The Hourly rate is the central adjusting screw for the profitability of every commercial vehicle workshop. Nevertheless, in many companies it is not based on a solid calculation. Instead, it is based on what the competition demands, what the tax consultant has recommended or, even more frequently, on what has „always been the case“. The result is often a hidden shortfall: the invoiced rate remains noticeably below the imputed full cost rate. With the billable hours per mechanic and year, this also adds up to a relevant margin loss. Industry analyses from the independent workshop sector provide an indication of the order of magnitude. The hourly rate calculation follows the international principles of the VDI 2895 (life cycle costs in maintenance), which specifies full-cost approaches for technical services.
This article therefore shows you step by step how to calculate the hourly rate in the commercial vehicle workshop, i.e. your Minimum hourly rate clearly derive which costs are often forgotten and how you can justify your price to customers in a comprehensible manner. Because a correctly calculated hourly rate is not an „expensive price“. Rather, it is the basis for ensuring that your workshop can survive and invest in the long term. Those who work on shorter Throughput times The fact that the trainee works in a workshop also increases the billable hours and thus the effect of the hourly rate. Methodologically, this approach is also based on calculation aids from national vocational training systems for the workshop trades.
An hourly rate based on full cost accounting creates transparency regarding the actual coverage of personnel, overheads and investment costs. Only this view shows whether a company can invest in equipment, qualifications and processes in the long term or whether it only bears the running costs.
The hourly rate is the basis for calculating a workshop cost estimate. It must cover labour costs, overheads, investments and a profit mark-up. It is calculated per productive working hour. It therefore determines the competitiveness and profitability of a commercial vehicle workshop in a tight market environment.
Why do most garages calculate their hourly rate incorrectly?
Before you calculate the hourly rate in the commercial vehicle workshop, it is worth taking a look at the typical sources of error. Because if you know where the pitfalls are, you can avoid them. If you want to delve deeper, you can also find out more in the article on Realistic capacity utilisation Further information.
Mistake 1: Overestimating billable hours
A mechanic works 40 hours a week, so 2,080 hours a year, right? Wrong. Because after deducting holidays (30 days = 240 hours), public holidays (approx. 80 hours), sickness (average 12 days = 96 hours), training (40 hours) and non-productive time (set-up, tidying up, meetings: approx. 25 % of the remaining time), what remains is realistically 1,400 to 1,550 billable hours per mechanic per year. If, on the other hand, you calculate with 2,000 hours, you are spreading your costs over too many hours. As a result, the hourly rate is too low.
Error 2: Forgetting overheads
The direct costs (wages, materials) are on everyone's radar. But what about overheads? Depreciation on tools and equipment, IT costs (DMS, diagnostic software licences), insurance, tax consultants, accountants, training costs, work clothing, disposal: These items quickly add up to a double-digit percentage of the total costs per mechanic per year. However, if they are not included in the hourly rate, there is a hidden shortfall.
Mistake 3: Not calculating a profit mark-up
Many workshop owners calculate up to cost recovery and are satisfied. But an hourly rate that only covers costs is not a sustainable business model. This is because there is no buffer for investments, reserves and entrepreneurial risk. You should therefore calculate a profit mark-up of at least 8-12 per cent, or even better 15 per cent if you want to invest in growth.
„If you align your hourly rate with your neighbour's for years in order to be cheaper, you often discover when you do an honest recalculation that the minimum hourly rate is significantly higher and that you have been adding on every hour for years without realising it.“- Experience from the Alltrucks network
How to calculate the right hourly rate in 5 steps?
| Cost item | Optimisation approach |
|---|---|
| Personnel costs | Productivity and capacity utilisation |
| Parts and material | Framework agreements and identical parts |
| Room costs and energy | LED and heating control |
| Depreciation of equipment | Life cycle planning |
| IT and software | Consolidation of licences and systems |
| Insurance and administration | Framework agreements |
The minimum hourly rate is calculated on the basis of the Full cost accounting in five steps. You work out the total labour costs, allocate the overheads to each mechanic and calculate the realistic billable hours. You then set a profit margin; a minimum of 10 per cent is recommended. The formula is: labour costs plus overheads plus profit margin, divided by the billable hours.
