JUST ONE THING
Calculating Your Labor Rate
With Rick White, 180BIZ
Today’s episode is about what's driving you when it comes to your labor rate. When I ask the shop owner, “Hey, here's a part, it costs this much. What are you gonna sell it for?” They have a calculation. They have a mathematical equation that they use to determine the selling price of that part. But when I ask that same shop owner, “How do you figure out your labor rate?” I typically hear, one of two things. I call around and find out what everyone else is charging. That means they called three or four places and you figured out their labor rates. Then either, depending upon how confident they are in themselves, they either set their labor rate somewhere in the middle or if they wanted to be aggressive, they set their labor rate lower. Have you ever done this? Come on, let's be honest. I have. But that's no way to set a labor rate. Why? Because you're allowing other people to set that labor rate for you.
So here's the other thing I hear from shop owners. “I want to raise my labor rate but I'm afraid of what the market will bear.” This is not a calculation. What is it? It's emotion. What does everyone say when they see someone charging more than them? They say, “they’re ripping them off.” The truth is, it’s envy and jealousy talking because they wish they could get that labor rate but don't feel like they’re worth it.
These are the things that you must be careful about. Recognize that your labor rate is being set emotionally when you should have a calculation. So my question to you is, why not? It's because you're afraid that if you charge too much you will lose business. Or you will go out of business because you won't have enough work. You think that word will get around and no one will come to you.
But I want you to understand something. There's never been a shop that went out of business by charging too much. There have been, however, thousands and thousands of shops that have gone out of business for charging too little. Some may ask, “But Rick, people won't pay that much.” I say, “That mindset is crap.” Years ago there was a car company outta Yugoslavia called Hugo. You could buy a car for $3,000. It was supposed to be the people's car. A car for the working man. They didn't last long and they were out of business. If it was just about the price, why is Mercedes still here? Why is Lamborghini still here? Why is Lexus still here? They're charging premium prices for their vehicles. And this is something that you need to hear. Why is Kmart out of business but Nordstroms and Neiman Marcus still there? Think about it.
Setting your labor rate using a calculation will help you to pay your team properly and enable you to have healthy profit so you can offer great benefits and attract top people in the industry. Stop being afraid. Dig in and find out what you're afraid of. One of the reasons why you have a hard time setting your labor rate using a calculation to what it should be is that you don't understand the value that you bring to the table.
Their labor rate is low, to begin with, and they're hiring technicians and paying more and more money, and they're making less and less profit. This is a big deal. I've told you for a long time that I am on a crusade to stop this industry from subsidizing repairs for your clients. Charge a fair price that allows you to make a profit. Profit is not a dirty word. Profit is what makes the world go round. Profit allows you to do things. Profit allows you to give to things. Profit allows you to become the best version of yourself.
I want you to ask yourself, “What am I afraid of?” And, “Where is that fear coming from?” You need a calculation. A calculation that guarantees a profit. Your labor rate should not be an emotional decision. It should not be determined by the people you know or other shops in your area. Figure out what you need to make paying the staff that you have so that you have a profit and can do the things that you need to do for your shop, for your family, for your team, and your community.
God bless. Go make some abundance. Take Care.