How much do I charge when employees do work?

[b0mbtrack]

Hello. New here, first post

I have a shop that charges $85/hour. If I have an employee making $25 an hour and he helps me on a job how much should I charge customers for his time. I always thought I was just supposed to charge the same $85/hour rate but if I have two people working on the same job it makes the job cost too much I think, (85 for my hour 85 for his hour). Because of this I haven't been charging for my employees time. If we spent one our doing something together I would only charge $85. What is a fair % to charge to the customers? I'm assuming if he works for an hour by himself then charging the $85/hour is fine. I'm the worst business man alive so any advice would be great. I'm also not worried about calculating in taxes, insurance, etc...

[SteveM]

Welcome, Mr. Track (or should I just call you The bOmb?).

The way our dealer group mechanical shops operate is by tracking the metrics of Effective Labor Rates and Tech Productivity.

Effective Labor Rate is a percentage of your shop rate - calculated by taking your shop rate ($85 for you) minus employee costs (wage, benefits, etc.) = ELR. We try to maintain an ELR of about 70%.

Tech Productivity is measured by taking the amount of hours a tech produces divided by the number of hours worked in a given day. So, if a tech produces 9 hours, but only worked 7 hours, his productivity would be 129% - great job! If your tech produces 6 hours, but worked for 8 hours, his productivity would be 75% - bad job. You should strive for 100% productivity.

The reason we track these metrics is to determine over a specific period of time how efficient the shop is. Not every job pays the same, as brake work is charged out at a lower rate then diagnostics because of the competitive nature of brake jobs. Same thing with alignments, oil changes, changing light bulbs, and other "light duty" work. You make up ground on the more technical work, where competition is rarer, thus enabling you to charge a higher fee for that work. Maybe your shop rate for light duty work is only $65/hr, where hi-tech work is $105/hr. In the end, when you take in all the factors, your shop should be 100% productive and with an ELR of 70%.

As to your original question, a manhour is a manhour. If you have four people performing a job in 15 minutes, that's 1 manhour. If you have two people working a job for one hour, that's two manhours. In order for your shop to be profitable, your have to charge out what the work is worth, and maintain your numbers. Being a nice guy and undercharging customers may give you warm fuzzies, but being able to pay the bills keeps food in your mouth and the collectors off your back!

Good luck!

[b0mbtrack]

Wow thank you for the quick, thoughtful, and very informative response. Couldn't have asked for better. Its bombtrack though, like the song from Rage Against the Machine. The band members are idiots but they write good songs, if you like to mosh that is.

Its going to take some time for me to figure out things like ELR but at least I now know something to explore. I've never thought of having a different labor rate like that, something to think about. My field is actually in boats so luckily the examples cross over easily. I do tend to charge low mainly because I am unsure how long a lot of jobs should take and I also get nervous charging people. I'm kinda young and most of my customers are older so I feel people look down on me. I'm blessed with a lot of nice customers though. I just started quickbooks last year and now know how to make a budget with it, so my goal this year is going to be to use that and come up with ways to charge more hours for the technical jobs and slowly get more and more brave.

[KristineS]

I can't answer the technical part of this, certainly not as well as SteveM, but I will say this, no one will value your work if you don't value it. A common problem for a lot of new businesspeople is undercharging. You have to believe you're worth what you charge before other people will. Keep working on it. The fact that you're asking questions is a very good sign.

[huggytree]

is the worker a 'helper' or can he do what you can do? does he do the grunt work?

in plumbing they charge journeyman rate for apprentice work(on bid jobs)...it would be assumed that a apprentice would be 1/2 speed, so charging full rate would work out.

on T&M jobs i would most likely charge less....he wouldnt have the van or tools and his wages are 40-80% depending on the year of his apprenticeship....

what may work for you is to average your labor rate....instead of charging $85 for you and $45 for him you may want to just charge $75 per hour each...it makes your hourly rate seem less and a better deal to price shoppers.

if your not charging for his work your pi**ing away money you deserve...

what the market will allow is also a consideration.....

[SteveM]

I'm still not sure what sort of marine work you do...if it is mechanical repair, it took me about 30 seconds to find online marine repair labor guides, so those should help you bid jobs if that's your business. If the work is detailing, you should know from experience how long a job will take, and you can start making your own labor guides.

Most customers have a fair idea what a job is going to cost when they go to a shop, so when you throw out a bid, they most likely aren't as shocked at the price as you think. You may want to get into the habit of shooting a little high, as it's always easier to "find ways" to lower the cost, but extremely tough to talk people into a higher repair bill. Like KristineS said, if you don't value your work, no one else will.

The biggest thing to remember as a business owner of a mechanical shop with employees is if the wrenches are turning, you're making money. If the wrenches aren't turning, you're losing money.

I think you'll do great! Keep learning and asking questions, and keep trying to improve. One of the best things in life is to be effective for your customers. The next best thing is be fairly compensated for that effectiveness. Always treat your customers like gold, because that's exactly what they are to you as an owner.