Benchmarks are not a myth. Some people are currently offering advice that they are too hard may try to make you feel bad. While scrutiny is welcome of any over-broad or misapplied benchmarks, they still serve a major purpose in any industry: measuring your business against the normal function of the rest of the industry.
An article was written a few months ago in a different magazine that did a tremendous disservice to the industry and I’m furious. In the article, the author dismissed the idea of a gross profit benchmark of 60% as a myth and that most shops can’t attain it.
That is patently false. The reasoning behind his statement shows a complete lack of understanding on how a shop’s financials are built, and how a shop produces net income. Further damaging the industry, the author rails against increasing labor rates that will sustain the shop and allow it to attract the best talent available to the market. Instead, the suggestion is to essentially let your customers tell you what your labor rate is and how much they should pay you. Let’s dissect this before my head explodes.
First: If your labor rate is $200/hr., people will complain it should be lower. If your labor rate is $150/hr., people will complain. $100? Complaints. $75? $50? Complaints. There will always be someone out there who thinks your rate is too high and should be lower. Furthermore, when was the last time a customer even brought up your labor rate? Two decades ago? If you have someone calling your shop asking what your labor rate is, it’s the shop down the street trying to sniff out what they should charge — not a customer. Today’s consumer, if price is their top priority, is looking at total cost of job, not an individual line item.