[triceratops]

OK, maybe I'm coming at this the wrong way.

> For the shop, the labor cost is already sunk.

For me this means - "labor hours are constrained, so I should spend them wisely". If I wanted to buy more labor hours, I have to hire a new person and pay more money. That means preferring jobs where the markup is on non-labor things i.e. new parts. As long as my job pipeline is full and my employees are at 100% utilization, preferring less labor-intensive jobs will drive greater profits. Because I can complete more jobs overall, leading to more revenue.

Don't get me wrong, I understand that the markup on labor is higher than the markup on parts. But if you're betting on higher profits by selling more labor hours, then you're also constrained by physical space, your ability to hire labor and pay a competitive wage, the risk of a downturn etc. It's almost like software consulting vs software products. Selling products is always going to be more scalable and profitable.

Is my logic wrong somewhere?

[kd5bjo]

Your reasoning looks right if your employees actually are at 100% utilization. If they’re not, however, the marginal cost to the shop of labor is 0. (1) Thus, it’s better to prefer the option that lets you charge more labor hours when you’re light on jobs.

For most brick-and-mortar shops, it sustainability, not scalability, that dominates. If you’re tooled up assuming the market will stay hot, you’ll struggle when the inevitable downturn comes. On the other hand, if you can stay break even at 50% of normal volume, you’ve got a chance to ride through a recession with your business intact.

The comparison to software breaks down when you’re talking about products, because the shop is a reseller; there’s a pretty hard limit to the amount of retail markup the market will bear before competitors crop up.

(1) As it turns out, this isn’t completely true; see the other reply.