Hi, I’m Jimmy Alauria. And I’m the CEO of victory team building group.
Today, I want to talk about the hottest topic in our industry. It doesn’t matter where you go, whether it’s a local ASA or a regional meeting conference; anytime you go to anything dealing with auto repair, the topic is: where do you find techs?
Anytime you talk to a shop owner or a manager: “we need one more tech…we need two more techs, man…I’d hire five more techs right now if I could find them.” And the truth is is that yes, it seems like there’s a shortage out there, but for the top shops, there’s really not a shortage. There’s actually a great opportunity. Because there’s a lot of technicians who are working in non-optimum environments. So we’ve got to really get good at marketing; because the problem is not necessarily the shortage of technicians for the top shops. The problem is communicating to the technicians that are probably working in an environment that they don’t have to be in.
They could be in a lot better environment environment with better equipment, an environment with maybe air conditioning, with a really good culture, great time off, great benefits. But if we don’t know how to market, and we don’t know what to communicate to those technicians, we’re never going to find them. And we’re never going to make that hire. So this is a little seminar about (1) what technicians want, and (2) where to find them. But also the biggest hump that I’m finding now is that labor prices are going up. Shop owners and managers are really hesitant to hire the person they need, because they might be asking for $40 or $50 an hour. And I don’t care if that’s flat rate or hourly. The amount of money that these technicians are demanding is real.
But let’s face it: they’re worth it. And until this industry gets up to the point where an auto technician can make as much as an electrician or a plumber or even a computer programmer, we won’t attract the talent that we need into the future. So it is a good thing. And it is important that the shop owners understand what is actually happening right now, and how it affects our pricing, and how it affects our financials so that we don’t pass up a good opportunity to make more money. As the industry is expanding, it’s a great opportunity to be in the auto repair industry. It’s better now than I’ve ever seen, and I’ve been in this business almost 23 years. I’ve been around it my entire life. My dad started our company in 1975 a month after I was born.
I have never seen it like this. It is unbelievable. So I want to us grow into this problem. I want to see shop owners expand their labor rates, but not just because everybody’s telling you, you have to, but because you really understand what the numbers are behind it. And that’s what this seminar is about.
Where do we find technicians?
So let’s start off today with, where do we find technicians? Well, the first thing you need to know about technicians is that they are out there, but you never know when they’re going to be looking for you. You never know when the technician that you need right now is going to click onto Indeed, click onto Craigslist, or ask one of the parts vendors, ask one of the tool guys, “who’s looking?” So you need to be prepared all the time. Now the one thing that you want to know right now is that you need to be recruiting all the time, set a budget for recruitment, whether that’s indeed Craigslist, zip recruiter, no matter where you’re placing ads, you should always be recruiting.
You should always be handing out your business card to the tool, guys, to the parts guys, to the parts drivers. I’ll go over that in a second. Always be recruiting, always be running ads, maybe place an ad on Craigslist once a week. It’s probably not enough. If you’re hot and heavy on, on the track for a, for a technician, you might have to do two or three ads on Craigslist so that you keep it up there. Keep your, your ad up there at the top of the list. But if you’re, you know, kind of maintaining, but you want to keep collecting identities and keep talking to technicians so that, you know, maybe you’re opening up another location in the future, or you just never know when you’re gonna need somebody or your business is expanding. A lot of our shops right now are really expanding because of the shortage of new cars, the increase in the price of the new cars and the craziness of the used car market.
People are keeping their cars longer. So our shops do have the opportunity to expand it. I’m gonna show you something here in a few minutes, exactly why you should not be afraid to add that technician, even though the wages are going up, cuz it’s costing you big money to hold off and try and find that guy who’s gonna fit into that comfortable budget that you’re used to. So number one, always run ads, always run something, even if it’s just a, a non-paid ad and indeed always be recruiting to collect identities. Sometimes technicians will just go on there, like every other person. And they’re just gonna click on the, the, uh, thing to apply to everybody that, uh, that’s looking for a technician. Well, it’s a collecting the identities. We want quantity over quality. We’ll get to the quality when we start calling those people and we can, we can then qualify them.
