Auto Repair Shop Owners: What is Your Loneliest Number?
What is Your Loneliest Number?
by Rick White, President 180BIZ (Estimated Read Time 4 minutes)
One is the loneliest number, right?
It seems like everyone is obsessed with ARO or Average Repair Order. While it's an indicator, it's not very accurate. What do I mean by that? You can have a couple of really big jobs that will artificially inflate your average repair order number, and t give you the false sense of things getting better. There are so many more important numbers.
THE most important number to watch is your Total Billed Hours per Day.
Then we have your Invoice Count and Hours per Repair Order to see how well you did with each invoice. And you should also be watching your Parts and Tire GP.
But then all by itself is your Effective Labor Rate or ELR.
Effective labor rate is one of the five key numbers you need to watch daily.
And it's the loneliest number because so few people are aware of it. Let me explain what Effective Labor Rate is. Effective Labor Rate is the amount of your labor rate that you're collecting. You have your posted rate, that's what you're selling. But then your collected rate is your ELR. Why is it different? It's different because you have different labor rates. Some of you have intentionally set different rates, which is a great thing to do. But if you're doing an oil service and you give your tech a half hour for doing that job and you charge $25 to the client, then your effective labor rate for oil services is $50 an hour.
Now, add that to your regular labor rate, and you can see that brings it down. So let's say you have a posted rate of $100. You run your numbers and you find that you're collecting $60 an hour. That gives you a $40 spread. You should have about 200 hours per tech per month. So if you have five techs, that's a thousand hours. That comes to $40,000 that you're leaving on the table. Think about that for a second. $40,000.
Your Effective Labor Rate is a margin killer. The silent margin killer.
What else is a margin killer? Inflation is another silent profit killer. It silently eats away at your profit. And I don't know about you, but everyone's working very hard. You should make sure you're maximizing your profit. You should make sure you are collecting it.
There's a big difference between your posted rate or your average posted rate and your collected rate. It's a number that very few people watch.
But the first and most important thing I need you to understand is to recognize that you have different rates. Your alignment rate might be different, your diagnostic rate might be different, your oil service rate might be different, and your cooling systems rate might be different. You have these different canned rates. Understand what you're collecting and it's worth watching every single day. You must be aware of what's going on.
One of the amazing things about it is you've already paid for your labor. All of that posted rate that you don't get, the difference between the collected and the posted rate, that's profit. It's a hundred percent profit. That's a big deal.
Go back and see what your collected rate is.
How do you do that? You divide your labor sales dollars by the number of hours you credited your technicians, typically they're called credited, sold, or build hours depending upon your software system. Divide your labor dollars for a given period by the hours that you credited your techs and sold you charged. I'm assuming that the hours you credit your techs are the same as what you charged your clients. If it isn't, if it's less, then you should use the charged hours. What you charged your clients. And then compare it to your posted rate or your average posted rate by dividing that number by your labor rate and see what your percentage is.
The goal is 90 to 92% of your posted rate.
Labor dollars divided by the sold hours is will give you a number. Divide that number by your posted rate or your average rate and get your percentage. Do that for yourself. Be aware. And if this video has helped you out please share. I'm willing to bet that there's someone in your network who would value this just as much as you do.
God bless. Go have some fun. Go make some money.
Take care. Thank you so much.
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