Chris Collins explains Effective Labor Rate: labor dollars divided by labor hours sold. If you hit 80% gross profit and keep personnel at 40-45% of gross, you're in good shape. Most shops cite 70% as a target but should aim higher.
Questions this video answers
Labor dollars (labor sales) divided by labor hours sold (hours flagged).
Often cited as 70%, but they say they usually shoot for closer to 80%.
Around 40–45% of gross.
$90,000 expenses, i.e., 90% of gross.
Chapters
When you talk about elr, what is the formula for elr? And ELR stands for effective labor rate. You were making the point. A lot of people don't even know how to calculate elr, let alone what it should be.
Right. So I spend a good portion of my life asking people if they know what ELR means. Right.
Like randomly on the street.
Yeah. Just going down the mime on Figueroa does a really good job with it, actually. But what is this, 1982?
That there's mimes.
Yeah. It's good.
Right.
So the thing that I know, when I ask somebody about effective labor rate, if it takes them more than seven words to describe effective labor rate, they do not know what it is.
So how do people describe effective labor?
Oh, they'll throw in, like, tech cost and gross profit and like all these other formulas into it. They're like, okay, so effective labor. And I know I should know it, but. But I really just rely on the report from the dms. But effective labor aid is my sales minus my tech cost, times my days out, minus PI squared. Yeah. But really all it is is, it's labor sales divided by labor hours sold.
Yeah. So it's your labor dollars divided by hours flagged in the shop.
That's it. Keep it simple.
Yeah. Okay. So that would be the next place I would go.
Me too.
Right. Then I would look at our gross profit percentage. Okay, so gross profit percentage. This is another one that is misunderstood. Gross profit percentage is your effective labor rate less. Your cost of technician gives you your gross. So the difference between gross and sales is the cost of the technician, the direct cost.
Well said.
And that should, you know, I know that. Nada. And different places say that should be 70%. Usually we're shooting for closer to 80.
Yeah. I think that we have, like, a little thing. Right. So when we get closer to 80, if we go too far over, it means you've got some flexibility if you need to go out and recruit and pay a little bit more for better techs. Like the 80 is a magic number for sure.
Yeah. The. Then the next thing I would probably do is.
Because I know the net to gross, I know the expenses as a percentage of gross. Right. Because there can only be 100%. So if, if.
If we do $10,000 in profit and we have 100,000 in gross, what are our expenses?
Ninety thousand would be my guess.
Ninety percent.
Ninety percent of gross.
So it's just the. Whatever the difference is of 100. Right. So if your net to gross is 20%, then you know, your expenses are 80%. So that's another number I would look at is my expenses as a percentage of gross. And then I would dial in and I would say, what is my personnel?
Now, usually the personnel should be, you know, around 40 to 45, depending on the brand of the gross. And then I dig in even further and see what are my advisors as a percentage of gross. Right.
Another one with the expense as a percentage of gross to be aware of. It gets tricky when you're losing money. Yeah, sometimes that screws people up, too. Right. So if you lose $10,000 and you have a gross of a hundred thousand, what is your expense as a percentage of gross?
Thanks so much for watching this clip of Service Driver Revolution. We're uploading new stuff every day, so make sure you subscribe and click the bell icon so you don't miss out. If you have a question you'd like us to answer on the show, call 8333, ask SDR and we'll answer your question on the show. That's 8333, ask SDR. For special deals on our books and training, head over to offers.chriscollinsinc.com now that's offers.chriscollinsInc.com I'm Chris Collins, and I'll see you in the next video.
