Cost of doing business: the golden ticket most garages never work out

Ask most garage owners how they arrived at their labour rate and you’ll hear some version of the same answer. They looked at what the garage behind them, in front of them and to the side of them was charging, and pitched themselves somewhere in that arena.

I understand why. Nobody ever showed us another way. But it means most garages are charging a number that has nothing to do with their own business.

What fixes it is understanding your cost of doing business. For a garage, it’s the golden ticket. I explain why in a couple of minutes here.

A garage doesn’t sell anything physical

Here’s what makes our business different. We’re not selling anything physical. We’re selling knowledge, and that knowledge is skill and time. In our industry we call it labour.

I like to think of it as time, because that’s how our jobs are priced. We use the repair times the manufacturer has collated: this car needs two hours to repair or replace a certain item. That hour of skilled work is what the customer is paying for.

The only one thing that a garage has to sell is time. That’s our commodity. We only have time. And if you don’t know what the cost of that is, you’ll never be able to set your charge-out rate correctly.

Andy Savva

Why the local average is the wrong number

Historically, 99% of garage owners around the country have had a chargeable labour rate based on nothing other than what the local area is charging. Nobody ever worked out the cost of their time, and nobody knew how to.

But every garage is different. We all have different challenges and different operating costs, and we all want different things from our business in three or four years’ time. Copy someone else’s rate and you’ve copied a number built on their circumstances, not yours.

The consequence is simple. We don’t charge enough for the one commodity we have to sell.

What your cost of doing business tells you

Your cost of doing business is what it costs you, per hour, to open your doors. Think of it as the running cost of the whole garage, the overheads of keeping the place open, before a single part goes on a car.

Once you know that number, you can set your prices on your own operational costs, not the garage down the road’s. Until you know it, any labour rate you choose is a guess.

What to do next

1. Write down your current labour rate, and where it really came from.
2. Pull together a year of your operating costs: everything it takes to keep the doors open, leaving parts aside.
3. Work out how many hours your workshop actually sells in a year.
4. Divide the first figure by the second for a first look at what an hour costs you. Then put it next to your labour rate. If the gap surprises you, you’re not alone.

If you’d like a quick view of where your pricing sits alongside the rest of the business, the free Garage Healthcheck is a good place to start.