Please have your latest business analysis and cost statements to hand and work through the calculations with us.
Determine personnel costs in full
Firstly, record all personnel costs for your productive employees: gross wages, employer contributions to the national social security systems, statutory accident insurance, company pension scheme, training costs, work clothing and any additional benefits and bonuses. Then extrapolate everything to an annual value. Experience has shown that the actual personnel costs per mechanic are around 25-30 per cent higher than the pure gross annual salary, provided that all ancillary costs are properly taken into account.
Allocate overheads
Firstly, list all costs that cannot be directly allocated to an order: Rent/lease, energy costs (electricity, gas, water), insurance, tool depreciation, IT and software (DMS, diagnostic equipment licences), fleet costs, office supplies, tax consultant, telephone and internet, advertising and marketing. Then divide the total by the number of your productive employees. This will give you the overheads per mechanic. The typical figure is around 25-40 per cent of the personnel costs per mechanic per year.
Realistically calculate billable hours
Start with the theoretical annual working hours (approx. 2,080 for full-time employees) and systematically deduct: holidays (30 days × 8 h = 240 h), public holidays (10-12 days × 8 h = 80-96 h), illness (in the commercial vehicle industry on average 12 days = 96 h), training (5 days = 40 h). From the remaining attendance time, you then calculate a productivity rate of 75 per cent (target value). This results in approx. 1,400-1,500 billable hours per mechanic per year.
Set profit mark-up
Firstly, define your desired profit as a percentage of total costs. At least 10 per cent is recommended for a sustainably healthy workshop. This profit is not a luxury, but the economic basis for: Reserves for unforeseen costs, investments in equipment and premises, repayment of loans in excess of the minimum instalment and remuneration for entrepreneurial risk. A business without a profit is therefore unable to invest in the long term.
Calculate minimum hourly rate
The formula is: Minimum hourly rate = (personnel costs + overheads + profit mark-up) / billable hours. Use your own values from steps 1 to 4: The sum of personnel costs and overheads divided by the billable hours initially gives your cost price per hour. The profit mark-up (at least 10 per cent) then gives the minimum hourly rate. This is your absolute minimum. Below that you are burning margin. Above this, however, the zone of sustainable profitability begins.
How does the commercial vehicle hourly rate differ from the car workshop rate?
The hourly rate for commercial vehicles is higher than that for passenger cars because the fixed costs are higher. A workstation requires 80 to 120 square metres of workshop floor space, rather than 35 to 50 square metres. Lifting platforms require greater load-bearing capacity and headroom, diagnostic equipment must be capable of handling multiple makes, and mechanics need additional qualifications.
An overview of the differences:
| Cost factor | Car workshop | Commercial vehicle workshop |
|---|---|---|
| Hall space per workstation | 35-50 m² | 80-120 m² |
| Lifting platform investment | Standard equipment | Several times higher load capacity and height required |
| Special tool | Basic equipment | Significantly more extensive basic equipment |
| Diagnostic devices | Single stamp | Multi-brand capability absolutely essential |
| Mechanic qualification | Workshop technician specialising in passenger cars | Workshop technician specialising in commercial vehicle technology plus additional qualifications |
| Positioning leeway | Narrow price corridor | Greater scope through specialisation |
The higher structural costs in the commercial vehicle sector justify higher hourly rates. At the same time, commercial vehicle customers (haulage companies, logistics companies) are generally more price-conscious than end customers in the passenger car business. This makes price enforcement more challenging. This makes a transparent, comprehensible calculation all the more important.
How do you implement the calculated hourly rate on the market?
