Rate:Why You Need It
| Whether you have a fixed location or a mobile
operation, you need to have a labor rate that will cover
the expenses of operating the business — plus make
enough of a profit.
In the February 2006 issue of Auto Laundry
News, we examined the issue of “time” in our business.
In that article, we looked at why there is no such thing as an “average” time
for a detail job. We considered the many variables involved that
determine how long a vehicle should take to complete. A detailer
needs to determine how long it will take to complete a vehicle
before giving a customer a price. Many detailers, however, get
confused about how to calculate a labor rate, which will ultimately
determine the price of the job.
EVALUATE THE VEHICLE
It’s always extremely important to actually
view the vehicle to determine how long the job will take. We know
a black SUV will take considerably longer to detail than a small
silver coupe. Also, other variables such as the overall condition
of both the inside and the outside of the vehicle and the customer’s
expectations will add or subtract time spent on the job.
will quickly learn to determine how long it will take them to complete
the job to the customer’s expectations
once they see a vehicle. For many reasons, however, knowing the
time it will take to complete the detail does not translate to
a profitable job.
WHAT IS THE JOB WORTH?
Everybody has a different level of skill. Some detailers will
be able to complete a vehicle in a far shorter timeframe than others
will. Some detailers have more experience, they use better products
and equipment, or they just work a bit faster than others do.
not necessarily about how fast a detailer works or how much more
skill he possesses compared to others. Rather, it’s
about what the job is worth in terms of time. Since there is no
set standard for any vehicle, this becomes a bit arbitrary to figure
out. However, we have all worked on black SUVs as well as small
silver coupes to figure out how long each one of these usually
takes to complete.
In a car dealership or other repair shop, they
use published books to determine the proper amount of time it
will take to repair the vehicle. For example, a tune-up on a
certain model has a standard labor time. So does a brake job
or engine replacement because the labor operations will always
be the same. The job will be worth that amount of labor, regardless
of how quickly or slowly the person gets the job completed.
In any business, the price charged to the customer is determined
by the labor involved,
plus the cost of materials. Unfortunately, in the detail business
there is no “book” to look at to determine a labor
time. Many shops just arbitrarily pick a price that seems good,
or is close to what the guy down the road charges. Therefore, they
really don’t know if the price they charge equates to a profitable
Before determining a price, you need to know how much money
to charge “per hour” so you will make enough money
to cover all your expenses and still be profitable when the job
is completed. This is the labor rate. It needs to be set higher
than you think because of the expenses involved to run the business.
| A few thousand dollars’ worth of detail
equipment that a skilled detailer uses to correctly and efficiently
detail a vehicle justifies a higher labor rate than that
of the operator who has no such equipment.
You need to look at how much it costs to open the shop
every day and stay in business — recurring expenses such
as the rent or mortgage, the utilities, your employees’ salaries,
insurance, advertising, product and equipment costs, water and
sewer use, phone, and more. When these are all added up at the
end of the month, it’s a big number. These expenses have
to be covered before you make any money.
This is why the labor
rate needs to be set at a higher rate than you ultimately look
to pocket per hour. Of course, limiting expenses is always a great
way to add to the bottom line, but there will always be expenses
that need to be paid. The labor rate needs to cover your expenses,
plus make you a fair profit.
Calculating Labor Rate
To truly make enough money in any service business, you
need to have a high enough labor rate. However, we have to be smart
in calculating a labor rate. Sure, we all want to make as much
money as possible, but having a labor rate that is too high will
hurt business. Many car dealerships have labor rates that are near
$100 per hour. Some people in very specialized fields of work
can charge even more than that per hour. Unfortunately, in the
detailing business we can’t charge labor at that rate because
it will price most customers out of the market. On the other
hand, having a very low labor rate will mean that almost every
job will be priced below what it should be and this will hurt
The labor rate you charge should be researched and calculated
based on the area of the country you are in and how expensive
it is to conduct business in that area. Because detailing is
such a labor-intensive business, the labor rate you charge can
mean the difference between being profitable, barely breaking
even, or worse.
Why You Need a Labor Rate
A labor rate is necessary to make sure the vehicles are
priced correctly. Arbitrarily picking a price out of the air or
pricing your services at or near the competitors’ prices
is not the way to make money. When you have a set labor rate, you
will multiply that rate by the number of hours it should take to
complete the vehicle. For instance, if the job should take four
hours and your labor rate is $42 per hour, it’s a $168 detail.
