Here’s a conversation we hear a lot: "We did heaps of work this month but there’s nothing left in the account." Plenty of workshops are busy yet barely profitable, and the culprit is almost always job pricing.
Most workshop owners don’t actually know if individual jobs make money. They quote on gut feel, what competitors charge, or "what the market will bear", then wonder why the margins aren’t there at month’s end.
This guide gives you the formulas for working out what an hour really costs, a way to set a labour rate and parts markup that hold up, and a worked quote to check your own numbers against.
Understanding Your True Cost Per Hour
Before you can price profitably, you need to know what an hour of your workshop’s time actually costs. Not what you pay a mechanic, but what it costs your business to deliver that hour of work.
This is where most workshops get it wrong. They think: "I pay Dave $35/hour, I charge $90/hour, I’m making $55/hour profit." That’s nowhere near the whole picture.
The True Cost Calculation
Your true hourly cost includes:
| Cost Component | Example (Annual) | Per Hour* |
|---|---|---|
| Mechanic wage | $72,800 | $35.00 |
| KiwiSaver contribution (3.5%) | $2,548 | $1.23 |
| ACC levies | $2,500 | $1.20 |
| Sick leave / public holidays | $3,500 | $1.68 |
| Tools / equipment allocation | $4,000 | $1.92 |
| Training / certification | $2,000 | $0.96 |
| Rent allocation per tech | $12,000 | $5.77 |
| Power / utilities allocation | $3,600 | $1.73 |
| Insurance allocation | $2,400 | $1.15 |
| Software / admin overhead | $1,800 | $0.87 |
| TRUE COST TOTAL | $107,148 | $51.51 |
*Based on 2,080 billable hours per year (40 hrs/week × 52 weeks)
See that? Your "$35/hour mechanic" actually costs you $51.51/hour when you account for everything. That’s a 47% difference. And we haven’t touched on profit yet: this is just your break-even point.
The Efficiency Reality Check
That 2,080 hours assumes 100% efficiency, with every hour billable. Reality? Most workshops run 65-80% efficiency. Adjust accordingly. At 70% efficiency, you’re only billing 1,456 hours, which means your true cost per billable hour is actually $73.59.
The Efficiency Factor: Why It Changes Everything
Efficiency (also called productivity or utilisation) is the percentage of available time that’s actually billed to customers. It’s the most misunderstood and under-tracked metric in workshop management.
What reduces efficiency:
- Waiting for parts
- Customer communication
- Tea breaks and lunch
- Callbacks and warranty work
- Cleanup and admin
- Diagnosing problems not quoted
- Helping colleagues
- Training new staff
Realistic efficiency benchmarks:
- 85%+: Excellent (rare, often means under-recording unbillable time)
- 75-85%: Good (well-run workshop)
- 65-75%: Average (most workshops)
- Below 65%: Needs attention
Efficiency-Adjusted Cost Formula
True Billable Cost = Annual Costs ÷ (Available Hours × Efficiency %)
Example: $107,148 ÷ (2,080 × 0.70) = $73.59 per billable hour
Setting Your Labour Rate
Now you know what an hour costs. But what should you charge? This is where profit margin comes in. As a rough guide, healthy workshops target 35-50% gross margin on jobs (labour and parts combined), so we’ll use 40% in the examples.
The Margin Formula
Labour Rate = True Cost ÷ (1 - Target Margin)
Example: $73.59 ÷ (1 - 0.40) = $122.65 per hour for 40% gross margin
If your true cost is $73.59 per hour and you want a 40% gross margin, you need to charge $122.65 per hour. Not $90. Not $100. $122.
Here’s how different margins affect pricing:
| True Cost | 30% Margin | 35% Margin | 40% Margin | 45% Margin |
|---|---|---|---|---|
| $60/hr | $85.71 | $92.31 | $100.00 | $109.09 |
| $70/hr | $100.00 | $107.69 | $116.67 | $127.27 |
| $80/hr | $114.29 | $123.08 | $133.33 | $145.45 |
| $90/hr | $128.57 | $138.46 | $150.00 | $163.64 |
Parts Markup: The Profit Booster
Labour isn’t your only profit centre. Parts markup is often where healthy margins live, and it’s also where many workshops undercharge.
Standard Markup Approach
A simple approach is percentage markup based on part cost:
| Part Cost | Typical Markup | Example |
|---|---|---|
| Under $20 | 100-150% | $12 part → $24-30 |
| $20-$100 | 60-80% | $50 part → $80-90 |
| $100-$500 | 40-60% | $250 part → $350-400 |
| Over $500 | 25-40% | $800 part → $1000-1120 |
Pro Tip: Matrix Pricing
Hoist has a price matrix: enter your cost and the markup is applied for you. No mental maths, and no two techs pricing the same part differently.
Why Higher Markup on Small Parts?
