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How do you figure hourly rates?

CARMandP

By CARMandP
in Pricing, Discounts, Labor Rate

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CARMandP Proficient

CARMandP

Posted
Posted

I am getting ready to move into a new building (larger and more overhead). I have been able to work the last few years out of my own garage which has kept my overhead costs way down but my business has become to big for one of my neighbors and someone called the county on me even though I have never had any complaints from the neighbors. Oh well.

 

Of course, with the bigger building comes bigger expenses and overhead. Can anyone give me some good ideas on how to properly set my prices to not kill myself financially.

TheTrustedMechanic Community Regular

TheTrustedMechanic

Posted
Posted

The formulas you have gotten so far are going to be a big help. But through all of the congratulatory fluff I noticed no one mentioned the ugly side of all this. What was your labor rate? What will it have to be with the new overhead? How many customers will you lose to Backyard Bob because you are too high? You may not want to believe it but you will lose some when your rates go up, if they have to move too much.

 

I know this first hand. I was a mobile guy, I did side jobs when I had a day job. I had low overhead and low rates. I then went legit, like you are now. A very good friend and good source of leads dropped away because I was too expensive. Of the solid base I had built up and naively was relying on, I kept less than a quarter because of the mandatory higher prices. So if you aren't doning any, or much marketing now, you better figure in some serious coin to get some started, at least for the first year you are legit.

 

And I say you weren't legit because if you were working out of your home garage, in violation of zoning laws, you were no better than the Craigslisters and shadetree grease monkeys. You skirted the law and undercut the competition by not truly being competitive. Think about it, the guy three blocks over working out of his garage or the back of his Astro van will be able to cut your throat on overhead and undercut your labor rates, because he isn't playing on the same level or by the same rules (laws). I can't say I'd be happy if my neighbor started an industrial operation (that's exactly what car repair is) next to my home either.

 

But good luck in your new venture and I hope you can successfully make the transition.

DewayneP Contributor

DewayneP

Posted
Posted

I'll agree and disagree with the trusted mechanic. I sense a little animosity from him towards you because you were working out of your own garage, even though he admits he did it (mobile) before opening a shop. True, you may have skirted the zoning laws by doing that (we don't know that part of the story), but, you still had overhead. If you were working out of your own garage you still had to pay for electricity and heat, right? You did have insurance, right? You did make tool purchases to stay current, right? If you were doing it "right" you still had overhead, not like the guy working from the back of his Astro van who only took gravy jobs because that's all he had the tools and equipment for. If you are moving into a bigger shop that means more work capability, right? Can you get more cars in and out on a daily basis? If it is still only you and no employees you may not need to raise your labor rate too much. How does your rate stack up against the local shops? You will probably need to be more in line with them. More room also means you can buy in bulk. Maybe before the move you could only store oil in quarts or gallons. Now, after the move you have more room to buy oil in 55 gallon drums or more. These are the things no-one here can tell you. You will have to figure it out by doing the math. You should be able to lower your COGS enough that you won't have to compensate too much with your labor rate. More cars in and out can mean a bigger discount on parts too. Again, these are things that only you can figure out. Take my advice with a grain of salt, as I too am a guy working out of my own garage (actually my inlaws). However, I did get the zoning permits, registered with the state as a repair shop, inspection station, told the neighbors (only 1 within hundreds of yards), etc... Even though my overhead is low, I have a hard time competing with the big shots on general maintenance (oil changes, filters, etc...) because I can't buy those items in bulk because I don't go through enough of them. There are advantages to being in a bigger shop that can get more cars through. If you find those advantages you will prosper. For example, I have a one bay shop. I currently have a 2002 Trailblazer on the lift for a transmission swap. I'm waiting on the transmission to be rebuilt so I can't take any more jobs until I get this beast off of the lift. If I had 2 bays I would be able to accept more work while I wait on the other vehicle. If I had a 3 bay shop I could do oil changes and easy maintenance while the 2 other bays were tied up. That's enough for now, good luck in your new shop.

TheTrustedMechanic Community Regular

TheTrustedMechanic

Posted
Posted

Dewayne,

I took the stance I did because of the "Poor me, I'm the victim," mentality of the OP when he wrote, "but my business has become to big for one of my neighbors and someone called the county on me." Clearly he had not followed the rules and did not abide by the law as you have done. You stated you have contacted the county, the neighbors, filed the proper paperwork, registered as a repair facility, have insurance, etc. Your only difference as you stated is that your facility cost is reduced, but then too is your capacity. So if you don't want to play by the rules (operating a business in an approved location) and someone calls you on them (files a complaint with the appropriate governing body) then you have no one to blame but yourself. But the underlying point of my missive was still valid. When he grows and evolves into a legitimate shop he will evolve into something some of his previous "customers" will not want and he won't retain them so don't count on them. So even though I was abrasive I was still providing him advice to be cautious, and offering the benefit of my experience.

 

Yes I too did the shadetree deal. But I too saw the error of my ways and went legit. I filed with the state even as a shadetree so I could legally charge for my services. I even had a sales tax license so I could mark up my parts too. Then after a series of poor dealership jobs taken by necessity I decided to open my own shop. And we can all agree, if we really were honest and took a long hard look, we all have a certain contempt for those shadetree, Backyard Bob, Craigslist grease monkeys. Many of us started there, but we all went legit. Just because we started there does not mean that it was right or just. But on the other hand, many of those (time) consumers that BYB serves aren't good customers for us anyway. Too much time involved for too little money, so in a small way they do help up by taking away many of the bottom feeders. But is still does not make it right.

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