You can ensure your calculated hourly rate is accepted by communicating the value rather than the price. Show what the price includes, for example Multi-brand expertise, certified technicians and a warranty on repairs. Standardised intake and order processes ensure transparency regarding the scope of services. You must give at least four weeks’ notice of any price increases and state the reasons for them.
Communicating value instead of defending price
Customers don't pay for hours, they pay for solutions. So communicate what your price includes: Multi-brand expertise on the basis of Alltrucks multi-brand diagnostics (Alltrucks KTS Truck V3 with Knorr-Bremse integration), certified technicians - Alltrucks partners are certified as multi-brand system technicians via the Alltrucks training courses (levels 1/2/3) -, original and identical parts in original equipment quality, warranty on repairs and digital documentation. Each of these points is therefore an argument in favour of why your hourly rate is worth its price. Investments in future fields such as E-mobility justify a higher hourly rate, as they require specialised knowledge.
Visualising structure and processes
Standardised acceptance and order processes help to make the scope of services transparent and to justify the calculated hourly rate in a comprehensible manner. Let us go through together which modules make sense for your own business - including Alltrucks training, certification as a multi-brand system technician and Alltrucks operation at the highest level of training. Get in touch with us.
Communicate price increases professionally
Inform your customers at least 4 weeks before a price increase. State the reasons (tariff increases, energy costs, investments) and also emphasise the countervalue (new equipment, additional services, faster throughput times). A letter with a personal touch looks professional and shows appreciation.
Objectively justified and transparently communicated hourly rate increases are easier to implement in workshop practice than blanket increases without explanation. The decisive factor here is the structure of the justification (cost development, investments, scope of services). The extent to which individual customers orientate themselves to this depends on the respective market environment. You can also find out more about profitable workshop management at a glance in the article Managing commercial vehicle workshops profitably.
„If you calculate your hourly rate transparently and explain the structure to customers in a comprehensible way, you shift the conversation away from a pure price comparison and towards the scope of services and quality. Transparency is no guarantee, but it is the most resilient basis for acceptance.“- Editorial categorisation
How do you choose the right price-performance strategy?
The right price-performance strategy depends on your positioning, and the hourly rate must at least cover costs. In the commercial vehicle market, there are three typical positioning strategies: the price leader, with high throughput and productivity of over 80 per cent; the mid-range positioning, which is profitable at productivity levels above 72 per cent; and the quality leader, with specialisation and higher margins.
- Price guide: High throughput, standardised services, low consulting costs. Only works with very high productivity (> 80 %) and low overheads. Risk: Every cost increase eats into the thin margin.
- Medium positioning: Solid quality, broad range of services, good accessibility. The most common position in the market. Profitable with productivities above 72 %.
- Quality leader: Specialisation, comprehensive service, fast turnaround times, verifiable multi-brand expertise for 14 commercial vehicle manufacturers in the Alltrucks portfolio. Requires above-average expertise and equipment, but justifies higher margins. The cornerstones of this positioning are Alltrucks multi-brand diagnostics (KTS Truck V3) and Alltrucks training with certification as a multi-brand system technician. Let us go through together what suits your business.
Regardless of your positioning, your hourly rate must cover your costs and allow for an appropriate return. If you are „cheap“ because you calculate incorrectly, you are not competitive and are on the road to insolvency. For a more in-depth analysis of your contribution margins, we therefore recommend the article Increase contribution margin per repair order. To optimise your workshop utilisation, the second major driver alongside the hourly rate, you can also read Optimise workshop capacity utilisation.
- Firstly, collect your current business analysis and all expense receipts from the past 12 months.
- Then calculate your actual labour costs per mechanic (including all ancillary costs).
- Then calculate your overheads per mechanic and don't forget any items.
- Also determine your realistic billable hours per year (not the theoretical ones!).
- Finally, calculate your minimum hourly rate using the formula in step 5.
- Compare the result with your current hourly rate and take action if there is a shortfall.