How Effective is Your Effective Labor Rate?


Today, more than ever, dealers are bogged down with so much “red tape” in their business that they often over look Effective Labor Rate (ELR) in the Service Departments. In my experience, travels and studies I see dealers become so focused on factory penetrations, HRS/RO, Gross and GP% that they lose something very important: their understanding and the impact of ELR. Most shops operate on rates that are just too low, and this results in significant losses of revenue and profits. Once I show them the potential revenue increase and the immediate impacts of ELR improvements they are amazed.

ELR is one of the foundational pillars to a profitable service center. So much rides on a profitable ELR that it must be one of the single most important areas of a dealership’s focus. Would you build a new home and not know what your foundation is built on? If you know your per copy in the front of your store, and the drivers of it, why not know the drivers in the back just as well?

Some things to think about:

  • What drives your ELR?
  • What percentage should my ELR be?
  • What steps can I implement to increase my ELR?

Once a dealer, GM and/or Service Manager fully understands the significance and impact of ELR, they are on the path to great success in their Service Departments. 

Need help with understanding or growing your ELR? I can help through many proven processes and realistic approaches. Let me educate you and your staff. Contact me today.