Diesel Connect Recap: Labor Ratezzzzzzz

Labor rate, O labor rate
Wherefore art thou, labor rate?

Labor rates remain a hot topic during this era of change and tech shortages. How much should you be charging for a technician’s labor? How do you raise it? What if your customers balk? What’s the other guy charging? Can we raise our labor rates because of inflation?

These questions—and many like them—come up often in our webinars and just in general discussion.

That’s why we’re so excited to recap the presentation led by Stacy Conner of Equipment Experts in Washington. Stacy has been a frequent guest star on the blog and our webinars, and she had us all thinking about labor rates in a different way by the end of the hour.

Stacy described labor rates as “an unsolved mystery…everyone wonders what’s right.”

YOUR LABOR RATE MUST REFLECT YOUR VALUE: A PHILOSOPHICAL APPROACH

We can hear it now: Oh no, they’re gonna get all philosophical on us.

Rest easy, friends. There’s no to be or not to be-ing in this recap. But before diving into the conversation about labor rates, Stacy walked us through her thoughts on value, and how we attach prices to it:

“Value is technically the importance, worth, or usefulness to someone,” she said, “and that’s different for everyone.” The guy you’re making a repair for in the yard, for example, is not going to have the same value as the driver stranded by the side of the road.

There are three types of value, or exchange:

• Criminal exchange: When you take more than you give.
• Fair exchange: When the exchange is equally represented on both sides.
• Exchange in abundance: When you give a higher perceived value than the customer expects.

Stacy offered an easy comparison for exchange in abundance: you book an Airbnb and it comes with a bottle of wine and some fancy coffee—and no extra charge to you. You feel taken care of. Appreciated. Maybe a little tipsy.

For commercial repair shop owners, the base-level value you offer is a repaired vehicle. Obviously, you aren’t going to offer your customers booze, but Stacy did talk about one repair shop owner who had a shower in his shop so over-the-road truck drivers could clean up while they waited for their rig. Other examples of value added to a customer might be drop-off/pick-up services, nice waiting rooms filled with snacks, free Wi-Fi, and so on. That’s all in addition to the repair that you’re doing—and that kind of extra can give you an advantage over the competition.

Other types of values Stacy suggested include:

• Higher degree of communication than your competition
• Extra comforts
• Community involvement
• Being locally owned
• Speed of repairs
• Extra convenience like loaners, etc.

Everything you do that goes above and beyond the basic repair folds into how you price yourself.

KNOW YOUR MARKET

Determining what value your shop offers is part of the equation. You’re also up against the market. What do your competitors charge for identical or similar services?

Stacy asked her audience how many of them had checked in with their local competitors. A few hands went up; at least one person said they’d done it, but didn’t love it. It’s awkward, right? “Hey Denethor, it’s Aragorn down the street. What do you charge for an oil change?”

But this is important work. What are people charging for the kind of work you do? Are you charging more, less, or are you right in the middle? Find out what the market will bear in your area.

Stacy encouraged everyone to get to know their neighbors. Heck, you might end up networking with them and buying or selling from them down the line!

(Just don’t engage in price collusion, please. That ain’t right.)

MATH TO THE RESCUE

Your fully loaded labor rate has to be enough to cover what you’re paying your techs as an hourly wage along with any benefits and taxes. That number will change based on your shop’s location and what you offer. Do you provide 100% of their healthcare? Do you match 401Ks?

Stacy operates out of Washington State, which mandates 50 hours of sick time per year. “I’ve got guys that have been there more than five years that are getting four weeks of vacation,” she told us. “I’ve got to cover all of that.”

You also want to keep your techs satisfied. “We want to pay them enough that they choose this as a profession,” she said. “We don’t want them to leave and go do something else. So it’s gonna be viable, they’ve gotta be paid enough … that they’re taking care of themselves and their families.”

Oh, yeah, and you want to make a profit.

So, with those variables in mind, how much should you be charging?

Stacy provided a helpful equation:

Loaded Average Labor Rate/(1 – Target 70% GP)
Or whatever you’re targeting

Here’s an example:

Your loaded labor rate is $51.80
($37 average wage x 1.4)

Your target labor GP is 70%

51.80/.30 = $172.67

WHEN TO RAISE YOUR RATE VS. WHEN TO RAMP UP ADVERTISING

Stacy’s advice on this matter was simple: Are you booked two weeks to a month out? Raise your rate.

But it’s easy to up your rates when everything is going well. What if you aren’t insanely busy? What if your techs are clumped around the service writer’s desk playing Fruit Ninja? The instinct during slow periods may be to lower your labor rate—hey, if you’re cheaper than the other guys, you’ll get more customers, right?

You might. You’ll definitely get cheaper customers. Which, we want to point out, is not always a good thing.

“If you’re not busy … add value to what you’re doing and promote more heavily,” Stacy advised us.

“Listen to your phone calls,” someone called out from the audience at this point. “What are your employees telling your customers?”

(Translation: Could someone benefit from additional phone coaching?)

Stacy, for example, knows when things tend to slow down in her area. Forty-five days before that slowdown usually hits, her team is out selling and bumping up advertising.

CHOOSING CUSTOMERS

Why did you go into business? So you can choose your own destiny, right? And that destiny probably doesn’t involve dealing with rude or difficult customers (for most of us, anyway).

Stacy zeroed in on this towards the end. Lowering your labor rate may attract new customers, but odds are those customers are only going to care about saving money. “If price is their concern, that’s what they’re gonna complain about,” she said. And we’ve all dealt with customers like that.

It’s a headache.

“If you’ve got a customer that’s got half a fleet down, and they want instant service, and want it all repaired, and you hit a home run like that … it’s a huge value to them,” she said. “How quickly they want a repair done changes the value of the labor price.”

So. You can pick your customers. You can choose who to work with and who you don’t want to work with—although Stacy does advise not telling people to their faces that you don’t want to work with them. Just say you’re booked.

(Or, y’know, recommend Integrity and let Andrew and Glenn deal with them.)

“I once told somebody I didn’t want to work with them anymore,” an audience member said. “Next thing you know, I’ve got bad Google reviews. I was like, ‘You ass.’”

“How did you say that to him?” another attendee asked.

Again—just say you’re booked and spare everyone’s feelings (and yourself some crummy reviews).

WHAT DO YOU DO WHEN LABOR SKYROCKETS?

The whole tech shortage situation has made hiring and retaining talent a more complex dance than it used to be. Say you’ve got a team of techs making a $32 hourly wage. You get a guy with equal experience who comes in asking for $40. What do you do?

“I think mechanics might gossip like little old ladies,” Stacy said. So that news is going to get around whether you hire the guy or not. $40/hour is gonna look very appealing.

So what do you do?

Raise your rate and raise their rate—not necessarily in that order. Equipment Experts has given out three raises in the last year to keep pace with inflation. Another attendee reported they raised their labor rates about two months before giving their techs a bump.

CHANGING THE INDUSTRY

Stacy’s presentation was fantastic and drew a lot of interest and participation from the audience—because really, how often do repair shop owners have a chance to actually discuss this stuff? Stacy emphasized getting to know the shops around you—and so did a lot of the other panels and presentations at Diesel Connect. Communication in general continues to be something this industry will build on in the coming years.

The conversation around labor rates will continue, especially as more techs retire and aren’t backfilled by newer, younger techs. We’ll probably all be in a bigger room next year, hoping Stacy will advise us again!