By April 18, 2023
The profits generated from auto repair labor are significant to the success of auto shops. As a bookkeeper that works with auto repair shops, I’ve seen instances where the labor margins are negatively impacting the bottom line and are not where they should be. Oftentimes, the amount of labor sales and the amount spent in labor payroll is not aligned.
Read on to learn a few ways that you can improve your labor margins and automotive shop labor productivity.
What Causes Labor Margins to Be Low
There are a few different reasons why labor margins might be low in an auto shop. If the labor rate is too low or the efficiency of the labor techs is low, your labor margins will definitely be impacted. It’s important to do your market research to ensure you are charging fair, yet smart prices for your auto shop. It’s also essential that your auto repair techs are working with maximum efficiency.
Another reason why labor margins may be low is service advisors not billing the correct hours from the labor department. This attention to detail is crucial to the success, productivity, and profitability of your auto shop.
How to Improve Labor Productivity
In an auto repair shop, the gross labor profit should ideally be 70-74%. For example, if you gross $54,000 in labor sales, there should be roughly $16,000 in labor tech payroll.
Here are a few tips for improving auto repair shop labor productivity and efficiency so you can increase your profit margins and be in the green year-after-year.
1. Organize Your Repair Shop Space
The first tip is to organize your repair shop space for maximum efficiency and productivity. An organized workspace allows the repair techs to access the tools and equipment they need quickly. It also reduces the chances of misplaced tools or equipment. Therefore, they can complete their repairs quickly and effectively. An organized repair shop also gives the shop manager an easy way to monitor productivity and intervene if needed.
2. Proper Training for Techs
Another significant aspect of improving labor productivity in auto shops is to provide adequate training for your repair techs. This training should not only focus on technical skills, but also communication, organization, and teamwork skills. Providing training to your employees allows them to have a better understanding of their roles and responsibilities, which leads to better performance and higher productivity.
3. Utilize Technology
Utilizing the latest technology and tools available for auto shops can significantly increase your labor department’s efficiency. There have been many technological advancements in the past years, such as automated equipment, computerized diagnostic tools, and software programs. These technologies can help streamline the workflow in your repair shop and make it more efficient for your service department, labor techs, and customers. Automating manual, labor-intensive tasks like tire mounting or balancing frees up the tech’s time and effort so they can be productive elsewhere.
4. Implement Effective Scheduling
Scheduling is one of the biggest bottlenecks in auto repair shops. Between appointments being booked, rescheduled, and canceled, it can be a real nightmare if you don’t have an efficient system and communicate with your customers and techs effectively. The scheduling system you use should align the workload with the number of techs available in the shop to complete the job. This process helps reduce the wait time for customers, which can lead to increased customer satisfaction and loyalty.
5. Invest in Employee Well-Being
Lastly, if you want to increase your automotive shop productivity, I highly recommend you invest in the well-being of your techs and employees. Employees who feel valued and appreciated are more likely to perform better, which increases productivity. This can be a simple gesture such as providing water bottles and snacks in the breakroom, creating a welcoming environment in your shop, and adjusting work schedules to accommodate the personal commitments of your employees. These small gestures can go a long way in motivating and retaining employees.
Improving labor productivity in auto shops requires a significant investment of time and resources. However, with these tips, you’ll be well on your way to increasing your team’s productivity, efficiency, and your labor revenue.
If your labor margins aren’t where you want them to be, feel free to book a complimentary call with me to discuss how our financial services can help you become more profitable in your auto shop!