Shop owners learn true cost of labor

Dec. 28, 2015
Forward-thinking shop owners from Connecticut, New York, and Massachusetts learned how to calculate their true cost of a labor hour.

Forward-thinking shop owners from Connecticut, New York, and Massachusetts learned how to calculate their “true cost” of a labor hour at the “Running a More Profitable Body Shop” seminar.

The Dec. 5 event was hosted by Superare Advertising + Marketing Agency, in cooperation with the Auto Body Association of Connecticut (ABAC).

Agency co-owners, Tony Lombardozzi and Peter Abdelmaseh, presented lots of reasons why shop owners need to focus on their “true costs” – not estimates or “allowed” amounts – when it comes to determining their selling price for labor. Lombardozzi told the audience, “without knowing your real costs and how to determine your prices, your business will continue to give away the profits you work so hard to earn.” 

The presenters worked through several Excel® spreadsheets that showed some eye- opening financial models. As the “true cost” of a labor hour was revealed to the participants, Abdelmaseh quipped, “you’re most likely working for half-price. Today’s auto body shops make up the only 70 billion dollar industry in America that sells its goods and services for 35 billion dollars. No other industry would do that!”

Tony and Peter explained that every other industry calculates overhead expenses when determining labor rates. But, because insurers have told shop owners that “we don’t pay for overhead,” it has become a sad, but accepted “fact.”

Another item introduced at the seminar was a detailed spreadsheet to determine a “usage charge” for each piece of major equipment in a shop. By charging a usage fee when the equipment is used, a shop may reduce the proportion of overhead in its labor rate. Lombardozzi said “if equipment is part of overhead, each customer pays for all equipment in every job. Charging only when a certain piece is used solves that inequity.”

Abdelmaseh told a sad joke about how this whole nightmare about overhead probably started with someone in the insurance industry whose job it was to think up “stupid things that body shop owners would believe.” Lombardozzi emphasized to the participants that adding overhead – and a meaningful profit margin – to a labor rate is part of any “mainstream formula.” He declared “it’s about time we woke up!”

To dovetail with the agency’s recent seminar regarding short-pays, the company introduced its program of advisory services to guide shops through the process of determining “true cost-based” selling prices, charging those prices, and collecting the amounts due. 

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