Labor Markup Setup

Pricing strategies that include a standard (door) rate are fairly common, but when you add diagnostic labor charges, specialty vehicles, fabrication services, or customer supplied parts, you can see if your labor profits are still good enough or if you need to make adjustments.

For example, let’s say you make $300 in sales if you performed a normal labor service with a labor rate of $150 and a labor/parts mix of 50/50. You are most likely using more qualified technicians and more expensive equipment when you perform a one hour diagnostic service, fabrication service, or specialty vehicle. Because you lose the part markup for the one hour diagnostic charge, you need to adjust labor rates based on specialty services in order to be more profitable. The same applies to customer-supplied parts, you lose the parts markup and profit.

Using the labor guide mark-up adds a percentage of labor to the time. If you have it set to a 20% markup, the labor time from the guide is 1 hour to perform the service, it will automatically mark the time to 1.2 hours, giving you an increase in your labor profit.

Using the labor matrix increases the labor dollars as if there’s more labor time on the job, but actually leaves the labor time the same. For example, if your matrix is set for a 20% markup for any labor between 1-3 hours, and your labor rate is $150.00 per hour, that same 1 hour service keeps the labor time at 1 hour, but the labor rate changes to $180.00 (20% markup) for that service.

Having one of these in place with properly setting up your labor technician costs will give you accurate reporting that will allow you to easily monitor your labor profit in the reports and can be easily adjusted as costs change. 

Tekmetric's Labor Matrix and Markup features allows you to automatically mark up labor hours and earn better margins on labor times. To get started:

1. Click the Shop Settings section on the bottom of the left menu bar.
2. Click the 4th tab, Markups.
3. Labor Markup table - here you will set up how you want to mark up labor hours; you can create only one labor matrix or use the flat rate labor markup.
   • Create Labor Matrix
   • Create Labor Flat Rate Markup

Create a Labor Matrix

1. Click New Labor Matrix icon to create a new labor matrix. Note: You can only make one labor matrix.                                
2. Click Add Range icon to enter as many custom ranges as necessary and assign a markup to each range. Markup can be based on one of the two options:
   • Multiplier - this method will multiply the labor hours by the multiplier amount to find the adjusted labor rate.
     • Example - if the range is 0-5 hours with a multiplier of 3, then labor that takes 4 hours will be multiplied by 3 for the adjusted labor hours (4 hours x 3 = 12 hours). The 12 hours will then be multiplied by the assigned labor rate to find the final adjusted labor sales.
   • Markup Percentage - this method will markup the labor hours by a percentage
     • Example - if the range is 0-5 hours with a markup percentage of 50%, then labor that takes 4 hours will be marked up to 6 hours in order to achieve a 50% markup of the labor hours.
       • You are spending 4 hours on labor, but you want it to be marked up by 50% of what it takes, so 4 x 0.5 = 2. Then you add that markup to the labor hours it took, 4+2 = 6 hours --> making 6 hours your retail labor hours. These 6 hours will then be multiplied by the assigned labor rate to find the final adjusted labor rate. 
3. Pick whether you want this to be a simple or compound matrix on the bottom left.                                Use table above for examples explained below:
   • Simple - this method finds the labor hour within a single range and uses the multiplier selected to multiply labor hours. 
     • Example - in the table above, if the labor hours for a job is 2.5 hours, then the full 2.5 hours will be multiplied by 2.  
     • 2.5 hrs x 2 = 5 hours. And so, 2.5 hours becomes 5 hours, which will then be multiplied by the assigned labor rate in order to give you a labor price markup. 
   • Compound - this method allocates the labor hours across each of the ranges within the matrix, using each of the multipliers at each stage for the dollar amount in that bracket.
     • This method results in higher retail prices and is also known as "sliding" or "progressive" matrix. 
     • Example - in the table above, if the labor hours for a job is 2.5 hours, then the 2.5 hours would be broken up to be multiplied as follows:
       • The first hour of the 2.5 hours will be multiplied by the first bracket
         • 1 hr x 3 = 3 hours 
       • Remaining hours from the 2.5 would be multiplied by the second bracket (2.5 - 1 = 1.5). 
         • 1.5 hrs x 2 = 3 hours 
       • Add those together: 3 + 3 = 6 hours. And so, 2.5 hours becomes 6 hours, which will then be multiplied by the assigned labor rate in order to give you a labor price markup. Note: For more information on simple versus compound, please visit: Simple versus Compound Matrix article. 
4. If you want to delete a range, click the X icon to the right of the range you'd like to delete. 
5. Once steps 1-4 are completed, click Save to save the labor matrix.               

Example of Labor Matrix from Tekmetric Shop Owner:

Create a Flat Rate Labor Markup

1. Click the 2nd tab, Labor Guide Markup in the 'Labor Markup' table. Note: Flat Rate Labor Markup only marks up the Tekmetric labor guide.
2. Markup your desired amount.
3. Click Save Markup to save the changes that have been made.

FAQs about Labor Markups

Am I able to apply a labor matrix and a labor guide markup at the same time? Yes! The labor matrix will increase the hour's worth and the labor guide markup will increase the amount of hours it takes to complete the job.