More cars. Higher repair orders. More revenue.
That's usually where the conversation starts when a shop owner tells me they need to make more money. And I get it. If you're not making enough profit, bringing in more business seems like the obvious answer.
But here's what I've learned from working with auto repair shops: More revenue doesn't always mean more profit. And more profit doesn't always mean more cash.
Here's an example of why this matters. A technician earning $40 an hour could actually cost your shop $96 for every billable hour produced. If you're making pricing decisions based on that $40 wage, you could be overestimating your labor profitability by quite a bit.
Sometimes the biggest opportunity isn't getting another car through the door. It's understanding what the work you're already doing is actually costing you.
I recently sat down with Clay Hamlin, a colleague at Kaizen CPAs + Advisors, to talk about technician productivity and the financial impact of inefficiency. We got into labor costs, technician turnover, pay plans, and some surprisingly expensive problems that have very little to do with how quickly someone can turn a wrench.
And one thing became pretty clear. A shop can have great technicians and still leave a tremendous amount of money on the table.
Revenue tells you how much business you're bringing in. Profit tells you how much you're keeping after expenses.
That distinction matters because growing revenue often means growing costs, too. More cars can mean more technicians, more parts, more equipment and additional demands on your existing team.
If those additional sales aren't producing enough gross profit to cover your expenses, you're not necessarily improving the financial health of your business.
This is where I think shop owners sometimes chase the wrong number.
We hear a lot about increasing car count or average repair order (ARO). Both are important, but neither tells the whole story. You can increase your ARO and still have a labor profitability problem. You can fill every bay and still struggle to generate enough cash.
One of the first places I'd look is how effectively your shop is turning the labor hours you're paying for into hours you can actually bill.
These terms get thrown around interchangeably, and I'll admit, the terminology can get confusing.
Clay and I talked about two measurements that shop owners frequently hear: efficiency and productivity. The important thing to understand is that shops, trainers, and software systems don't always define them the same way.
One commonly used approach breaks them down like this:
Let's say a technician is scheduled for eight hours. They spend five hours actively working on vehicles and produce seven billable hours.
Their efficiency is 140% (seven billed hours divided by five actual repair hours), while their productivity is 87.5% (seven billed hours divided by eight available hours).
That's a technician who's producing more billable hours than the time spent performing repairs, but whose overall production may be limited by time spent waiting for work.
Maybe they're waiting for parts. Maybe the next repair order isn't ready. Or maybe they're waiting on customer approval.
Those are shop process problems, not necessarily technician performance problems.
And that's an important distinction because improving productivity doesn't always mean asking technicians to work faster.
It may mean giving them more opportunities to do the work they're already good at.
Of course, productivity is only one measurement worth watching. Understanding the six KPIs every auto repair shop owner should track can help you see how technician performance connects to your shop's overall financial results.
This is where the conversation gets interesting because we can put some real numbers behind the problem.
Clay walked through an example using a $140 effective labor rate and $40 in labor cost per billed hour. Under those assumptions, each additional billed hour generates $100 in labor gross profit.
Now let's say you find a way for one technician to produce just one additional billable hour each workday, without a corresponding increase in labor costs beyond those already included in the example.
Assuming 250 working days per year, here's what that improvement could mean.
That's potential additional labor gross profit, not additional revenue or guaranteed net profit. The example assumes there's enough customer demand to sell the additional hours and that the shop can produce them at the margins shown. Your actual results will depend on your labor rates, pay structure, and any additional costs required to increase production.
Now compare that $96 cost against a $140 effective labor rate.
Your labor gross profit is only about 31% using that loaded cost. That's a very different picture than the one you get when you assume your labor costs are $40 against a $140 selling rate.
And it doesn't leave much room for the rest of your expenses.
This is why I encourage shop owners to look beyond what they're paying technicians per hour and calculate what those technicians are actually costing for each hour of labor sold.
Of course, accurate calculations depend on accurate financial records. A properly structured chart of accounts for your auto repair shop helps you separate technician wages, labor revenue, and operating expenses so you can evaluate your margins more reliably.
You don't need to make this complicated.
I like using a three-month period because it helps smooth out some of the fluctuations that happen from week to week.
Start with three steps:
Then factor in applicable employer payroll taxes and benefits to get a more complete loaded labor cost.
One important detail: Be consistent about whether you're using flagged, booked, or closed hours. Changing your method from one period to another makes it harder to compare results.
Your accounting reports should support what you're seeing in your shop management system, too. If you're using QuickBooks Online, here's how to measure your repair shop's financial metrics in QuickBooks, including labor gross profit.
When technician productivity is low, it's tempting to assume people need to work harder or faster.
But before you start pushing your team to turn more hours, I'd look at the processes surrounding the work.
Think about what happens between the moment a vehicle arrives and the moment the technician can actually begin the repair.
Are parts ready? Has the customer authorized the work? Is the repair order complete? Does the technician have the equipment and information needed to get started?
