How to set your garage labour rate

Most garages set their labour rate once, usually by ringing a couple of competitors and pitching somewhere near them, and then leave it alone for years. The trouble is that your rate has to pay for your building, your people and your kit, and none of those are the same as the next garage’s. This guide walks through a method you can do with a calculator and last year’s accounts: what an hour of workshop time really costs you, how many hours you actually sell, what margin you want on top, and how to sanity-check the answer against the local market.

Start with what the workshop costs to run

Your labour rate has one job: when you multiply it by the hours you sell, the total has to cover your costs and leave a profit. So the first number you need is the full yearly cost of running the workshop. Pull last year’s accounts or your bank statements and add up everything except the parts and tyres you buy to resell (those are covered by your parts pricing).

People

• Wages and salaries for everyone: technicians, apprentices, the front desk, anyone doing admin. Include your own pay if you draw a wage, because if you leave it out, the rate only looks healthy as long as you work for free.
• Employer’s National Insurance. As an employer you pay National Insurance on top of your employees’ earnings. How much depends on each employee’s category letter and how much of their pay falls in each band, so take the real figure from your payroll rather than guessing. GOV.UK sets out the National Insurance rates and categories.
• Pension contributions. Employers must enrol eligible staff in a workplace pension and pay an employer contribution for them. See what employers must do for workplace pensions, and again use your actual payroll figures.
• Holiday, sickness and training. You pay for these hours, but nobody is working on a car during them. They come up again below when we look at available hours.

Premises and running costs

• Rent or mortgage interest, and business rates
• Electricity, gas, water and waste disposal (including oil, fluids and old tyres)
• Insurance. If you employ people you must hold employers’ liability insurance, on top of whatever cover your business needs for the premises, customers’ vehicles and road risks
• Equipment: lifts, diagnostic tools, tyre and alignment kit, air con machines, plus servicing, calibration and any finance or leasing payments
• Software and subscriptions: your garage management software, technical data, diagnostic software licences, phone and internet
• Accountant, bank charges, card processing fees, advertising and your website
• Vans, courtesy cars, consumables, workwear and cleaning

Add it all up. That total is what your labour, plus the profit you make on parts, has to bring in every year.

Work out the hours you really sell

This is where most labour rates go wrong. A technician on 40 hours a week does not give you 40 hours a week to sell. Before you divide your costs by anything, you need two numbers.

Available hours

Available hours are the hours your technicians are on site and able to work. Start with their contracted hours for the year, then take off:

• Holiday. Almost all workers are entitled to 5.6 weeks’ paid holiday a year, and an employer can choose to count bank holidays within that. Check the GOV.UK holiday entitlement rules against your own contracts.
• Sickness, based on what actually happened last year.
• Training days and time spent away on courses.

Only count people who earn money on the ramp. The front desk and the owner’s admin time are costs, not available hours.

Sold hours, and the two ratios that link them

Sold hours are the labour hours that end up on invoices. The gap between available and sold hours is made up of two different things, and it helps to measure them separately:

• Productivity: of the hours a technician was available, how many were spent working on customers’ cars? Time lost to waiting for parts, moving cars, sweeping up, chasing keys or having nothing booked in pulls this down.
• Efficiency: of the hours spent working on cars, how many did you charge for? If a job you charge at two hours takes three, efficiency drops. If an experienced technician beats the book time, it goes up.

Different garages and trainers use these words in slightly different ways. It doesn’t matter which definitions you pick, as long as you use the same ones every month. Multiply the two together and you get the share of available hours that turns into sold hours.

A worked example

Example figures, not a benchmark. These are made-up round numbers to show the method. Use your own.

1. Yearly cost to cover: £108,000 (everything above, after taking off the profit you expect to make on parts).
2. Available hours: two technicians, 40 hours a week, 45 working weeks after holiday, sickness and training. 2 × 40 × 45 = 3,600 hours.
3. Sold hours: in this example, three in every four available hours end up on an invoice. 3,600 × 0.75 = 2,700 hours.
4. Break-even rate: £108,000 ÷ 2,700 = £40.00 an hour before VAT. Charge less than this and every hour you sell loses money.
5. Target profit: in this example the owner wants £27,000 a year on top. (£108,000 + £27,000) ÷ 2,700 = £50.00 an hour before VAT.

Now see what happens if sold hours slip to 2,400 because of a quiet spell or a run of parts delays. The same costs and profit need £135,000 ÷ 2,400 = £56.25 an hour. That is the real lesson of the exercise: selling more of the hours you already pay for often does more for your profit than a rate rise.

