When Edward Caswell returned from VISION for the first time in 2020, he was in a terrible mood. “I’m failing, I don’t know what my numbers are,” Caswell says was his mentality after he attended the conference.
Caswell started his shop with very little knowledge of how to run a business. The passion and dedication to service was there, but the business mindset wasn’t. For almost four years, Caswell says he ran the business blind while making enough to pay the bills with a net profit of 2.7%.
“How do you know what good looks like if you’ve never seen it?” Caswell says of his early days as an owner. After attending VISION with some of the best shop owners in the county, Caswell realized he could be doing better and that included setting an effective labor rate.
Three years after attending that eye-opening VISION, Caswell returned to the conference with his head held high and the confidence of a top shop owner who knew what he should be charging for labor and how and when to adjust.
Backstory:
Caswell admits he wasn’t the best student growing up. He struggled in school with ADHD and dyslexia but always found fulfillment in repair work and it became a passion of his.
From 2003-2014 Caswell worked as a teacher but maintained his love of repair work by doing side gigs out of his garage. In 2014 he decided to pursue his love of repair and opened Full Throttle Automotive in Evansville, Indiana with his wife, Brandi.
Problem:
With very little business knowledge, Caswell didn’t know what to charge for the labor rate. So, they called around other shops in the area to see what they were charging and decided to be cheaper. “That was a horrible approach,” Caswell laughs.
For the first few years, Caswell and his team were making enough to pay the bills but after attending that first VISION, he realized that it was possible to do better than just scraping by.
Solution:
What’s the secret to setting an effective labor rate? Caswell says his approach is different from what others might tell you. For him it’s all about setting the right culture and being as efficient and productive as possible.
Sure, you have to have a solid understanding of your numbers and what your overhead is, Caswell says, but effectiveness and productivity are key. In order to master that, you need to have buy-in with your team.
By creating an upbeat culture that fosters growth, Caswell says his productivity is high, which allows them to turn a profit without constantly raising prices. Caswell’s technician productivity at his shop is consistently between 115% and 120% (including oil changes), which is far above the industry standard of 80%.
The labor rate is something that is reassessed every quarter with a solid understanding of the numbers. When setting the rate, Caswell and his team look at a P&L sheet and get a solid understanding of exactly how the shop is doing. What’s the overhead cost per hour? What are the tech hours that are being produced? What's the tech cost? What’s the net profit per hour? All of those numbers–and more–go into setting the labor rate. For example, if the team isn’t turning the amount of hours needed to cover overhead, they need to charge more for labor.
There’s so much that goes into setting a labor rate and it’s an ever-changing number, but Caswell’s culture-first approach is a sure-fire way to create a team that’s willing to turn as many hours as possible, which will help keep labor rate low enough to attract customers and justify the labor rate being high enough to get the kind of customers you’re looking for.
Caswell gets buy-in from his team by taking the team to events like VISION and SEMA, so they can understand the why behind his push for productivity.
Aftermath:
Currently, Caswell says his labor rate starts at $130 and can go as high as $170, depending on the job. For example, if someone has a custom car and they bring in their own part, the team needs to charge more labor rate to make up for the part cost.
When asked how he explains that to customers that may call asking for an exact labor rate, he says his team is trained to sell the job rather than the labor rate. He also laughs and says that if the customer is calling asking for the exact labor rate, they may not be the type of customer that he’s looking for.
“We don’t want customers that are price shopping.”
With this rate and the focus on efficiency and productivity, the shop is currently seeing a net profit of 20.74 percent and $5.3 million in annual revenue.
Takeaway:
In order to set the best labor rate for your shop you need to know your numbers, Caswell says. Get a legitimate P&L done and invest in software that can help you determine effectiveness and productivity. You need to determine how many dollars you need to make to beat overhead and how many hours you will need to turn to make that happen, Caswell explains. Then, you need to work on the culture of your shop in order to encourage your team to turn the number of hours you need so you don’t have a crazy high labor rate.
“You need to set your business up to encourage your team to be efficient,” Caswell says.
Determining Labor Rate
Consider these five factors before setting your price:
The average labor rate varies from shop to shop and that’s due to a number of factors. For Edward Caswell, owner of Full Throttle Automotive in Evansville, Indiana, culture is key, but there are other things to consider before setting your rate. Here are a few factors to consider, courtesy of Auto Leap.
State Regulations
Cost of Living
Demand for Services
Averages Wages in Area
Geographic Factors