But the first thing you want is numbers. You know, PLA you know, getting into your ads. We want people applying to the shop. Okay, we’re gonna do another webinar on our philosophy. Uh, my business is three, a automotive in diesel, in Phoenix, Arizona. And, uh, you know, we don’t have a problem hiring technicians because we have a proven system. Um, we do surveys. We have a lot of information that we’re gonna share with you at a, in a later, um, seminar. But, um, you wanna be recruiting all the time to these technicians because man, when you need one, you need one. But also, you know, if you’re recruiting all the time and you got one of your buddies that owns a shop, you know, not too far from you and he’s looking for a guy or she’s looking for a guy or a girl, those girls in this industry now too, a lot of girl, girl, uh, female technicians in this industry.
So always be recruiting, always be collecting identities. Now, the other thing that you wanna do is always talk to your vendors. Now I know that vendors aren’t gonna want to get involved because they don’t want to take one from one shop and give to another. They don’t want to be in the, the recruiting business. And I don’t blame ’em. We don’t want them doing that to our technicians. But the truth is, is that a lot of these guys are friends with technicians. And if you have an opportunity, always tell, ’em say, if you know of anybody looking, you know, let me know. And we always like to offer them some sort of a spiff. I will always give a $500 reward for somebody who refers us a technician. It’s a cash reward. So if they are looking, um, you know, and they have their ears, you know, on alert and they hear a technician that’s upset and they’re friends with that technician, you know, maybe off the record, they say, Hey, you know, I heard Jimmy down the streets looking for a technician.
You might want to go talk, talk to him, uh, or apply there, be courteous to the vendors. Again, this is gonna be another point we’re gonna go over later on. But those drivers that always park in the wrong spot and maybe they’re a little bit goofy. Um, and maybe they drive you nuts. And maybe that guy on the phone sent you the wrong part three times in a row, guys, we gotta be professional. Um, keep your cool keeping good relations with these guys. Even though sometimes they really upset, um, the shop owner, they really upset the parts person or the service advisor. You want to be friendly with these people all the time, because you never know when they might be the one that knows the guy that you need, uh, when you’re hiring a technician. So, um, talk to vendors, but keeping and, and keeping good relations with those guys as well, because they know the technicians.
They’re the ones that are talking to the technicians, especially those, those, uh, sometimes little bit goofy, uh, delivery drivers. Boy, they have a lot more, uh, contacts of technicians than you could ever imagine. So, um, talk to vendors and then put on training events. Um, one of the things that we’re gonna talk about in our next seminar is, you know, doing training technicians want, they want the training, they want the live training. So a good way to position your shop is one of the leaders in training. And it’s one of the things that they want is to put on events and it just takes your business out of non-existence it lets the, the technicians in the area know that you’re a shop. That’s innovative, you’re investing in technology. You’re investing in the training for your, for your guys. It’s really important to be involved in the community.
And one of the ways that you can do that without stealing anybody’s guys, just giving back to the industry and positioning yourself with the technicians in the industry. Cuz guess what? When a technician’s looking for a job, the one of the first places they go to is other technicians they’re gonna be asking around. So you can put on training events to, again, just position your shop as one of the innovators in the industry. Now, where do you put your ads already mention this a little bit. I’m not gonna spend a bunch of time, but indeed is probably the hottest buy survey national survey that we did. Uh, most of the technicians are on indeed. Uh, Craigslist, zip recruiter. Craigslist is actually still a pretty good, uh, way to find technicians. They’ll, they’ll go on there because they’re a lot of times they’re looking on there for, you know, their Jeep parts.
And uh, so they’re familiar with the site, um, and Craigslist doesn’t make, ’em put their name on there to be, uh, to look at the ads. Whereas if you’re gonna look on indeed and ZipRecruiter, um, they’re, they’re gonna want that contact information. And you know, a lot of times technicians wanna Rena, uh, remain anonymous and, uh, until they make a decision that they’re gonna go talk to somebody they’re kind of low key about it. They don’t want their, their employer finding out that, uh, that they, their looking by somehow their, uh, resume pops up on the, on the owner’s end of the indeed. And that happens. So, um, you know, use Craigslist and, uh, make your, your ads available everywhere that they might possibly be looking. We’ve recently hired a technician on, uh, Facebook. We also hired a service advisor at one time on Facebook ads.