Set your target margin

The profit figure in step 5 is a decision, not a formula. Things to weigh up:

• What the business needs to keep going: paying back loans, replacing equipment as it wears out, and building a cash buffer for quiet months.
• What you need personally, if your drawings come out of profit rather than wages.
• Growth plans. If you want to take on another technician or add a bay, the profit has to fund the recruitment and the slow first months.

Write the figure down. When you review the rate next year, you’ll want to know what you were aiming for. If you are planning a bigger change, the guide on how to start or grow an independent garage covers the wider picture.

Check your number against the local market

Once you know what you need to charge, find out what customers in your area are used to paying. Do it yourself rather than relying on second-hand figures:

• Ring round. Call a handful of local independents, franchised dealers and fast-fit centres and ask for their hourly rate and their price for a couple of common jobs.
• Look at published prices. Many garages list their labour rate, service prices or menu prices on their websites and booking pages.
• Compare like with like. A dealer with a showroom and courtesy cars, a fast-fit with fixed menu prices and a one-person garage under a railway arch are not selling the same thing.

If your number is close to the market, good. If it is well above, go back and check the sold hours, because that is usually where the problem is. If it is well below, you may be underpricing work that customers would happily pay more for.

Use different rates for different work

One rate for everything is simple, but it rarely reflects your costs. Diagnostic work ties up expensive equipment and software subscriptions and needs your most experienced people. Some specialist work needs extra training or tooling. Many garages charge these at a higher rate, or as a fixed diagnostic fee for the first period of investigation. If you do, write down which jobs fall into which rate so the front desk quotes consistently, and tell the customer before the work starts.

Fixed-price menu jobs or book time?

You will probably use both.

Fixed-price menu jobs suit common, predictable work such as services, brake pads and discs, or air con regas. Customers like knowing the price up front, and it is easy to show online. Build each menu price from your own numbers: the labour time you expect at your rate, plus the parts at your selling price, then check it against the local market. If a menu job regularly takes longer than you priced it, the menu price is quietly cutting your rate.

Book time suits everything else. You quote the published or expected labour time multiplied by your rate. With the HaynesPro add-on in AutoChain, you look up the vehicle by registration and add HaynesPro repair times to the job or estimate as labour in one click. Servicing works out the service due from the car’s mileage and age and brings its labour time and the parts it needs onto the job. That keeps quotes consistent between advisors and stops labour times being guessed or retyped.

Review the rate, and check you are achieving it

The rate on your price list and the rate you actually earn are rarely the same. Discounts, jobs that overrun, goodwill and labour that never makes it onto the invoice all pull the achieved rate down. Check it every month:

Achieved labour rate = labour revenue ÷ hours invoiced

Then do a full review at least once a year, and whenever a big cost changes. The garage KPIs guide covers this and the other numbers worth watching each week.

Tell customers about a price change

A rate rise handled well rarely loses good customers. Handled badly, it causes arguments at the counter.

• Tell your team first. Whoever answers the phone needs to know the new rate, the date it starts and a one-sentence reason.
• Honour what you have already quoted. Work on outstanding estimates should go through at the price you quoted. In AutoChain, estimates carry a validity period (30 days by default), so the end date is already on the paperwork.
• Update everywhere at once: your website, price boards, menu prices and, if you take online bookings, the prices on the services in your booking widget.
• Keep the explanation short and honest. Costs have gone up, you want to keep investing in equipment and training, and here is the new rate. You don’t need to apologise.

Checklist

• Add up last year’s full workshop running costs, excluding parts and tyres bought for resale
• Use real payroll figures for wages, employer’s National Insurance and pension contributions
• Work out available hours after holiday, sickness and training
• Measure productivity and efficiency, and calculate your sold hours
• Calculate your break-even rate: costs ÷ sold hours
• Decide your target profit and calculate your target rate
• Ring round and check local garages’ published prices
• Decide whether diagnostic and specialist work has its own rate
• Rebuild your menu prices from your own labour times and parts prices
• Check your achieved labour rate every month
• Review the whole rate at least once a year, and after any big cost change
• Brief the team and update every price list on the same day

How AutoChain helps

AutoChain won’t tell you what to charge, but it shows you whether the rate you chose is working. Business analytics break down labour and parts revenue, average job value and parts profit for any date range, and technician analytics compare hours booked with hours invoiced, so you can see where sold hours are slipping away. Parts profit depends on accurate cost prices, and AI invoice scanning records the cost from each supplier invoice against the job, so your margin on parts is worked out from what you actually paid. Every estimate and invoice is itemised, with VAT calculated for you, so the labour you quote carries through to the bill. With the HaynesPro add-on, published repair times go straight onto the job as labour. See how it fits together on the garage invoicing and analytics page, or read the garage invoices guide for what your invoices need to show.