By Bob Clements to attendees of Farm Equipment’s 2022 Dealership Minds Summit on Next-Level Service Management.

Editor's Note: This is a web-continuation article from "Winning Comp Plans that Align with Process, Deliver Results," appearing in the October/November 2022 Farm Equipment and based on a presentation at the 2022 Dealership Minds Summit. 

There’s a 2-store Kubota dealership we work with down in Louisiana, it’s called Henderson Implement. At their Abbeville, La., location – 60 miles outside of Baton Rouge, they have a technician, Kendall, who works specifically on Kubota tractors. He is 173% efficient. They’re at $145 an hour — in Abbeville La., a town of 12,000.

So, challenge your staff when you hear, “I can't charge that much.” You are the one who gets to set the labor rate.

So, what’s the easiest way to set your labor rate? 

Should you call other dealers around you? No, that’s a terrible idea. We call that pooling ignorance in my company. All you’re doing is talking to each other with the result of everyone staying in the same place. 

Instead, call your local Ford or Chevy dealer, and ask them what they’re charging per hour. And if your dealership is working on tractors, construction equipment, you should be exactly where they’re at. If they’re charging $155 an hour in your local community, that is where your labor rate needs to be, too.

“Call your local Ford or Chevy dealer and ask them what they’re charging per hour … If they’re charging $155 an hour in your local community, that is where your labor rate needs to be, too…”

And I’ll tell you why. Ford spent $25 million 3 years ago to reset all their labor rates in North America. And every labor rate went up. Why do you think Ford went back and reset its labor rates? Because it is competing for technicians just like you are. And Ford and all the other automotive dealers know that their labor rate needs to reflect how much they need to pay a technician.

If they need to pay a technician $40 an hour, then their shop labor rate must be $120. I’ve got a marine dealer in California that’s paying $60 an hour for a marine-certified tech. It had to move its labor rate up to $180 an hour.

And instead of the owners’ worst fear, what happened? Customers followed that service tech over to the new dealership, and they’ve got more business ever before. 

People don’t care what you charge them. All they’re really interested in their shop is two things. First, how quickly you can get it done and second, to make sure it’s done right. 

In almost all cases, labor rate is something dealers are well below what they should be charging. And if you’re undercharging on your labor rate, then suddenly, your salary cap is out of whack, meaning you're overpaying for labor — all because you’re not charging the customer enough.

You've got to quit feeling guilty on what you’re charging in your shop. Who else is going to do this work? Who else has the capability of doing it?