So, um, those are great cuz you can geographically, uh, place those ads within a certain mile radius of your shop used to be a lot better when you could actually place the ads for employment, for employment, you could place the ads and you could actually target those, those people that had service advisor or automotive technician, you know, in their profile. Now you’d have to do a different type of ad, which you could still do it. It just wouldn’t be in the employment ads. And again, we talk a little bit more about this, um, type of thing in our, in our seminars on hiring, um, not gonna go into too much detail about how to do that on Facebook. Uh, but you can run, uh, paid ads and non-paid ads, uh, for Facebook, um, and targeting people in your area. Again, I talked about the parts and the tool suppliers be friendly with these guys.
I know sometimes they really make it stressful for our shops, keep your cool keeping good relations. It’s the PR of your shop. And you know, you just never know when the guy that you yell at knows the technician, that’s looking for a job. And that technician says, Hey, you know anything about ABC automotive down the street? And he goes, yeah, the guy’s a real, mm. You know what? So again, be professional. Um, because these people can, can certainly help us out. And, uh, they’re not always in the business, uh, uh, of doing that. They’re not going to, they’re kind of, you know, gonna be tight lift, which we want them to be as shop owners. Um, as managers, we don’t want them recruiting our, our employees and, and, and I completely respect that, but at the same time, um, we all know that they are friends with, with people in the industry. And if they know that somebody’s looking, um, and they have a friend that’s looking, they might, uh, tell them about your shop, but be everywhere when the technicians are looking.
So what did text want? Well, about a year ago, we did a major survey across the country with, uh, several shop owners. And this was a very detailed survey that we spent a lot of time into putting the, the right questions together, to get the, the answers of finding out what technicians really look are looking for. And we’re, again, we’re gonna go into more detail on this, um, in another seminar, but technicians want good equipment. They want that good environment. They want a shop that’s clean and organized. I’ll tell you what, take a video. I recently was on, uh, a Comcast with car Capto and, uh, we took a video of our shop and I’ll tell you what, it’s pretty eyeopening when you actually walk through your shop with a camera and then actually watch that video. And it’s amazing what you will see, but also have other people look at it and ask them what they see.
See plus points. See, outpoints clean up the outpoints, you know, do more of the plus points. You know, if your waiting room is a little bit, uh, messy, clean it up. If your shop’s a little bit messy, clean it up, technicians want clean and organized. Um, they really want a team environment. So you want to have a good culture in your shop. And I know people talk about cool through this culture, that culture’s what you make it, you know, culture is all about, is it a friendly shop? Is it, is it a culture of organization? Is it a culture of excellence? We fix things right. The first time when we take pride in that. So they want the team, they want to be a part of a team. I don’t want the guy who’s just worried about himself. I don’t care how good he is.
He’s gotta be willing to help other technicians. And he’s gotta be willing to accept help, because I’m gonna pay for training and we’re gonna have good technicians that can help them when they’re in a bind. So they gotta be into the team. They want training and they want mentors, but they don’t want that silly online training. There’s so much online training. I mean, some of these big corporations have spent gazillions of dollars of this online technical training. And quite honestly, I’ve, I’ve known very few shops that take advantage of it. Number one, number two, the technicians don’t want it buy survey. I, it’s not my opinion. I was really interested in putting our guys on a, on a training platform, on, you know, at lunchtime and breaks or when there’s a, you know, not a car in their bay. They can go up and get paid to do training.
They don’t want that. What they want is live training. They want experts telling ’em what to do. What’s going on in the industry. And the other thing is mentors. They want somebody that they can call in our shop. We do live training all the time. We’re always promoting the live training events. We pay them to go to those events, whether it’s a full Saturday training or a night training, or we’re hiring somebody to come in and actually train our, our, our team on their own. The other thing is mentors. We’ve hired a mentor and he’s been fantastic for our team. They just love him because they’re talking to somebody who’s in the trenches with them. They know what the technicians are going through. And every other week we have a zoom call with this trainer he’s based outta Washington. Um, and he, he logs in and our guys circle around and they got a big monitor.
