A labour rate is arithmetic, not a negotiation with yourself. There are three numbers behind it: how many hours you can actually sell, what those hours have to carry in overhead, and how much of your posted rate survives contact with discounts and goodwill. Most workshops have never worked out any of the three.
Start with recoverable hours, not paid hours
The number that matters is not what you pay a technician for. It is what you can sell. A technician paid for forty hours a week does not put forty hours on job cards, and never has.
Time disappears into road tests, cleaning up, waiting on a part, diagnosing something that turns out not to be chargeable, holidays, training and the ten minutes at each end of the day. Some of that is waste you can cut. Most of it is simply the job.
Recovery rate is sold hours divided by paid hours. A workshop that measures it usually lands somewhere between sixty and eighty per cent. A workshop that does not measure it tends to price as though the answer were a hundred, which is exactly why the margin never appears at the end of the year.
You cannot set a rate without this number, and you cannot get this number without recording time against job cards. If only one thing in this guide gets done, make it that.
Work out what each sold hour has to carry
Every hour you sell has to pay for a great deal more than the technician standing at the ramp. Rent, business rates, insurance, electricity, the ramps themselves, diagnostic equipment and its subscriptions, the MOT bay, the person on the front desk, the accountant and the software all come out of sold hours.
Total the annual overhead, take out anything you have decided is covered elsewhere, and divide the rest across your recoverable hours. That is what each sold hour must carry before you have made a penny.
Technician cost is not the wage either. Add employer National Insurance, pension contributions and anything you provide in tools, training or workwear. The figure that goes into the calculation is the fully loaded cost of employing that person for a year.
Then add the margin you actually want on labour, rather than hoping it turns up. Margin is taken out of the sell price, so a twenty five per cent labour margin means dividing the cost per hour by 0.75, not multiplying it by 1.25.
A worked example, one technician
| Line | Illustrative figure | Where it comes from |
|---|---|---|
| Paid hours a year | 1,800 | 40 hours across 45 working weeks |
| Recovery rate | 75% | Sold hours divided by paid hours |
| Recoverable hours sold | 1,350 | 1,800 x 75% |
| Fully loaded technician cost | £34,000 | Wage plus employer NI, pension and tools |
| Overhead share per technician | £24,000 | Rent, rates, insurance, power, equipment, desk, software |
| Cost per recoverable hour | £42.96 | (£34,000 + £24,000) ÷ 1,350 |
| Door rate at a 25% labour margin | £57.28 | £42.96 ÷ 0.75 |
Every figure here is illustrative and chosen to make the arithmetic legible. Run the same calculation on your own payroll, your own overheads and your own measured recovery rate before changing anything.
The door rate and the effective rate are different numbers
The rate on the board is the door rate. The rate you actually achieve is the effective rate, and in most workshops it sits well below what the owner believes.
It gets eroded by trade discounts, the ten per cent for the regular, the goodwill hour written off on a job that overran, warranty rectification, comebacks, and diagnostic time that went unbilled because it felt awkward to charge for looking.
Measure it the simple way. Total labour invoiced in a month, divided by the hours actually sold in that month. Compare that to the door rate. The gap, annualised, is what your discounting habits cost you.
Using the illustrative figures above, a £57.28 door rate given away at an average of eight per cent produces an effective rate of £52.70 against a cost of £42.96. That is thinner than the board suggests. And if recovery slips from 75 per cent to 60 per cent, the cost per hour rises to £53.70 and that same effective rate is now below cost, with nothing on the price list having changed.
Why matching the garage down the road is a trap
Their rate reflects their rent, their recovery, their equipment and how much of their work is trade rather than retail. You can see none of that from the pavement.
It is also entirely possible that the cheap garage nearby is undercharging and does not know it. That becomes your problem when they close and their customers arrive expecting their prices, not your opportunity.
The comparison most retail customers are actually making is not you against the yard on the next street, it is you against the franchised dealer. There is usually far more room between those two numbers than the local price war suggests.
If you are genuinely worried about losing work, change what you are selling rather than the number on the board. A courtesy car, a while you wait MOT, a photographed health check and a written quote approved from a phone are worth more to most customers than five pounds an hour.
One rate for everything leaves money on the table
Diagnostic work on a modern vehicle needs equipment, live subscriptions and a technician capable of using both. Billing it at the same rate as an oil service is a decision to subsidise your most expensive capability with your cheapest job.
A separate, higher diagnostic rate is normal and defensible provided you explain what it buys. Charging for the first hour of diagnosis and crediting it against the repair if the customer goes ahead makes that conversation much easier at the counter.
Trade rates should be a deliberate decision rather than a habit. Trade work fills quiet bays and is worth having, but only once you know your cost per hour and only while it is not pushing retail work out of the diary.
Review the rate on a fixed date once a year and move it in small steps. The garages that find a price rise painful are the ones that left it four years and then needed fifteen per cent in one go.
Setting the rate properly
- Record booked time against job cards so recovery can be measured
- Work out sold hours as a percentage of paid hours
- Total annual overhead and divide it across recoverable hours
- Add employer NI, pension and tools to the technician wage
- Divide by one minus your target margin, do not multiply by it
- Measure the effective rate: labour invoiced divided by hours sold
- Price diagnostic time separately from servicing
- Set trade rates deliberately, with your cost per hour in front of you
- Test what happens to the numbers if recovery drops ten points
- Review on a fixed date each year rather than when it becomes painful
- Benchmark against the franchised dealer, not the cheapest yard in town
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