Ask most garages how they arrived at their labour rate and the answer involves what other garages nearby charge.
It is an understandable way to do it and a poor one, because it copies a number without copying any of the things that produced it.
What you are actually copying
The garage down the road might own their building outright. They might be paying a mortgage you would not survive. They might run four technicians in six bays, or six in four. Their comeback rate might be double yours, or half.
You cannot see any of that. You can see their rate: the output of a calculation done with numbers you do not have access to, and possibly not done at all. They may have set it by looking at you.
Matching it inherits every assumption in it. If they got it wrong, you have now got it wrong too, and you will both be wrong together for years.
Work it out from your own numbers
The calculation is not difficult. It needs two figures most garages have not written down.
Your true overhead. Everything that is not the technician's wage: rent, rates, insurance, equipment finance, software, utilities, the front-desk salary, training, consumables, the accountant. Per year.
Your productive hours. This is where it goes wrong. Not hours open. Not hours paid. Hours actually sold on jobs.
A technician paid for 40 hours does not sell 40. There is holiday, sickness, training, tidying, waiting for parts, moving cars, the comeback that was not charged. Sold hours are commonly 60 to 75% of paid hours, and a garage that assumes 100% has built its rate on a number that has never once been true.
Take your actual sold hours from last year. Not your estimate of them: the figure.
The shape of it
Overhead divided by productive hours gives you what an hour must recover before it earns anything. Add the technician cost that hour carries. Add the margin the business needs.
That is your floor. Below it you are working for the pleasure of it.
Whether you can charge above it is a market question, and that is where knowing local rates is useful. Not as the input, as the sense-check. If your floor is well above what the area supports, the answer is not to charge less than it costs you. It is that something in the cost base or the productivity has to change, and now you know which.
Why the productive-hours number is the whole game
Two garages with identical overheads and identical wages will need materially different rates if one sells 65% of its paid hours and the other sells 75%.
That is a large difference, and it is invisible from outside. It is also the number most within your control: improving sold hours improves profitability without touching your price, which is the only lever that does not risk customers.
Which is why where jobs quietly lose money is worth reading alongside this. Unrecorded time is productive hours you sold and did not count, and it makes your rate look inadequate when your recording is the problem.
Then price the job, not the hour
A rate is a building block, not a price. The job is priced from the rate and the time the job takes.
"The time the job takes" should come from published repair times rather than from memory, for the same reason the rate should come from your accounts rather than the garage down the road: a number somebody remembers is a number that drifts, and it drifts in the direction of whatever went wrong most recently.
Two people quoting the same job should reach the same figure. If they do not, the price is not really coming from a rate.
Review it on a date, not on a feeling
Most garages change their rate when something forces it: a bad quarter, a rent increase, a supplier letter. That means the rate always lags the costs, and the increase, when it comes, is large enough for customers to notice.
Put a date in the calendar instead. Once a year, recalculate from the actual figures: last year's overhead, last year's sold hours. If the answer has moved, move the rate. A small annual adjustment is easier to absorb than an occasional large one, and it means you are never quietly trading below cost for eighteen months without knowing.
Two mistakes worth avoiding
Discounting the rate instead of the job. If a customer needs a lower price, reduce the work or the parts margin, not the hourly rate. A discounted rate sets a precedent that is hard to reverse, and it applies to everything they bring you afterwards.
One rate for everything. Diagnostic work, MOT preparation and routine servicing do not carry the same skill, equipment cost or risk. Plenty of workshops run a single rate because it is simpler to explain, but if diagnostics subsidise servicing, you will conclude diagnostics are unprofitable and do less of the thing you are best at.
Neither is a pricing trick. Both are consequences of treating the rate as a number you set once rather than a number your accounts produce.
