by Mr. Retail
Time and time again, we read articles on forums along the lines of “should I raise my labor rates” or “what are you all charging in labor?” The reality is that setting a labor rate in your store is a complicated decision that affects many areas of your business. In the end, you want it to positively affect your bottom line, but it isn’t as simple as dialing it up for most of us. With that being said, let’s talk through some ideas on how to figure out your “attainable” labor rate.
First and foremost, geographical areas play a big part on labor rates. I recently picked up a used Porsche Macan in Greenwich, CT a couple months ago. Within half a mile there was a Pagani, Lamborghini, Rolls, and Bentley dealership. So you could say it was an affluent area. That Porsche dealer was $400 per hour as a labor rate. In a much smaller market, some of those dealers are $250 an hour. That is a huge difference and worth noting.
What does that mean to you? It means that a car audio store in San Francisco in a great neighborhood will likely have a much higher labor rate than a guy in a small market in rural Arkansas. Unless all of your business is extremely high end, with vehicles traveling hundreds of miles to get to you, your effective labor rate will be lower in that small Arkansas town. In short, your clients have to be able to afford you.
Next up is the business model I alluded to in the last paragraph. If you attract high end work that comes from miles away and your business model can support it, then charge accordingly. If you do the vast majority of your business with local clients, then odds are your labor rate will be lower. Now, if you do a mix of middle class work along with some truly high end custom work, maybe you have more than one labor rate.
If you think that you can charge what a dealership charges, then you have to ask yourself: “does my store, waiting room, presentation, and overall customer service meet or exceed that of my local dealer?” If it does not, that labor rate is a pipe dream. You have to be real. If you can meet all of those characteristics, then maybe a labor rate along those lines could be attainable. Maybe a better idea is looking to see what the better independent repair shops charge as a labor rate and see how you compare with them.
With all of the above being said, if you have a couple audio dealers within your market area and their install department is busier, and they are more expensive than you, this might be an opportunity to look at labor rates. A few years ago I met with a close friend and we got to talking about labor rates. He was in a less affluent area than me and was $30 an hour higher. My team initially bucked at the idea that we could raise our labor rate, so I did it on a trial basis. And it worked fine. Years and years ago we had multiple labor rates depending on the type of labor we were doing. In our store, we have gone back to tiered labor rates depending on the work; normal labor, custom labor, design work, etc. we have found that it works for us. But in the end, it has to work for you and in your market.
Finally, our goal at CEoutlook with this article is to get you to look at your effective labor rate and see if it is perfect, low, or maybe even too high. And if you make changes, I suggest doing it slow and steady and see how your market reacts. In reality, labor is the single biggest differentiator between you and anyone else that may be competing for your client. If everything about you is better, you should charge accordingly. If someone in your market is better than you, consider this a call to action to make the changes in your store to get to their level. Invest in your store, create company policies, go to real training, etc. do whatever it takes to ensure you are the company that clients want working on their vehicle. There will always be people customizing their vehicles, so there will always be a need for us.
Presently, in our secondary market, our labor rate of 150 per, and a blanket 30 shop materials isn’t objected but seems like a little bit of a stretch for the marketplace. We are considering placing a premium on supplied equipment, especially “China Fit” (those in white boxes, with folded up glossy paper directions in 2 point type). We respectfully decline installation on those in the interest of the client. 48 years in business with a stellar reputation, and striking a posture of authority substantiates that rate, however, losing the modicum of profit that hardware affords, does not suit well. Relating that if the client needs any service to their supplied equipment, it comes with a fee. This falls contrary to our service applied to products purchased from our company. This is also a segue to purchase from our company of exceptional service. I believe it’s in our favor to put a very small premium per hour on supplied equipment. I’m curious to see any feedback from other dealers on this thread, as long as it doesn’t interfere with antitrust law, LOL. Press on young people.
If you are thinking of raising your labour rates, then you are already 6 months late in doing so. Your customers won’t leave you, and if they do, then they weren’t the right customers. And, never, ever, discount labour (a lesson that took me decades to learn).