Mastering the Numbers – Part 2

In our earlier article, Mastering the Numbers Part 1, we discussed why shop owners should understand the financial side of their business just as much as the technical side. We introduced the Cost of Doing Business (CODB) as an important baseline financial concept. Let’s show how CODB connects directly to labor rate strategy. Keep in mind that the following examples and projections are just that. I use CODB to help manage the numbers in my shop. That doesn’t necessarily mean it’s the best system for yours.

Using CODB to establish a realistic labor rate

Suppose your CODB is $200/hour. If your posted labor rate is $175/hour, it looks like you’re underwater. But CODB isn’t meant to dictate your labor rate—it tells you the minimum average revenue you must generate per clock hour. The real picture comes into focus when you apply CODB to technician production.

Weekly Shop Totals (Baseline)

• Shop Hours Open: 40
• Total Labor Sales: $12,600
• Effective Revenue per Clock Hour: $315
• CODB Baseline: $200/hr
• Result: Revenue outpaces CODB by $115/hr = Clear profit margin

What happens if I add a fourth technician?

If you look at the previous table, we mentioned hiring a fourth tech to increase productivity. However, we would also need to consider their salary, and that would change our CODB numbers. CODB is to be considered a changing number, a moving target of sorts, and that’s why it requires attention from time to time. Once calculated, don’t assume it’s the same as time goes by. Some shops will be proactive and adjust their CODB calculations every three to six months, depending on current and expected expenses.

Work mix matters

• Heavy engine work ties up bays but delivers large labor blocks.
• Diagnostics bill at full rate or higher and often lead to follow-up repairs.
• Brake and oil services provide steady, high-turnover revenue.

The right balance keeps production steady and ensures that CODB is consistently met and surpassed.

Rethink your non-technician payroll

When most shop owners think about labor rate and profitability, they focus on the technicians turning wrenches. But CODB is bigger than that; it represents all the fixed expenses of running the business, including the cost of the people who support the work, not just the ones performing it.

Think about your service advisor, bookkeeper, or shop manager. Their salaries don’t show up on a repair order the way technician hours do, but without them, the shop couldn’t function. These positions handle everything from customer intake and estimating to parts ordering, warranty processing, accounting, and scheduling. They’re often the first and last contact a customer has with your business, and the quality of that interaction is just as critical as the repair itself.

Here’s where CODB comes in. By calculating and tracking CODB, you’re accounting for those salaries in your per-hour expense baseline. That means your posted labor rate and your billed hours aren’t just covering the techs’ pay and the lights over their heads; they’re also generating the revenue needed to pay and retain skilled supporting staff.

Instead of viewing other staff as “overhead” that eats into profit, CODB reframes them as essential contributors whose compensation is built right into the hourly structure of the business.

What about part sales?

Labor may be the engine that drives most of a shop’s profitability, but parts sales are the fuel that keeps it moving. CODB accounts for all of your overhead expenses, which means both labor and parts must work together to cover those costs and create profit.

Traditionally, shops have relied on a blended model—labor hours billed at the posted rate, plus parts sold at a markup. That margin on parts creates a cushion. For example:

• A brake job billed at two hours labor @ $175/hr = $350
• Parts cost to shop: $120
• Parts billed to customer with 40% markup: $200
• Total invoice: $550

In this case, the labor revenue covers CODB directly, while the $80 parts margin adds profit and helps protect the bottom line if technician efficiency slips. Without a parts margin, the entire weight of CODB and profit falls on labor.

But here’s the important lesson: if a shop is run efficiently—managing production, efficiency, and CODB closely—it can survive on labor alone. Parts become an additional profit center, not the lifeline. That’s especially critical as the industry changes.

While electric vehicles (EVs) may not be growing at the rate many expected, their continued existence still has an impact on parts sales for shops. EVs have fewer moving components, fluids, and traditional maintenance parts like belts, filters, and hoses. That means less margin to capture on parts. In today’s environment, the ability to calculate, monitor, and act on CODB—and to ensure your labor rate and technician production are dialed in—has never been more important.

CODB keeps you from leaning too heavily on a revenue stream that may not exist tomorrow. It ensures your shop is sustainable, whether you’re installing engines, programming modules, or performing routine services on EVs that may use far fewer replacement parts.