Running a repair shop means running a business, and that requires managing a budget, overseeing payroll, and, at the end of the day, turning a profit. However, many shop owners walk a fine line: they want to grow revenue without alienating customers. Price increases in particular feel risky, and in some instances are unnecessary. The big question comes into play: “How can I boost profits while still putting customers first?” To help answer that, we worked with the experts at Elite Worldwide, a repair shop coaching company that’s been helping automotive professionals grow their businesses and sharpen their skills for 30+ years. The Elite team offered key insights that they share with shops to help them maximize profits and support positive customer relationships!

Calculate the Cost of Your Business

Before making any changes, you’ve got to know your shop’s actual cost of doing business. If you don’t know your true gross profit margins, labor margins, or what your parts matrix produces, you’re flying blind. If you’re considering changing your pricing model but haven’t run a labor profitability report, start there. Labor profitability is a critical driver of shop success. Here’s how to calculate, understand, and improve labor profitability according to the experts at Elite Worldwide.

How to Determine Labor Profitability in an Auto Repair Shop

Step 1: Know Your Labor Rate and Cost

• Posted Labor Rate: What customers see (e.g., $150/hour)
• Effective Billed Rate: Actual labor dollars earned ÷ billed hours
• Technician Cost per Hour: Wages + benefits + employer tax (often $30–$40/hr)

Step 2: Labor Gross Profit Formula

(Labor Gross Profit Percentage = Labor Sales minus Technician Cost per hour divided by Labor Sales x 100)

You will want to target 70+% for labor gross profit, but note that overall gross profit is influenced by part margin profit. Together, your target is 60%! Be sure to check both your labor and part profit percentage often. In fact, it should be checked throughout the day when estimating jobs. If it falls below 60%, it’s time to make adjustments.

Step 3: Track Labor Hours Sold vs. Clocked

• Clocked hours: Tech time to complete the job
• Billed Hours: Hours actually sold to the customer

(Tech Efficiency = Billed Hours divided by Clocked Hours)

Tracking technician efficiency on each job will tell the shop owner if the technician has the skill, the training, the tools, and the right systems to complete the job in the time billed to the customer. If technician efficiency is low, it might be an indication that the technician needs more training, or it could be a problem with the shop’s processes and procedures.

Another reason for low efficiency is a little more involved. If the service advisors are discounting labor or not estimating jobs correctly, reducing labor time, this will have a negative impact on profits and will also impact technician morale.

Step 4: Analyze with Financial Reports
Use tools like shop management software reports or internal spreadsheets to track labor gross profit over time and analyze labor vs. parts ratio (target 50/50 or better). You can also use these tools to measure gross profit per labor hour (target: $100+), part profit, and overall gross profit dollars and percentages.

Shops need to run these numbers routinely! They can help you determine a lot, from whether you are over/under charging on labor, not hitting enough labor dollars per billable hour, and need to invest in technology to help fast-track repairs, etc. For example, a typical repair shop can maintain a 60% overall gross profit by charging $150–$180/hr. If you run your numbers and you feel that your labor and parts margins are in line, but you’re still needing to charge much more than that to reach 60% gross profit, then that indicates it’s time to consider what areas of your shop need better tech efficiency or overhead management. It may also indicate that more training is needed for both the service advisors and technicians.

Know Your Margins

Understanding the cost of doing business requires a complete understanding of your labor and operating expenses, as well as your parts margins. Remember, simply raising prices to overcome inefficiencies in the business will not achieve long-term profitability. However, if you find that your margins are not as efficient as they could be, then you will want to be strategic in how you decide to address it. The experts at Elite recommend using a tiered parts matrix. In this matrix, as part prices increase, the markup percentage decreases. This keeps margins fair and competitive while ensuring shop profitability.

Example: $100 part = 60% markup; $2,000 part = 25%

Check out this sample tired-price matrix from Elite. However, remember that every shop is different and the parts matrix you use must be specific to your business model!

In addition to leveraging a tiered pricing matrix, shops should also consider adjusting labor rates by job type. Elite suggests tiered labor pricing, similar to part pricing, such as $150/hr for general labor and $180–$200/hr for diagnostics or engine/transmission work, reflecting the expertise and time required for each job. The reason for this strategy is that some jobs have little to no parts involved, which means no part profit. For example, a check engine light may require three hours to properly diagnose. Because no parts are involved, you are relying on Labor Profit alone. For these types of jobs, it is necessary to charge a higher labor rate.

That said, while understanding your margins is important, you don’t want to exclusively chase margin percentages. You also need to track profit dollars, which means understanding how much in overall profit dollars you need in a given time period. When pricing large repair jobs, the part margin may be below your average target, but it will bring in more profit dollars. For example, a cylinder head may only bring in a 30% part margin, but profit dollars may be in the hundreds. This is why lower-priced jobs will require a higher part margin percentage to achieve a reasonable dollar profit. For example, an air filter may have a 65% part margin but will yield only eleven overall profit dollars. Again, as stated above, tracking gross profit on each repair order is essential and will give you a clearer picture of your shop’s overall profitability. That’s where the money is!

Standardize Your Procedures

The last thing you want when implementing price adjustments is for a customer to find out that someone else paid less for the same service. Clear written systems for how to markup parts and set labor times can help avoid that. This removes personal doubt or inconsistency and means customers are charged the same amount for the same repairs (while still accounting for vehicle make/model/year). Shops should make sure to review their procedures monthly to monitor profitability trends and adjust their pricing accordingly.

Communicate to Customers

It’s normal to have some fears about potential customer loss when adjusting shop prices. However, the experts at Elite say those fears are not supported by the data. Many shops discover (via financial review) that their least profitable customers are often the ones that are the most price sensitive. These are the customers looking for a better deal, not necessarily superior service. In contrast to that, your most profitable customers are those who trust you, are the most loyal, and are the ones who have established strong relationships with you.

If you find yourself having to justify the price to a customer, that’s a good indicator that the customer may be more concerned with a bill than the service they’re getting. They may purchase services that day, but they are unlikely to return as a regular customer. That’s not necessarily because of anything you’ve done; it could just be that they are not your target profile customer.

Your prices are a way to reflect your commitment to delivering top-quality service to your customers. Elite has found that shops with higher AROs and consistent margins often have higher customer retention because they’re investing in better tools, people, and providing an amazing customer experience. Remember, your key profile customers are loyal to quality service and repairs, not discounts. Keep in mind, your customer may not remember the oxygen sensor you replaced three months ago but they will remember the experience and how they felt.

Sell Yourself Beyond Price

Your shop isn’t just selling parts; you’re selling a service your customers trust. Price is only one part of the conversation. Other things you can bring to the table beyond lower prices include:

• Reliability: Offer warranties on the products you sell. By including warranties with your products, you’re better able to build trust and justify higher prices, giving your customers added confidence in their purchase.
• Transparency: Digital Vehicle Inspections (DVIs) leverage photos/videos to build trust and visually reinforce the value of your service recommendations.
• Convenience: Things like rideshare to/from your shop and texting updates can offer conveniences that may add value to customer experience.
• Trust: Build your shop’s brand and credibility by establishing its credentials with things like certifications, being local, highlighting that you’re family owned (if applicable), and consistently providing an amazing customer experience!

Maximizing your profits doesn’t have to be hard as long as you have a superior service to back it up. Customers aren’t just paying for parts and labor; they’re paying for your expertise, reliability, and trust that comes with a job done right. If you’re providing a service you’re proud of, your prices should reflect that. When you lead with quality and transparency, fair pricing becomes easier to justify and easier for customers to accept.