Collision repairers ought to consider their business and base any labor rate increases around their actual expenses, rather than just picking an arbitrary round number, Collision Advice CEO Mike Anderson advised in this month’s Hammer & Dolly.

Here’s some excerpts from his comments that the magazine, a joint production of Thomas Greco Publishing and the Washington Metropolitan Auto Body Association, graciously allowed us to reprint. Read the rest here in the April 2018 “Ask Mike,” starting on page 24.

The first thing that really amazes me is how people raise their Labor Rates. When I had my shop, I saw people raise their rates by $2. I’d say, ‘Where the heck did you come up with $2?’ They seemed to grab this fictitious number out of the sky to determine their rates, and it didn’t make sense at all. What I would do was look at the profit I would need to make so I wouldn’t have cash flow problems. Then, I would look at the equipment and training I would need to invest in over the year. I would also ask myself a series of questions. Were there any upgrades that I needed to make to my computers? How much did I need to spend on I-CAR, OEM certification and other training? Did health insurance go up? Did my utilities trend upwards? That way, I would figure out how my expenses would increase for the next year. … 

I can tell you that I never, ever came up with just a flat $2 amount for my Labor Rate to go up; it was always a number like $2.53 or $4.89. I based it off of my specific shop.

Also, I think your aluminum rate can’t be this fictitious number. It needs to be based on how much you invested in training and equipment, how many of those vehicles you think you’re going to fix over the lifespan of that equipment and what you think you need to make for your return on that investment. Your goal is not to make back the money you spent on that equipment; a smart business decision might be to make about double that investment. Obviously, that needs to be calculated based off of knowing your gross profit. …

There are a lot of people who will disagree with me, but I was never one of those people who had a posted Labor Rate and collected less from an insurance company. I just had a posted rate, and that was what it was. My rate was my rate whether you were a consumer or an insurance company. It never made sense to me to have two different rates.

See the full “Ask Mike” here.

For more insight into calculating labor rates, check out this March guest column from National AutoBody Research.

More information:

“What are some ways that a shop can determine a realistic retail Labor Rate?”

Mike Anderson in Hammer & Dolly, April 2018

Images:

Collision Advice CEO Mike Anderson leads a panel on scanning at NACE 2016. (John Huetter/Repairer Driven News)

National AutoBody Research presented this chart of labor rate survey results from about 4,650 collision repairers nationwide. (Provided by National AutoBody Research)