What an hour in your workshop actually costs

A garage labour rate is usually set by finding out what the workshop down the road charges and going slightly under. That is not a rate, it is a rumour and it ignores the fact that the other garage may have three bays, a different rent and no idea what they are doing either.

Here is the version with numbers in it.

Start with hours you can actually sell

A technician on a 40 hour week is not 40 sellable hours. Take off holiday, sick days, training, cleaning, road tests, waiting for parts, moving vehicles, MOT admin and the twenty minutes that disappears every morning.

Most workshops that measure this honestly land somewhere around 75% to 85% of paid time being available for chargeable work, and considerably lower if the same person also answers the phone.

Call it 32 sellable hours from a 40 hour technician. That number is the denominator for everything that follows and it is the number nobody calculates.

Then take every cost

Wages and employer costs for the whole team including the office. Rent, rates, power, which is not a small line in a workshop with a ramp and a compressor. Insurance, equipment finance, calibration, diagnostic subscriptions, software, waste disposal, consumables, the accountant, the mortgage on the building or the lease on the unit.

Everything. Not just the technician's wage, because the technician's wage is typically under half of what an hour costs to provide.

Divide and get a floor

Monthly costs divided by monthly sellable hours gives you a break even rate. That is the number at which you have made nothing.

Whatever comes out will be higher than most owners expect, because they have been mentally comparing their labour rate to a wage rather than to the cost of running a workshop.

Everything above that number is profit and everything below it means you are paying for the privilege of doing the work.

The two numbers that move it

Productivity is how much of the available time is sold. This is the one to fix first. A bay standing empty while somebody waits for a part is the most expensive thing in the building, and better parts ordering, better scheduling and taking bookings online rather than by phone all move it.

Efficiency is how the time taken compares to the book time for the job. A technician consistently beating book time on familiar work is generating hours you can sell. One consistently over it on unfamiliar work is not a bad technician, it is a scheduling decision that put the wrong job in front of them.

Both are worth measuring and neither is worth using as a stick.

Where parts sit alongside it

Parts margin is a real part of workshop profitability and it does not remove the need for a correct labour rate. A garage subsidising cheap labour with heavy parts margin looks competitive on the phone and becomes uncompetitive the moment a customer supplies their own parts.

Decide your policy on customer supplied parts before you are asked, and price the labour so it stands on its own.

The rate to actually charge

Take your break even hourly figure and add the margin the business needs to invest, absorb a bad month and pay you properly. Then check it against the local market, not to copy it but to understand what you are asking customers to accept.

If the number you need is above the local rate, the answer is rarely to drop it. It is to be specific about why. Diagnostic capability, manufacturer training, a courtesy vehicle, a warranty, photos with every job. Specialisation lets you charge above the town rate. Being the cheapest general garage in town is a race with only one prize.