Let’s be real. Most dealers figure out their labor rate the same way they figure out what pizza to order on Friday night… they call around and go with whatever the neighbor is doing. Easy, sure. Smart? Not really. Copying the dealer down the road has nothing to do with what it actually costs you to run a profitable service department.
Start With Your Techs
Your labor rate has to begin with what it takes to get and keep technicians. Period. If you cannot afford to pay great techs, you will be forever short-staffed, behind schedule, and praying somebody finally calls you back for a job interview.
Here is a good gut-check: you should be able to pay an A-level technician about 30 percent of your posted labor rate. So if you are charging $120 an hour, that means you have room to pay your top tech around $36 an hour. If your current rate does not leave that kind of margin, your math is upside down, and it is time to make a change.
Timing Is Everything
The “when” is almost as important as the “how much.” Do not raise your labor rate in the middle of your slow season. That is when customers have time to shop around and complain. Instead, bump your rate right before you head into busy season. At that point, your customers are more interested in getting their equipment fixed fast than they are in saving ten dollars.
Take Care of Your Best Customers
Here is one of my favorite strategies: raise your labor rate by ten dollars an hour, then give your loyal customers a ten-dollar-per-hour “preferred customer discount” for buying from you. New customers come in at the new rate. Your long-term customers feel like VIPs. And you actually protect your margins while still showing loyalty to the people who keep your lights on.
Keep Your Service Department Healthy
Your service department should be generating 15 percent of your total dealership revenue. Anything less and you are vulnerable. Sure, parts and wholegoods might carry you for a while, but a weak service department is like a wobbly stool… it will not hold you up for long.
What You Can Do Today
- Run the math. Can you pay an A-level tech 30 percent of your posted labor rate? If not, raise it.
- Circle the calendar. Plan your rate increase for just before your busy season.
- Roll out a preferred customer discount program. It is a win-win: more margin for you, loyalty perks for them.
- Check your revenue mix. If service is not at least 15 percent of your gross, it is time to dig deeper.
Want Some Help?
If you are reading this and thinking, “That all sounds great, but I need someone to help me figure it out in my shop,” we have you covered.
- Our Service Manager Certification Program is on-demand and online. It walks you step by step through how to price, process, and profit from your service department.
- Or, if you would rather sit down and hash out your exact numbers, our Dealer Success Groups give you one-on-one time with our team to work through your specific situation.
Because at the end of the day, raising your labor rate is not just about charging more. It is about building a service department that can attract great techs, keep customers happy, and actually carry its weight in your dealership’s bottom line.
– Sara