And, and, um, he goes over some topics, usually it’s on the Pico Pico scope. And so it’s more advanced training for the diagnostics, uh, but they love that. And when they run into a trouble that they can’t find the answer to, they can resort to him and say, Hey, point me in the right direction. Or this is what I’ve done. Point me in the right direction. That’s what technicians want. And if you look at dealership technicians, dealership technicians, they know that they have the advantage over the independence because they have the information. So in the independence, we gotta give them the information the way we do that’s through training and mentors. And then quite honestly, they want more money. If they’re gonna leave, they wanna make more money. Yes. They want better culture. Yes. They want a better environment. Yes. They want the tooling. Yes.
But at the end of the day, it’s all to the bottom line. So we gotta confront that. We’re gonna have to get them more money. Why did technicians leave again? This is a surveyed point. They want better pay. It was the number one reason quite honestly. So they’ll put up with a lot if they’re getting made, if they’re getting paid well. So if they’re gonna leave, they’re gonna want more money. Um, better opportunity, better environment. Um, there’s a lot of toxic environments and the dealerships and, and things like that. Um, and quite honestly, our industry doesn’t have a great reputation, uh, for providing the things that technicians need, the advanced training, the advanced technology, a clean environment, um, good pay, good benefits. You know, uh, I was on the ratchet and wrench advisory board. And, uh, it’s amazing to me how small of a percentage of our industry actually offers healthcare benefits.
And, uh, I know it’s expensive. Our bill for health insurance last month, what month was $8,000? That’s expensive, man. That’s a big budget to have to put, put aside, but you gotta put that into your pricing because it, it is a way that we’re gonna get the best technicians. They’re gonna look for those types of things. So how much can you pay? This is where we’re gonna get into some stuff. That’s probably gonna ruffle your feathers a little bit. And I know it’s going to, because I just put this seminar onto a good, uh, group of, uh, close friends recently. And it definitely got their, I, you know, their, their eyes were looking at this going, man, this is, this is something else. I, I really didn’t think of it like that. But these are the real numbers that you gotta look at. If you’re going to advance in this industry, if you’re gonna attract the top technicians, you gotta confront what’s going on.
And the fact is, is we’ve gotta expand our reality on what we’re gonna pay technicians because guys, these guys are worth good money because they’re making us a lot of money. The top technicians are making a shop between 30 on the really low end and up to I’ve. I’ve seen one shop. Each technician’s producing $80,000 a month. It’s a smaller shop that only has a couple guys, but men are they cranking out the hours. So how much can a technician produce? man, that’s a lot of money, 80,000 in an independent repair shop per guy. So, you know, an average is probably 40 to 50,000 per month that they’re producing. So how much should they make these guys should be making good money if they can produce a lot of money for your shop. So how much can you pay depends on your cost of labor and your labor rate.
And we’re gonna talk about that. But the thing is in this industry, and this is something that’s never been talked for, talked about before we have these really confusing terms that people don’t really understand, and they come from the dealership world and they’ve been brought over into the independent, uh, uh, arena. I’m gonna, I’m not gonna say them because I don’t want to confuse anybody, but there’s a lot of different metrics that we use a lot of different statistics, key, uh, key performance indicators that we use in this industry that really people don’t understand. And it just confuses the shop owners and it confuses the managers. And we fudge the numbers. Not, not that we’re trying to fudge the numbers. It’s just cuz we’re not really confronting what the real costs are. And so what I’ve developed is a way to actually figure out your true cost of labor per billable hour per build hour, the actual money that you build the customer for that you got paid for, this is the true cost.
And we’re gonna look at that here in a second. That’s what you need to know. And that’s how you can afford the modern technician. So how do you figure out your true cost of labor? This is the calculation has two parts. First of all, we gotta figure out what our build hours are. And what I mean by build hours is the money that you took in for labor sales divided by your labor rate. That’s all that matters. You can figure out what the technicians flagged. You can figure out that maybe your hourly apprentice guy is only costing you $15 an hour. And therefore you’re making a bunch of profit on him. It’s a bunch of baloney guys. I gotta be honest with you. I’ve done the calculations on hourly apprentices and we need them. Believe me. You need them. I’m not saying that you don’t, but quite honestly, when you look at their production per hour and what they actually, what they actually finish for the shop, the actual build time, they’re costing you just as much as your top technician, a lot of times per hour of what they’re actually billing out.