It seems counterintuitive to charge 100%+ on cheap parts. Here’s why it makes sense:
- Handling cost is fixed: Ordering, receiving, storing, and handling a $5 clip takes the same effort as a $500 alternator
- They add up: A brake job might have $30 in small parts (clips, retainers, grease). At 100% markup, that’s $30 gross profit
- Customers don’t notice: Nobody price-checks a $3 clip. They definitely check $800 parts
- Risk buffer: Small parts get lost, dropped, damaged. Markup covers this
Quoting Jobs: A Worked Example
Let’s work through an example: quoting a timing belt replacement on a 2015 Toyota Hiace. The figures are illustrative, so swap in your own costs and rate.
Example Quote: Timing Belt Replacement
Profit Analysis:
Parts cost: $355
Parts revenue: $577.50
Parts gross profit: $222.50 (39%)
Labour cost (5hrs @ $73.59): $367.95
Labour revenue: $625.00
Labour gross profit: $257.05 (41%)
Total job gross profit: $479.55 (40%)
Common Pricing Mistakes (And How to Avoid Them)
1. Quoting "Book Time" Without Adjustment
Manufacturer book times are guides, not gospel. That 3-hour timing belt on a clean 2-year-old vehicle is very different from the same job on a rusted 15-year-old work van.
Smart Approach:
Use book time as a starting point, then adjust based on vehicle condition, age, and complexity. Add 20-30% for older vehicles, more if you see rust or evidence of previous dodgy repairs.
2. Not Charging for Diagnostic Time
The customer says "my car’s making a noise." You spend 45 minutes finding the problem. Do you charge for that? You should.
Diagnostic time is skilled work. It isn’t just looking at things. You’re using years of experience and expensive equipment to identify problems. Quote diagnostic time separately and charge for it.
3. The "Good Customer" Discount Spiral
You give Gary a small discount because he’s a good customer. Then Gary tells Dave, who expects the same. Soon you’re discounting everything and your margins have evaporated.
Better Approach:
Set your prices fairly from the start. If you want to reward loyalty, do it through value-adds (free courtesy car, priority booking) rather than discounts that eat your margin.
4. Matching the Competition’s Low Prices
There’s always a workshop charging less. Always. But they’re often the ones closing down in 18 months because they never made any money.
You don’t need to be the cheapest. You need to be profitable while providing good service. Some customers will always choose on price. Let them go to the cheapest option. The customers who value quality and service will pay your rates.
5. Not Reviewing Prices Annually
When did you last increase your labour rate? If the answer is "more than a year ago," you’re going backwards. Rent goes up. Wages go up. Parts prices go up. Your prices need to keep pace.
A Simple Routine:
Review your rates once a year, in line with what your wages, rent and parts have done. Many workshops move prices in January and give regulars a couple of weeks’ notice. Customers who value your work rarely leave over a fair increase.
Strategic Pricing Options
Flat Rate vs Time-Based
There are two main pricing philosophies:
Flat Rate Pricing
Charge a fixed amount for defined jobs, regardless of actual time taken.
Pros:
- Customer knows exact cost upfront
- Rewards efficiency (fast techs = higher margin)
- Simpler quoting
Cons:
- Risk on complex jobs
- Must track data to set accurate rates
- Less flexibility for unusual situations
Time-Based Pricing
Charge by the hour for actual time spent on the job.
Pros:
- Always covers your time
- Flexible for unknown scopes
- Easier to implement
Cons:
- Customer uncertainty on final cost
- No reward for working efficiently
- Requires accurate time tracking
Many successful workshops use a hybrid approach: flat rate for common, well-understood jobs (services, brake replacements, timing belts) and time-based for diagnostics and unusual repairs where scope isn’t clear.
Service Package Pricing
Bundling services into packages can simplify pricing and increase average job value. The prices below are examples only; build yours from your own labour rate and parts costs:
Basic Service
$199
- Oil & filter change
- 25-point check
- Fluid top-up
- Tyre pressure check
Full Service
$349
- Everything in Basic
- Air filter replacement
- Cabin filter replacement
- Brake inspection
- Battery test
Major Service
$549
- Everything in Full
- Spark plug replacement
- Transmission fluid check
- Coolant test
- Detailed inspection report
How Software Makes This Easier
Tracking all of this by hand is possible. In practice it’s a slog, and it’s the first thing that slips in a busy week. Here’s what software does for you:
Automatic Parts Markup
Set your markup matrix once. Every part gets correctly priced automatically.
Time Tracking
See actual vs quoted time per job. Identify where you’re under-quoting.
Live Margin on the Job Card
Hoist shows gross margin on the job card as parts and labour go on, so you can compare quoted with actual before the invoice goes out.
Efficiency Reporting
Hoist’s technician productivity report compares hours on jobs with paid attendance hours, which is the efficiency percentage used in the formulas above.
Your Action Plan
Here’s how to implement profitable pricing in your workshop:
This Week:
Calculate your true hourly cost using the formula above
Estimate your current efficiency percentage
Calculate your efficiency-adjusted cost per billable hour
Determine what labour rate you need for your target margin
Compare to your current rate. If there’s a gap, that’s your first pricing decision.