Effective labor rate calculator

Effective labor rate, explained

ELR = labor sales ÷ labor hours billed

Your posted rate is a price. Your effective labor rate is the result: what an hour of labor actually sold for once everything that happens at the counter has happened. If the two match, every billed hour went out at full rate. They almost never match.

The gap matters more than it looks. A shop billing 400 hours a month at a $130 posted rate that collects $104 per hour is leaving $10,400 a month on the table, which is more than $120,000 a year. That's a technician's salary, coming out of labor the shop already did.

Where the money goes

• Counter discounts. "Knock ten percent off" is easy to say and hard to see afterwards unless discounts are recorded against the ticket.
• Warranty and fleet rates. Work billed to a warranty company or fleet account at a contracted rate below your door rate. Often worth taking, but it should be counted.
• Comebacks. Re-doing a job for free puts hours on the clock and nothing on the invoice.
• Unbilled diagnosis. Thirty minutes of testing that gets waived because the customer bought the repair.
• Selling below book. Quoting 1.5 hours on a 2.0-hour job to win it.

How to raise it without raising your rate

Start by measuring it every month, by advisor if you have more than one. Put a dollar figure on discounts so they need a reason. Charge for diagnosis as its own line. Quote from labor guides rather than memory. Raising your posted rate helps too, but only if the new rate survives the counter. The shop labor rate calculator tells you what that rate should be, and our labor rates by state pages show what shops near you charge.