And that’s why you use this calculation to figure out what your actual true cost of labor is per build hour. So first thing we need to figure out is your build hours. So what you want to do is take your labor sales for a given period of time, four week period. Ideally more than that, you would go 16 weeks, but it’s pretty easy to do weeks because most people pay weekly or they pay every other week and you’re gonna need the numbers for payroll when we get into the next section. So either a four week or a 16 week period, you take your labor sales. Now you can get that number out of your point of sales system, your tech metric, your Mitchell, you know, whatever you’re using to bill, uh, your customers, right? The point of sales system, you take that out of QuickBooks or you take it out of your point of sales system, labor sales, and you divide that by your posted labor rate.
Now I know shops have maybe have several different labor rates take the average, right? If you have a, a $180 diagnostic rate or a $200 diagnostic rate and you have $160, um, normal, uh, door rate go in the, in between there because you’re gonna have an average, it’s probably gonna be CLO. Most of the work is gonna be closer to your door rate, but just for simplicity purposes, if you have multiple labor rates, you can just go with the average between all the labor rates. So you take your SA labor sales divided by your labor rate, and that is going to give you your actual build hours. Now I know I’m gonna get some feedback on this. Oh, that’s a bunch of baloney. That’s not billed hours. Yes, it is. Based on the money that you collected and your stable, hourly rate, which is what you’re saying.
Your time is worth labor sales divided by your labor rate gives you your build hours. So for example, you’ve got a shop that’s doing $75,000 a month, or I’m sorry, $150,000 a month. Okay. This shop is doing $150,000 a month. Now most auto repair shops, you have half labor and half parts. So half of that is going to be your labor sales. Okay. That’s where this $75,000 comes from. We have $150,000 a month and we have $75,000 in labor sales. Now let’s just say that this shop as a, has a labor rate of $125 an hour. So labor sales, 75,000, okay. Divided by labor rate, $125 per hour. We have 600 billed hours for that month. Okay. So you took your labor sales, which is just for simplicity purposes. You would, you’re gonna pull this number right out of your point of sales system or QuickBooks.
If you divide it in QuickBooks, okay. Labor sales divided by your labor rate. And in this example gives us 600 build hours. All right, now, continuing on our true cost of labor. That’s the first part. We gotta figure out what our build hours are for that time period. Now it doesn’t matter. Doesn’t matter how long you do this. Okay? You’re gonna get the same number as long as you’re using the labor sales for the same time period, as you do, you get the next numbers. So if I’m going, uh, May’s numbers, then I would get the numbers from may in the next part as well. And if you’re going four months, then you wanna make sure you’re getting the numbers for the same four months in the next section. So now we have figured out our build hours. The next part is we want to figure out our labor costs.
Now this is a loaded number. And here’s my argument in our industry. We’ve always been told you, take what you’re paying your technicians, multiply it by 1.25, right? And now all of a sudden you’ve got what your actually loaded costs are. So if you’re paying a technician $40 an hour, you multiply that by 1.2, five 25% extra. He’s actually costing you $50 an hour, right? It’s not how it works, guys. It’s a good estimate. And if you’re doing this kudos to you, because you’re probably real close on your numbers, but you’re not gonna be as close as you will be when you learn this calculation. Okay? So what are your true labor costs? Your true labor costs are what you paid the technicians in your payroll, plus your payroll tax, your end of the payroll tax. Okay. Plus whatever the percentage is, you’re paying for workman’s comp.
Now some people include health insurance benefits as part of their loaded cost. Some people call that an ex business expense. Okay, that’s up to you on how you want to want to add that in, but your labor costs are what you paid in payroll, which includes your payroll tax, your end of the payroll tax. Okay. On top of that, you want to add the percentage. You can just call your, your insurance guy. If you don’t want to go into your books and try and figure out what it’s costing you every week for workman’s comp, you can just find out what the percentage is. They multiply, whatever you’re paying your labor and multiply it by that. It might be 1%, 2%, um, a fraction of a percent. Okay. But get that number in there as well. So your labor costs plus your workman’s costs, workman’s comp plus your payroll tax. Okay. And you divide that by your billed hours. And that is going to give you your true cost of laid of labor per build hour.
