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Understanding Technician Costs Dictate Pricing

Understanding the Service Numbers Part Seven

Once you understand your capabilities from an RO count perspective and have maximized your Hrs/RO through proper maintenance and repair work percentages, you still may not be making the money or the labor sales that you should because of your ELR, which ultimately affects your Gross Profit %.

When your work mix is in line, you�re ELR will level off, and that number represents the number on which you should base all of your forecasts. With a fully loaded shop performing a proper work mix at a maximum Hrs/RO in order to maintain proper gross profit levels, you must first calculate your weighted average technician costs so that you can ensure your pricing is in order to achieve the ELR that carries the GP% you require.

Weighted technician cost calculation is a similar calculation to that of ELR (take each technician�s Flat Rate Hours and multiply it by the technician�s wage). When you�ve done this for each technician you can average your costs by performing the same math on the totals. Now take your average cost and multiply it by the desired GP% to provide you with the desired ELR.

Is this ELR and your current ELR the same or close? Of course not! So in order to gain this level of ELR you will have to make pricing changes or cost changes. Cost changes may be in the form of actual technician hourly rates, the number of high costed techs to low costed techs, or your flat rate times. Fortunately, with pricing changes, you don�t necessarily have to change the pricing of every service you provide, but rather you can implement various maintenance and repair rate strategies that will make up the differences while still allowing you to remain competitive in the marketplace.

Once you�ve calculated all of these ideal numbers, you�re only left with the daunting task of performing it!
You don�t have to go through it alone though, we can help! At Auto University, our Fixed Operations specialists will work with your Service Team to help you identify costs, GP% levels, pricing strategies and overall where your operation needs improvement and we will customize a solution and implement processes that will ensure success!

Click here to access that bank of knowledge.