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How to price service labor

November 23, 2010
A service manager must establish pricing policies that compete with locally available prices yet still retain adequate profits. Prices should be developed for all the work the service department performs. The many services fall into three broad categories: 1. Competitive labor encompasses any services a dealer has chosen to perform competitively. Lube/oil/filter changes, alignments and wheel balances generally fall into this category. Competitive labor is charged at a low hourly rate. 2. Maintenance labor consists of any work that the manufacturer recommends or requires. Manufacturer- required maintenance services, automatic transmission services, air conditioning service, and emissioncontrol services are examples. Maintenance labor is charged at a moderate hourly rate, or above the dealer's target rate. 3. Repair labor encompasses all other work the service department performs. This labor typically is the least competitive, involving specialized operations like electronic engine-control diagnosis and adjustments, electrical malfunctions and other wiring-related problems; and accessory repairs and replacements. Repair labor is charged at the most expensive hourly rate. A dealer has four options for pricing labor: A. Clock Hour Rate. Customer pays an established hourly rate for the actual time spent by each technician. B. Flat Rate Hours. Customer pays a uniform hourly charge for anoperation's time standard, according to a flat-rate manual. C. Job Pricing. Customer pays a labor charge based on the prevailing charges for similar operations at competing service facilities. D. Variable Labor Rate. Customer pays one of several hourly rates, based on skill or market category, for an operation's time standard found in a flat-rate manual. Pricing guidelines by the NADA 20 Group recommend pricing via the Variable Labor Rate as the key to becoming competitive. Though all options have pros and cons-using variable labor rates requires periodic market surveys is one "con"- pricing by this method allows the dealer to charge based on thecomplexity of the job. When the service manager can match technician skills to particular jobs, the labor pool is used efficiently and the department's competitive stance is enhanced. One caution: Do not charge a lower rate for internal work; a technician's time and the service bay cost the same, regardless of the customer. This information was excerpted from the study guide to the NADA's video program, "A Perfect Match: Service Department Profit, Productivity and People." A copy of the video and an accompanying 28-page study guide can be ordered from the NADA by calling 800-252-6232, ext. 2. Cost is $189 plus shipping.