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Monday, 19 February 2018 22:58

4 Tips for Setting Labor Rates in the New Year

Written by Sam Valenzuela – President, National AutoBody Research

Index

It’s the New Year, and many body shops use this time to consider changes to their labor rates. But for collision repairers, 2018 is distinctively different from prior years.

A new reality of advanced, high technology vehicles has arrived and dramatically changed the collision repair landscape forever. More than ever, proper labor rate pricing is crucial for body shops to sustain long-term profitability, growth, and prosperity.

 

At NABR, we’ve been actively surveying, studying, and analyzing labor rates for quite some time now, enhanced through our Variable Rate System (VRS) software. After communicating with thousands of body shops and seeing first hand how they make decisions about pricing their labor, we have some basic steps to share for anyone who wants to take action on their labor rates for 2018.

 

First, let me provide some context. About 4,650 individual body shops nationwide have submitted labor rate surveys to us. From that survey data, posted rates for body labor range from $57 (national average) to $88 (+2 standard deviations). New surveys submitted within the last twelve months range from $63 to $98 (avg to +2 std dev).

 

Doing a comprehensive labor rate analysis for your shop can be complex and quite involved, so instead, we offer here 4 simple steps to help get you on the road to finding the right price for your individual shop.

 

1) Consider your market’s overall cost of living. This can serve as a simple sanity check to help ensure your labor pricing is within a reasonable range for the area you operate in. While there is no official US government cost of living index that compares the cost to live in different cities, there are some online resources that do. One is AreaVibes.com, which can give you a pretty good idea. For this index, the national average is listed as 100. The index number for your market represents the cost to live there as a percentage of that national average.

 

For example: the cost of living index for Honolulu, Hawaii is 181, meaning that it costs 181% of the national average to live in Honolulu. Based on the cost of living index alone, we might expect to see body labor rates in Honolulu in the $103 to $159 range (that is, $57 times 181%, and $88 times 181%). Yet the survey data for posted body labor rates in Honolulu is in the $55 to $75 range, below the national average, and far below the cost-of-living-adjusted rates. As you can see, labor rates there appear misaligned with that geography’s cost of living.

 

2) Consider general consumer price inflation. This is simply the overall increase in prices of typical household expenditures. Inflation also erodes the purchasing power of money, as your dollars don’t go as far as they used to. In the US, inflation is measured by the Consumer Price Index (CPI) and is often used for cost of living adjustments (COLA), such as social security benefits. Last year in 2017, the CPI rose 2.1%, driven largely by energy costs, especially fuel oil and gasoline. To help maintain purchasing power and keep up with the overall increase in cost of goods, a shop could consider making an inflation adjustment to its labor rates.

 

For example: if a shop currently charges $57 per hour, adjusting the labor rate for last year’s approximate inflation would yield a price of $58.20 (that is, $57 times 102.1%). Overall, our observation is that most body shops’ labor rates do not keep up with inflation over time, which puts those shops farther and farther behind every year, eroding their profits and purchasing power and risking their sustainability. Instead, we see body shops’ costs increasing at faster rates than inflation; paint costs alone could increase 3% to 8% per year, sometimes multiple times per year. We suggest shops think of keeping up with inflation as a minimum requirement, not a real solution to choosing their proper labor rate.

 

3) Consider what makes your shop different, especially training, equipment, facilities, and OEM certifications. Shops are not alike, and those that have made more investment in these items likely have greater repair capabilities than shops that haven’t. And they likely require a higher labor rate to pay back and earn a return on those investments. Use the VRS to find apples-to-apples comparisons for your shop and what price ranges are for shops similar to yours around the country.

 

For example: our national survey data shows I-CAR Gold Class shops have body labor rates in the $56 to $84 range; Assured Performance shops are in the $58 to $84 range; while Audi OEM authorized collision repair facilities range from $65 to $104 and Mercedes certified collision centers are in the $64 to $100 range. (All ranges quoted here are from that group’s average to plus 2 standard deviations. There is some overlap in these groups, and some shops are priced higher or lower.)


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