If you want to add a small cost for chemicals, that’s fine
as well. This will not mean your true profit is $168 on that
vehicle, but it will ensure that you are correctly pricing each
vehicle to ensure maximum profit.
As stated before, there is
going to be a cost of doing business that will bring that “per-hour” number
down considerably. Some detail shop owners are actually making
less money owning the business than if they worked for somebody
as an employee. This is because they either have a very low labor
rate or none at all.
Labor Calculation Mistakes
Having a labor rate and sticking to the calculation is
critical. Many times the calculation will seem high if it’s
done correctly. This scares many detailers, and they will lower
the price to a friendlier number that people are used to paying.
However, you need to be true to the labor rate and the correct
amount of time it takes to complete the job and keep it priced
that way to stay profitable.
Another labor rate mistake is charging
the customer based on the time it takes a very skilled detailer
to complete the job. For example, if a detailer is very skilled
and uses all the best equipment and products to make the job easier,
it will take him far less time to complete the vehicle than an
average or unskilled detailer.
If you know that a vehicle will
take an average detailer four hours to complete, but you have the
skills and equipment to get it done in three hours, you still need
to charge the customer four hours of labor time. Do not charge
the customer three hours because you can get the job done in that
amount of time. Remember, you spent a great deal of money for the
best equipment and products. You also have the skill and knowledge
to make a car look showroom new. There is no reason to basically “discount” the
price because you are so talented. Stick to your guns and stick
to the correct labor time and rate.
Discounted Labor Makes for Poor Work
If you are always worried about what the “competition” charges
and lower your prices to match theirs, you are basically lowering
your labor rate. Or, if you only charge three hours for what should
be a four-hour job, you are also giving the customer a discount.
In the long run you hurt yourself. You are leaving money on the
table by either discounting the labor time or rate. When you run
into a tough problem on a car that you have basically already “discounted,” you
end up spending more time on it than you have charged the customer
for — and you hurt your profits even more.
scenario is this: You know you are taking too long on the vehicle
and you end up rushing to get it finished. This will lead to poor
work and a vehicle that does not look as good as it should. So
with the discounted labor rate and time charged, you rush the job,
do poor work, and the customer ends up dissatisfied. All this because
you were trying to give him a discount, or were afraid of losing
the job if it was priced out correctly.
Afraid of the Competition?
There will always be competition. I don’t care what
the guy down the road charges, or concern myself with the coupons
he offers. You must realize that even though the “competition” appears
to be very busy, they may not be making any money because of the
cheap prices and low or non-existent labor rate. I let them have
the bargain shoppers and coupon clippers. I only want the jobs
that are going to be profitable. There is more than enough work
for everybody in all pricing zones.
If you choose to do the job
correctly and make sure it’s
done to perfection, it will need to be charged more time. Also,
if you have spent a vast amount of money on tools and equipment
that not only help you make the vehicle look its absolute best,
but save you time in the process, the customer should not get any
kind of labor discount. There will always be so-called “detailers” who
do this as a hobby, or have no equipment other than a can of wax,
a bucket, and a towel. They are usually the ones with the cheapest
prices because of low or no overhead. This does not mean you have
to come down to their level. The way to ensure that you will always
make money is to charge the correct amount of time at the correct
More Skilled Work Equals a Higher Labor Rate
I charge an even higher labor rate for more skilled operations
such as wet sanding, overspray removal, stain removal, or paint
work. There is more skill involved in each of these operations,
so my labor rate is even higher. I know that if a customer had
to bring his or her car into the body shop to have portions of
the vehicle repainted because of scratch damage or overspray,
they would pay hundreds of dollars. The same would be true to
have carpeting replaced because of stains. With more skilled
operations such as these, you can charge more money but you will
still be “saving” the customer money in the long
run. The repairs will be near perfect and customers will not
be without their vehicle for an extended period of time. It’s
a win-win situation for everybody.
The bottom line is you are
in business to make money. If you are skilled and knowledgeable
and have the best facilities and equipment, you are entitled
to charge for it. In the long run, you will have customers who
value the service you provide and a customer base that will pay
a fair price for a great job.
Kevin Farrell owns and operates Kleen
Car (www.kleencarauto.com), a full-service auto-detailing business
located in New Milford, NJ. Kevin is also an instructor for a detailing
program he developed for, and in conjunction with, BMW of North
America. His background includes auto dealership experience and
training through DuPont, General Motors, and I-Car.