not all about money .. thing is I always know how much money I have … time that’s another thing altogether .

    #205524 Reply
    Meat-Head
    Participant

    “Peter” sounds like your in a Mercedes dealership.
    Who ever they are, if I was you, set up a ‘fake’ email, use another
    Name, email the UK importer with every email address you can find for them
    Then also the parent company, pointing out your issues.

    So if the HQ get nasty you are under a ‘false’ name so no chance of getting
    The sack.

    You could contact “Andy Savva” “the garage inspector” try not to look at any
    Photos or videos of him, as you will instantly think like me, he is nothing more than a caveman, looks, walks & talks like one, but if when your on holiday next
    See if you can arrange for him to contact your branch ceo, see if can post some stuff out, see if ever mentioned after your holiday. Of course never let him anywhere near your workplace with nothing more than a tin of paint, not unless you want tyres stacked under stairs and 4000 litres of plastic oil vessels
    With a sandblaster on top.

    As for diagnostics of nasty rotten cars I bet the full sake of argument 15 hours
    At £140+VAT/hour would have been placed on desk for customer to pay.

    See if you can spend a few days doing services!

    Perhaps next nasty job if you can tell customer three hours then fixed or not bail and 3 hours to pay. Feedback your fault/fix as yourself to technical support.

    If the customer returns with sweets etc, bet your bottom dollar office staff would have pigged them.

    Is your company IMI professional or RMI members?
    Contact them with said fake email

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