Supplier vs. Partner?
Don’t work for free! Follow these 5 easy steps to pay yourself for time spent at the front counter.
EDITOR’S NOTE: The labor rates mentioned in this article are fictitious and should not be considered industry standards.
Successful shop operators understand the importance of preparing detailed, professional estimates for their clientele. But it’s time well spent because it displays your knowledge of the subject, which builds trust and ensures they’re getting the best value for their money.
Substantial time can be used to perform that process during a month, so how should the time be billed? Here are five easy steps to ensure your time is properly accounted for – and paid for – every month:
If you don’t know how many hours you average preparing estimates, start tracking your time. Set up a binder or computer spreadsheet. Create three columns and label them “Start,” “Finish” and “Total Time.” Calculate the difference from start to finish and enter the total time spent in the third column.
For three months, add up the total time spent during each month and divide this monthly total by three to obtain an average for the period. For example: Total time for the past three months is 30 hours, and 30 divided by 3 equals 10 hours per month preparing written estimates.
Take your average time per month preparing estimates and multiply it by your shop’s diagnostic labor rate. For example: 10 hours per month times $125 per hour of diagnostic labor rate equals $1,250. Choose the diagnostic labor rate rather than the maintenance labor rate to build in time to review and discuss the estimate with the client.
You’re not going to jot down time segments with the client, but it’s important that all time is accounted for. And don’t worry: Because you have accumulated a great deal of knowledge about how to prepare a proper estimate, the time spent will provide return on investment.
To calculate the average number of maintenance labor hours actually billed in the shop, take the average maintenance labor revenue per month for the past three months and divide it by the shop’s maintenance labor rate (90 percent of all time billed in a typical shop is for maintenance rather than diagnostics). For example: Average monthly shop labor revenue of $35,000 divided by $95 per hour equals 368.42 average billed hours per month.
Take the total average dollar-time to do the written estimates and divide it by the total average billed hours of the shop: $1,250 divided by 368.42 equals $3.39. I’ll round it up $3.50 to make it easier.
Raise your shop labor rate by $3.50, so you’ll now charge $98.50. Your time preparing a professional estimate is now paid in full.
Review the time you spend preparing estimates every quarter. If you find that you’re spending more time preparing estimates, adjust your labor rate upward. You will find the dollar increase in your shop labor rate is insignificant compared to the total dollar quote in one estimate. But as a competent manager, you’re now ensuring the business is fully accountable.
Those dollars could go a long way toward enhancing the business model and securing its future.