Effective Labor Rate Calculator
Total revenue generated strictly from labor charges (exclude parts).
The total number of hours sold to customers (flat rate or actual).
Your standard hourly rate charged to retail customers (Optional).
Effective Labor Rate:
$0.00 / hr
Posted Door Rate:
$0.00 / hr
Rate Variance (Loss):
$0.00 / hr
Rate Efficiency:
0%
Total Uncaptured Revenue:
$0.00
How is Effective Labor Rate Calculated?
The Effective Labor Rate (ELR) is a Critical Key Performance Indicator (KPI) for automotive service departments, repair shops, and field service businesses. While your "Posted Rate" or "Door Rate" is what you display on the wall, the Effective Labor Rate is the actual amount of revenue your business collects for every hour billed.
Understanding how ELR is calculated is essential for identifying profitability leaks caused by discounts, warranty work, internal adjustments, and unbilled time.
The Formula
The standard formula for calculating Effective Labor Rate is straightforward:
Effective Labor Rate = Total Labor Revenue ÷ Total Billed Hours
Breakdown of Variables
- Total Labor Revenue: This is the gross sales amount generated specifically from labor. Do not include parts, sublets, or shop supplies in this number. It should account for all labor categories (Customer Pay, Warranty, and Internal).
- Total Billed Hours: This represents the hours sold to the customer, not necessarily the hours the technician spent working on the vehicle (clock hours).
Why is ELR Lower Than the Posted Rate?
It is common for the Effective Labor Rate to be significantly lower than the Posted Door Rate. If your door rate is $150/hr, your ELR might only be $115/hr. This gap is caused by:
- Discounts & Coupons: Promotional offers directly reduce the revenue collected per hour.
- Warranty Work: Manufacturers often reimburse at a rate lower than your retail door rate.
- Internal Work: Work performed on trade-ins or company vehicles is often billed at cost or a reduced internal rate.
- Service Advisors: Adjustments made by advisors to close a sale or satisfy a customer can erode the rate.
Example Calculation
Let's assume a service department has the following metrics for one month:
- Total Labor Sales: $45,000
- Total Billed Hours: 360 Hours
- Posted Door Rate: $140.00
Calculation: $45,000 ÷ 360 = $125.00 Effective Labor Rate.
In this example, the shop is losing $15.00 for every hour billed compared to their posted rate. Over 360 hours, that is a total of $5,400 in uncaptured revenue.