Okay? So you take your labor costs divided by your build hours that we just figured out above. And that’s going to give you your true cost of labor per build hour. So for example, our labor costs from QuickBooks or from payroll, including everything was $30,000. Got that number right from payroll added into workman’s comp costs added in health insurance. Uh, if it came from payroll, you already have the, uh, the sales or the, uh, the payroll tax. So many taxes. We pay the payroll tax, right? We got that total number for that timeframe. In this example, we’re doing one month, it was $30,000. Okay. $150,000 month. A cost of $30,000 is vary within our budget. It’s about 20%. We want to be below 20%, um, typically, but that’s exactly 20%, but I’m gonna show you something here in a second about being just at 20% that, um, that might not be quite accurate, might not be ideal. Okay? So our cost of labor came out to $30,000. We divide that by our 600 billed hours. Our true cost of labor is $50 per build hour.
Ah, I know you’re gonna argue with me all day long. That’s way too much. It does it. It’s gonna scare some of you when you do this number, I’m gonna tell you, because the 1.25 edition onto your 25 or $35 an hour, wasn’t getting you to where this number might be. Now, some of you who have really efficient shops, you might actually be surprised and you’re really low. It’s fine. The numbers are the numbers. What I like about this true cost of labor calculation, it’s real. It’s not just some average. So it could, because what do you do? What’s, what’s the true cost of labor on an hourly guy that’s making 12 or $15 an hour.
What do you put him in your point of sales system as your cost, 15, 20 bucks an hour. I promise you if you calculate what he’s actually what he’s actually producing, they’re actually costing you more than that per hour. You gotta look at their actual build hours. What are they producing you? You know, an apprentice technician does a break job. It pays an hour and a half. It takes him two and a half and he’s on the clock or it takes him two he’s on the clock. You can come up with some crazy calculus formula to try and figure out what he’s actually costing you. Or you can do it for the entire shop and figure out what it’s actually costing you. And then you use that number when you’re billing out your jobs, cuz it actually is a real number. Okay. So you take your labor costs divided by your build hours. Did you fill your figured out before? And that gives you the $50 per hour, ideally. And you’ll hear this across the industry. We want the gross profit margin on labor to be 65 to 70%. Now, the way that you figure out gross profit margin, right? The margin is the difference between the sale and the profit. So the way that we figure that out is you take your sale minus your cost.
That’s your profit, okay. Your sale minus your cost. That’s your profit divided by the sale. Okay. So for an example, here we have our cost at $50 an hour is our cost to labor.
Based on this, our shop labor rate should be $150 an hour.
Now this number right here, this 65 to 70%, the way that you calculate that was the way I was just explaining it before profit divided by sale. Okay. Profit divided by sale. So in this example, okay, we have $150 is our labor rate minus $50. Okay. That gives us a hundred dollars, 150 minus 50 divided by the sale of $150, which is our labor rate that gives us a 66.7% gross profit margin on labor. And we want to be between 65 and 70%. So as you can see, the shop in our example should go from 125 to $150 per hour in order to hit this profit margin. That’s a lot, that’s a lot of money. And quite honestly, if you figured out the difference between what they’re charging, you took the 600 bill hours from our example above, okay. 600 times $25 per hour. It’s about 15 grand, but guess who’s money. That is yours. That’s your profit. That’s pure profit. Okay. So when the labor rate is correctly calculated, then adjustments can be made based on your increase in technician, hourly wages. Those changes will be minimal. If you set your labor rate correctly, based on your true cost per billed hour,
This is a number that you can do anytime you can do it any time. It’s very fast and it’s a real, real number. The more accurate your finances are, the more accurate this number’s gonna be. But I can tell you right now if you’re paying payroll, which most shops that I, that I know of are, uh, the legitimate shops are paying payroll. You have these numbers, you know what your labor rate is and you know what your payroll is, and this is gonna give you a real number. Okay? So just to review quickly, okay, we gotta figure out our build hours, labor sales divided by labor rate that gives you your build hours. And our example, we had $150,000 shop. A month. Half of that is $75,000 divided by the $125 an hour. Labor labor rate gives us 600 bill hours, then we need to figure out, okay, our labor costs again, that comes from your payroll numbers, add in your workman’s comp, add in your payroll tax, okay for that period only. And then divide that by the build hours. For that time period, labor costs divided by 600 bill hours gives us in this example, a true cost of labor per build hours, $50 an hour,
Okay? The calculation to figure out what your labor rate should be to get to the 65 to 70% is three times your cost of labor per hour. So if it comes out to 50, you would multiply it by 50. And that should be a pretty good number of where your labor rate should be.
