How a Small Change in Labor Rates

How a Small Change in Labor Rates

How a Small Change in Labor RatesLeads to A Large Change in Profits

Calculate Correct Labor Rates

As a auto body shop owner/manager you want to take back control of your business and its profitability.But heres the challengeYoure in business to be profitable, but costs and expenses keep rising.In other words, your Cost of Doing Business keeps increasing. What should your labor rates be to achieve your desired gross profit and operating profit goals? Use the NABR Labor Rate & Profit Calculators 3-step process to find the answer.

Please note that the following example consists of actual data from a VRS subscriber for the period of January 1 to June 30, 2014.


The calculation of new labor rates using the NABR Labor Rate & Profit Calculator is a 2-Phase process.Phase 1 Calculate your shops Cost of Doing Business using the NABR Cost of Doing Business Calculator.Phase 2 Calculate your shops fair, reasonable, and sufficiently profitable rates with the NABR Labor Rate & Profit Calculator in 3-Easy Steps.


Step 1 Find PMRR RatesPMRR = Prevailing Market Rate Range Step 2 Input Shop DataStep 3 Customize Labor Rates and Profits

Calculate Correct Labor RatesAn Easy 3-Step Process

There are two parts to Step 1Part 1 Run a Survey the Market search to determine the PMRRsIf you need instruction on this please go to the Survey the Market page on this website. Part 2 The search collapses to reveal the PMRR search results for use in Step 3

Calculate Correct Labor RatesStep 1 Find Your PMRR Rates

Calculating Correct Labor RatesStep 1 Find Your PMRR Rates

Here are seen the results of the previous Survey the Market rate lookup in a collapsed format. The complete search results can be viewed again by clicking on the Expand / Collapse Rate Lookup button. CAUTION Do not run another Survey the Market rate lookup after youve begun entering the shop figures into the calculator. Doing so erases all data previously entered and will require reentering the shops numbers again.

Calculate Correct Labor RatesStep 2 Input Shop Data

Enter shop data from the CODB Calculator directly into the NABR CalculatorData that can be entered directly from the CODB Calculator are the following:Total Monthly Sales ($)Total Monthly Gross Profit (%)Total Monthly Expenses ($)

Calculate Correct Labor RatesStep 2 Input Shop Data (cont)

Use results from the CODB Calculator to enter shop data for the following categories:Total Monthly Flag Hours You will need flag hours for each of the following categories:Body Paint Mechanical


If you dont know your actual flag hours, you can estimate them. Simply multiply your Total Sales $ by the factor in parenthesis for each category and enter the result in the NABR Calculator. Body (.005597)Paint (.004149)Mechanical (.000304)


For example Body .005597 x 93,678 sales = 524.315766Therefore enter 524 for Labor flag hours Paint .004149 x 93,678 sales = 388.670022Therefore enter 388 for Paint flag hoursMechanical .000304 x 93,678 sales = 28.478112Therefore enter 28 for Mechanical flag hoursPlease Note that these factors have been tested repeatedly and are very good estimators of your actual flag hours.


Next in the section Labor Rate per Hour $ Enter your actual door / retail (Non-DRPs) labor rates for the period (3, 6, 9, or 12 months) that you are analyzing.If you door / retail rates are the same as your DRPs rates, enter those rates.The labor rates entered are to be the same as those you entered previously in the CODB Calculator.


Next in the section Labor Costs per Hour $ Enter the actual hourly rate paid for each labor category.If you pay hourly plus commission then you will want to calculate the average hourly rate (including commissions) for the period you are analyzing.Notice That for this shop, the labor cost for mechanical (44.10) is significantly higher than the labor cost for Body and Paint (19.80).


Lastly enter the desired Gross Profit Goal % and Operating Profit Goal % you desire to attain.

Steps 1 and 2 are now completed and youre now ready for the fun part.Step 3 Customize Labor Rates and ProfitsThis is the Step in which you determine your shops fair, reasonable, and sufficiently profitable labor and material rates according to your Gross Profit % and Operating Profit % Goals.Please Note That NABR does not tell you what your rates should be. We help you evaluate various options, but the final decision is yours and yours alone.

Calculate Correct Labor RatesAn Easy 3-Step Process

Calculate Correct Labor RatesStep 3 Customize Labor Rates & Profits

Please Note 4 things as you begin to customize your labor rates and profitsFirst, enter the same rates and labor costs entered in Step 2 into the Custom Rates and Costs section in Step 3.Second, click the Calculate button to verify that the Your Shop P&L matches the Custom Rates P&L.This is to confirm that both P&Ls are functioning properly and that the remaining calculations will be accurate.


Please Note 4 things as you begin to customize your labor rates and profits (cont)Third, we recommend you make incremental increases to each labor rate in the amount of $1.That allows you to view the corresponding affects of the increases to Gross Profit and Operating Profit $ and %.Fourth, pay particular attention to the Gross Profit and Operating Profit $ and %.Note the value of the labor rates when you finally reach your desired Gross Profit and Operating Profit $ and % Goals.


Please Note That Cost of Sales and Expenses remain constant in both P&Ls. That is because (given all things being equal) the NABR Calculator shows what happens to Gross Profit and Operating Profit $ and % when labor and material rates increase.


Therefore, in our example, If (all things being equal) the shop owner had simply increased his labor and material rates by $1 from $44 to $45He would have increased his Operating Profit Profit dollars from $1,422 to $2,750an increase of $1,328 for the month.Project that for 12 months and the shop would attain an annual profit increase of $15,936.All by simply increasing their current labor and material rates by only $1.


In the remaining slides you will continue to see the incredible positive impact on Gross and Operating Profits by continual small $1 incremental increases in labor and material rates. The rates for this shop begin at:Body $44, Paint $44, Paint & Materials $32 and Mechanical $98And end at:Body $54, Paint $54, Paint & Materials $42, and Mechanical $100 Note That these final Body and Paint rates in this example are roughly of current mechanical rates in the automotive repair industry.

Calculate Correct Labor RatesStep 3 Customize Labor Rates & Profits (cont)

Note 1 Be aware That because the increases in labor rates are so small, intuitively one can safely assume the probability of eventually collecting those rates from insurers is high. However, do expect some initial pushback.Note 2 To continue to revise rates to a fair, reasonable, and profitable level as costs and expenses rise Is to keep your shop in a positive profit position.Which in turn enables reinvestment in your business in the form of new equipment, certifications, and training as well as having sufficient profits for employee salary and wage increases.

Customize Labor Rates & ProfitsSummary

ActualLabor Rate4445464748495051525354Sales93,67895,00696,33497,63498,934100,234101,534102,834104,134105,434106,734GP $41,03142,35943,68744,98746,28747,58748,88750,18751,48752,78754,087GP %43.844.645.346.146.847.548.148.849.450.150.7OP $1,4222,7504,0785,3786,6787,9789,27810,57811,87813,17814,478OP %1.52.94.25.56.78.09.110.311.412.513.6OP Inc01,3282,6563,9565,2566,5567,8569,15610,45611,75613,056OP 12 Months17,06433,00048,93664,53680,13695,736111,336126,936142,536158,136173,736On basis of these results Via the NABR Labor Rate & Profit Calculator and the NABR Cost of Doing Business Calculator, this shop owner discovered exactly how much he had to increase his labor and material rates to not only remain in business but flourish.He has increased his rates and is getting paid by insurers at the new rates and looking forward to a much more profitable future.As he has stated, I was forced to make a decision. Either I make the move and increase my rates or soon go out of business. Im choosing to increase my rates and take on the fight!

Summary Points Customize Labor Rates & ProfitsTHE END

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How a Small Change in Labor Rates