Clay and I discussed several common productivity problems that shops can address without asking technicians to work any faster.
A technician shouldn't have to spend valuable time hunting down parts, finding tools, or waiting for the next job.
Those minutes add up throughout the day.
Look at your parts staging process, dispatch procedures, and how repair orders move through the shop. Sometimes a relatively small change can eliminate repeated interruptions.
If technicians are ready to work but they're waiting for estimates, approvals, or repair orders, your service process may be limiting production.
Digital vehicle inspections (DVIs) can help communicate needed repairs to customers and support approvals, although they also need to be implemented thoughtfully.
A process that creates more work without improving the flow of repairs isn't necessarily making the shop more productive.
Does your most experienced diagnostic technician need to be handling routine oil changes?
Maybe not.
Matching work to the right technician can improve productivity, but there isn't one perfect staffing or dispatch model for every shop.
A small rural shop with two technicians has different needs than a large shop with several general service technicians and dedicated diagnostic specialists.
The goal is to use the skills you have as effectively as possible while maintaining quality.
Few things hurt productivity like having to perform the same repair twice.
You're paying for additional labor, occupying a bay, and losing time that could have been spent on another paying job.
That's why any conversation about technician efficiency also needs to include repair quality.
A pay plan that rewards speed without considering comebacks can create problems that cost more than the additional production is worth.
Here's another area that doesn't always get enough attention when we talk about productivity.
Turnover.
When an experienced technician leaves, you're not just losing someone who can repair vehicles. You're losing someone who knows your systems, your processes, your equipment, and how your team works together.
Even an experienced replacement needs time to adjust.
We see the same thing in accounting. Someone might be an excellent accountant, but that doesn't mean they'll immediately understand our software, workflows, and client processes.
It takes time to become fully productive.
And during that transition, the business absorbs the cost.
Clay and I also discussed something shop owners might not immediately connect to retention: providing tools.
Technicians can spend a significant portion of their income building and maintaining their own tool collections. For newer technicians, that financial burden can be substantial.
What if your shop provided more of those tools?
Yes, that's an investment. But it could also improve consistency, reduce interruptions, make your shop more attractive to employees, and help reduce turnover.
And if it helps you retain a productive technician or avoid the cost of replacing one, that investment may pay for itself.
It's worth evaluating rather than automatically assuming the expense is too high.
Raising labor rates can absolutely be part of improving shop profitability.
But I wouldn't use higher rates as a substitute for fixing operational problems.
If your labor costs are too high because technicians spend too much paid time waiting for work, raising your door rate doesn't solve the underlying issue.
You might temporarily improve your margins, but the inefficiency is still there.
And your market may not support the rates you'd need to compensate for it.
Clay made a good point about shops charging premium prices. If you're going to charge a premium, you need to deliver a premium experience.
I'd rather see a shop understand its actual labor costs, improve productivity, and then establish labor rates that support healthy margins.
Those decisions should work together.
And when you're evaluating pricing, make sure you understand the difference between markup and profit margin. They're not interchangeable, and confusing them can lead to pricing decisions that don't produce the profit you expected.
For more context on how accurate reporting helps you evaluate your shop's performance, take a look at our guide to monthly financial statements for auto repair shops.
Vehicle complexity isn't slowing down.
Between advanced electronics, software, programming requirements, and electric vehicles, shops are being asked to diagnose and repair increasingly complicated systems.
Clay brought up an important point: That complexity can become a margin opportunity for shops willing to invest in the right training and equipment.
But it can also become a serious disadvantage for shops that don't.
If your technicians lack the tools, information, or training to complete certain repairs efficiently, those limitations eventually affect your capacity and profitability.
And the gap between shops that invest and those that don't may become increasingly noticeable over the next several years.
I wouldn't look at training and technology strictly as expenses.
I'd look at what they allow your team to accomplish, the repairs they make possible, and whether those investments improve your ability to produce profitable work.
If you're looking at your numbers and wondering why all that revenue isn't producing the profit you expected, I wouldn't start by assuming you need more customers.
I'd start by understanding what you're already producing.
Calculate your actual labor cost per billable hour. Compare that against your effective labor rate and labor gross profit. Then look at the processes that might be keeping your technicians from producing more billable hours.
Are they waiting on parts? Is dispatch inconsistent? Are customer approvals taking too long? Are you losing experienced employees faster than you can replace them?
You don't need to solve every problem at once.
Find the biggest obstacle, make an improvement and measure the result.
As Clay put it:
"If your efficient techs aren't productive, fix your process, not your people."
— Clay Hamlin
I think that's a pretty good place to start.
Because sometimes the path to a more profitable shop isn't selling more work. It's getting better results from the work you're already selling.
Eric Joern and Clay Hamlin go deeper into technician productivity, labor costing, shop processes, and the financial decisions that can make a real difference in your bottom line.
Watch the full conversation above, or listen to Under the Hood CPA wherever you get your podcasts.