And I know it’s gonna haunt some of you guys, because you’re gonna find out that you might be off 20 or 25 bucks. Some shops might be off up to 50 bucks. It’s gonna be crazy. Okay? But this is a real numbers. And in order to hit the margins, that you’re gonna be able, that you’re gonna need to be able to buy the equipment that you’re gonna need to buy the training that you’re gonna need to update your facilities, to attract the people that are actually gonna pay you the money that you deserve to fix their cars, to afford the technicians. They’re gonna be going to 40 to 50 to $60 per hour. You’re gonna have to do this. You get these types of margins. Okay? You gotta make the money someplace. And ideally when it’s, when you’re paying labor, it’s gotta come from the labor rate. Okay? The gross profit margin on this example, 150 minus 50 equals 66.7% gross profit margin. Now here’s my argument for you. Why wait for the low paid technician? Okay. How much does each tech produce? I already gave you the example before. It’s probably between 40 and $50,000 a month that each technician’s producing.
So the truth is, is that your biggest expense?
People say it’s marketing, it’s sales, it’s parts. It’s not your biggest expense is the difference between what you should or could be making and what you are making. So if you got a technician on vacation for a week and you usually do 40,000 a week with that guy there, he’s gone, you do 30,000. Guess what? You got a $10,000 expense that week. You’ll never make that money up. Not for that timeframe. You might make it up in future weeks, but likely not. It’s gone. It’s an expense. So when you’re short a technician in your shop and you’ve got the guy right in front of you, that you could hire and he wants to come work for you. But he’s asking for 45 or $50 an hour or $40 an hour, $35 an hour. And that’s really uncomfortable for you. I want you to look at this example. How much have you lost?
How much have you lost? Because you were short of tech. Well, if you were short for two months, two months, times 40,000, that’s 80 grand, three months, 120 grand, six months, 240 grand. You gotta look at it like this, guys. You gotta look at it. I know they’re expensive. I know the wages are going up and I know you’re gonna puck her up when you gotta write the check for the modern technician when he’s flagging 40 or 50 hours a week at $40 an hour, heck yeah. Two grand, 2,500, $3,000 a week for a technician, man. If you’re just looking at that, you’re being a little shortsighted. Okay? Because you gotta look at these numbers. This is the actual cost. This is the actual expense. Okay. Tech pays gone up. It doesn’t matter if you’re paying hourly. Cause I know there’s a big argument in this industry, you know, should you pay hourly or should you pay flat rate or should you do a, a hybrid model?
Look, I don’t care which way you pay as long as production’s high, more how’s high and your shop is profitable. That’s the system that works. Okay. So there’s no, there’s no set way to do it. True flat rate in my opinion is, is pretty much gone. You’re gonna have to, in, in most areas of the country, you’re gonna have to give some sort of a guarantee, but it’s not true everywhere. There’s still some shops that are still doing it. You, you flag 20 hours, you get paid 20 hours. Um, it’s not how we do it, but um, but also I, I don’t agree with the fact that somebody should just get paid a salary. I think it’s really hard to get production up unless there’s some sort of a, of a bonus, but it doesn’t matter. The fact is is that the hourly wages, whether flat rate or hourly or salary, they’re going up on an average of 10 to $15 an hour for our, for our shops.
