The numbers you need to determine your shop’s labor rate 

Your shop’s labor rate needs to reflect the value you provide  

As a shop owner, you’ve probably spent countless hours trying to decipher what your labor rate should be. What you will learn, or maybe already know, is that there is no silver bullet in determining the right labor rate! There are guidelines to follow; however, not all shops are created equal, and your labor rate is no different. To truly understand what your labor rate should be and help your shop develop accurate estimates for all repair work, you have to take a surgical approach to determine your price.

A recent PartsTech survey reveals that 6% of automotive shops still charge labor rates below $100. Unfortunately, this statistic underscores a critical issue within our industry — the undervaluation of our services. 

It is crucial that we, as an industry, address this by adjusting our pricing strategies to more accurately reflect the quality and value of the work we provide. Elevating our labor rates is not merely about increasing revenue — it’s about reshaping consumer perceptions and reinforcing the professionalism and expertise inherent in our industry. Each business, including yours, plays a vital role in this effort — contributing to a broader industry shift that aligns more closely with our true value. 

It’s time to realize that competitive labor rates aren’t just numbers — they’re a direct reflection of skilled expertise, cutting-edge technology, and the hard-earned experience you bring to every repair. Let’s explore how to take the first steps in determining the perfect labor rate for your shop.

Know your profit-related numbers first 

As stated, identifying the right labor rate for your unique business requires a surgical approach, which calls for several calculations to help you work backward. Before you can begin unpacking and determining your labor rate, you need to know some numbers related to your gross profit. 

Know your break-even point

To figure out where your labor rate needs to be, you first need to calculate your monthly break-even point. 

How to calculate your monthly break-even point:

Fixed Expenses ➗ Your Current Gross Profit Percentage = Monthly Break-Event Point

Fixed Expenses: Fixed expenses in your shop are costs that remain constant regardless of the number of vehicles serviced. These include rent, utilities, insurance, loan payments, and salaries and wages for employees on fixed-pay agreements. Understanding these expenses is crucial for effective budgeting and financial planning.
Gross Profit Percentage: If you don’t know your gross profit percentage, you find this number by dividing your monthly Gross Profit b

Determine your desired labor gross profit

Our coaches recommend a monthly gross profit goal of 60-75%. Your Desired Labor Gross Profit is the target profit margin your shop aims to achieve from labor charges after all direct costs associated with labor are covered. This margin is crucial for your shop’s overall profitability and helps ensure that there’s enough revenue to cover operational expenses and investments. 

We recommend that shops work to have their desired labor gross profit start at 65%.

Next Up: Learn to evaluate your current posted labor rate against your effective labor to understand if your shop drives profits through labor. Read the next blog post. 

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About Repair Shop of Tomorrow 

Being A NAPA Autocare Endorsed Coaching & Marketing Resource, Repair Shop of Tomorrow was born out of Dave Justice’s vision for a comprehensive program that would equip shop owners with the necessary tools for success. During his tenure on the NAPA National Auto Care Advisory Council, Dave recognized the industry’s need for such a program. With the launch of his web-based time management system, Labor Profit Management (LPM), in 2013, the path to creating Repair Shop of Tomorrow became clear. LPM gained notable recognition in industry publications, and its national launch by NAPA in 2013 provided shop owners nationwide with the means to measure and manage their labor profits effectively. Following the sale of his stores in 2016, Dave could fully devote himself to his true passion: assisting shop owners in achieving success. Thus, Repair Shop of Tomorrow was established, offering comprehensive programs that encompass expert coaching, standard operating procedures (SOPs), and marketing designed to deliver tangible real-world results. With a commitment to empowering success, Repair Shop of Tomorrow has transformed shop owners’ businesses on a national scale, providing the guidance and support needed to thrive in a competitive industry.