That’s the reality. And it may not have been in one year, but over the last two or three years, that’s how much they’ve gone up. So if you paid a, if you paid a tech $15 an hour more, then you were comfortable with, let me show you the numbers of this. And I know that’s a lot, right? 15 bucks an hour or more per bill, you know, per build hour or even clock hour. That’s a lot of money per week, man. But look at this. If you had that guy that you need, and I’m not saying pay these guys that aren’t worth it. These top wages, let’s not be ridiculous. You don’t wanna pay somebody. Who’s not worth it. But if you got that guy, who’s got a hundred thousand dollars in tools. They got 10, 15, 20 years of experience. They have a good attitude. They’ll help your other technicians. They’ll stay, stay late. They’ll come in early. These guys are becoming more and more. What we call the unicorns. You need that guy. Don’t be afraid to pay him because on the low end, this is the low end of that. $15. More than you’re willing to pay is gonna produce 40,000. Okay? Now you divide that by two, because part of that’s labor, okay. He produces 40,000 in parts and labor. We divide it by two that’s, $20,000
In labor sales. Now uped our labor rate to $150 an hour, cuz we got our co our true cost of, of labor
Divided by fit 150 per hour. That’s 133 bill hours, okay? Paying the technician 133 bill hours. Now in your normal cost of labor, you’re gonna figure out their full wage, but this is the additional. So you paid 133 times 15 is 1,995 over what you were comfortable with in tech pay. That’s a lot of money. Two grand man. That’s a that’s rent. That’s a house payment for a lot of, in a lot of areas. That’s two or three house payments in a lot of areas. That’s a lot of money, okay? But you paid 1,995 extra to get $40,000 in gross sales. And this is probably above your break, even. So at least 50% of that is net profit. It you’ve already paid your bills. You’ve already paid your mortgage. You’ve already paid your utilities. You’ve already paid your insurance. So half after you pay parts, after you pay labor, 50% minimum is going right to the bottom line is net profit. Now I’m not that smart of an investor, but, but if you look at these numbers, I don’t know of many people that wouldn’t spend that extra money to make this kind of money. You got $40,000 and half of it’s going to net profit,
Okay? Or I’m sorry, you got $40,000. And, and half of that is, is labor sales. Okay? $20,000 in net profit. Jesus I’m really screwing this up. I got too many numbers in my head. So the example we have here, we got $40,000 in sales. Half of it is net profit, 20 grand, 20,000 minus the extra 1995 that you paid. Now we got 18, only $18,005 going to the net net profit bottom line dollar. Okay. If you divide 18,000 by 19 95, 19 95, that’s a nine times return on investment. It’s worth it guys, because this is 40,000 in sales that you would’ve never had had you not hired that guy.
So we gotta get over this, get your pricing, right? Get your labor rate right based on your true cost per billed hour. And don’t be afraid to pay what the market is is, is, is giving these guys right? What does your customer have to pay? They gotta pair weight. What you’re paying. If you’re paying more for parts, the customer’s paying more for parts. If you’re paying more for labor, the customer’s gotta pay more for labor. It’s as simple as that, work on your sales, work on your sales ability to sell that to the com customer, work on your product and delivering a better timely product. If you have more technicians in your shop, you can turn cars around faster. If you’ve got better technicians that make good money in your shop, you’re delivering a better, a better product that’s done right? The first time and faster, more often it’s worth the money.
So don’t get hung up on this stuff. Don’t get hung up on the fact that these guys are asking for a lot of money. They’re worth it guys. At some point, it’s gonna level off and we’re gonna be in a new normal, but until we get there, don’t fall under the trap of trying to build your business on old information and what you’re comfortable with because that guy is not out there. They know what they’re worth, and they’re worth a lot to your shops. 40, 50, $80,000 a month. My name’s Jimmy Laia and I’m the CEO of victory team building group. I hope you’ve, uh, enjoyed this. Uh, if you have questions, reach out to me. Um, our website is winning auto shops.com. This video is available there. It’s also on our YouTube channel, uh, winning auto shops. We have Facebook group winning auto shops. It’s all about winning. Winning is everything. Uh, my email is firstname.lastname@example.org and my phone number’s below there. So, uh, feel free to reach out to me. I’d love to talk to you about your shop and how we can get you to the next level, because truly this is the greatest time we’ve ever seen in this industry. And if you’re not making a lot of money, I want to help you make, make it. So have a great afternoon.