Some years ago, I was putting on training in a Canadian city with a population of at least a quarter of a million people. I had 12 shop owners in the class. We were covering the topic of price, how to charge properly for what we do and become more profitable as a business. We came to a statistic in the material that mentions 14 per cent of consumers at automotive repair facilities in Canada are all about price. These customers are looking for the lowest price possible, regardless of value. In an instant, all 12 shop owner’s hands shot up in the air and they all said, "And they are all in my city!" There may have been some humor in the comment, but they were under the distinct impression that they had been saddled with the majority of the cheap people in Canada.
My first reply was to point out that it was not possible. I had paid just as much for a hotel room and a rental car in their city as I had in any other part of Canada. I also mentioned that as I had driven into town I had seen a brand new Lexus dealership being built. Other major nameplates also had new dealer operations as well. We began to discuss what types of vehicles their customers brought to them and their frustration with some of the old junk they had to work on. I did a survey of the room as to what was the newest car anyone remembered working on in the last month. The newest vehicle that anyone in the room had worked on that month was at least five years old.
Why do you attract only the ‘price focused’ customer?
My next thought was these shop owners had attracted the majority of the cheap people in their own city, rather than their thinking that the whole city was the residence of all the cheap people in Canada. Why did these shop owners, like many other independent shop owners across the country, not attract a clientele that had money and or was willing to spend money? Where were the newer cars, the ones without all the seized bolts and corroded fittings? Why don’t more people in society see the value in these shop owners and their teams?
I think that it is because most shop owners are trades people. Many shop owners don’t understand that knowledge is as billable as labour and parts, and they don’t see the value that they bring to the consumer and society in general. As well, some shop owners and technicians find it hard to charge properly for what they do, because they feel that they could not afford it themselves. How did this vicious circle start?
First of all, this whole challenge is about perception and belief. What we perceive and experience, creates many of our beliefs. These beliefs then create actions or behaviors on our part, that in turn create perceptions in other people.
I do not want anyone to get the impression that the term trades person is negative in any way. I can proudly say I have been a trades person for much of my working life. I have been a carpenter, motorcycle mechanic, aircraft technician and automotive technician.
As a trades person working for an employer and usually paid by the hour, we understood the direct connection between the time we worked, the work we got done and the money we were paid. In our minds, we had worked hard, broke a sweat and busted some knuckles. We were worth every dime we were paid, and Lord help the boss who shorted us a half-hour on our pay cheque, whether by mistake or on purpose. We would fight for that money.
Now fast-forward ten or twenty years. You now own a shop, and be honest, how many times have you or one of your employees worked on a car, broke a sweat, busted some knuckles and not charged the customer for all the time you spent on their car? What is the difference? The difference is that when you were an employee you believed you were worth your hourly wage; now you feel like you are ripping customers off when you charge $85, $95, or even $120 dollars an hour. You do not believe you are worth your hourly shop rate.
Knowing how to value your time, expertise
Here is an exercise that I hope will help you change your beliefs regarding the value of what you sell and the prices you should sell it for.
Let’s talk about your operating cost per hour. Take your fixed operating expenses for one month and add them all up. Let’s say, for example, you have a total of $29,000 in expenses. Then calculate your labour inventory in hours for the month. Take the number of technicians, multiplied by days available and hours per day.
Our sample shop has two technicians available eight hours a day and average 21 days open. That equals 336 hours of labour inventory. Divide $29,000 by 336 and you get $86.31 cost per hour. By the way, this sample shop has a labour rate of $82 per hour.
I recognize that this is over simplified, we have not included profit on parts or cost of technician wages in this calculation, but I think that it illustrates very powerfully why so many independent repair shops are not profitable.
We believe that we are only worth the wage we are paid or that we pay our technicians. We forget all the value we offer to clients. In those fixed expenses are the costs of training, the upgrades to diagnostic tools, subscriptions to repair databases, parts and labour warranties, etc. If you unlocked your shop door in the morning and saw $172 ($86 X 2) fly past you every hour, you would reach out and grab it. Hey, that’s my money you would yell out! But that is really what is happening. The good news is that customers are bringing money back in to offset it; but if you do not invoice properly, you will never be profitable.
But, you say, my customers won’t pay, they can’t afford it or they can get a cheaper price somewhere else. Think back to my opening remarks: If all of your customers are cheap, you have attracted the wrong customers. Because of your belief that you are only worth $20 per hour, that is whom you attract, people who themselves may be underpaid or underemployed. But now that you know you cost $172 per hour, you are going to figure out how to show the value and collect the revenue you need to stay in business.
Now back to my question to the group of shop owners about the newest vehicle that they had worked on in the last month. I stated that one of them recalled working on a vehicle that was five years old. On average, the group was primarily servicing and repairing seven- to 12-year old vehicles. At the lunch break, I looked out of the meeting room window into an adjacent parking lot. This parking lot belonged to a large office building across the lane from our hotel.
I called the shop owners over to take a look at all of the vehicles in the parking lot, easily more than a hundred. As we counted, we found that over 90 per cent of the vehicles in that parking lot were five years old and newer. They needed to see for themselves that there were many people in their community with good jobs, good cars, and probably money to maintain those cars. Sometimes when you look from a different vantage point, you get a different point of view. We tend to believe what we see and what we experience.
My hope is that you will not only understand what it costs you to do business, but also how much you are worth. Because technical and mechanical concepts and processes come easy to you, you do not know their worth. You might not understand that a large majority of people in this world are completely ignorant of most mechanical and technical processes. Think of the last time you were stressed out but not knowing something.
Let’s say for example your computer in the shop crashes and you might loose all your data. If you are not computer savvy, you will need to hire a computer technician to come solve your problem. I would hazard a guess that you would be willing to pay almost anything to get up and running again, and not have lost any data on the hard drive. That is how many vehicle owners feel. They are looking for someone to take away their stress about their vehicle and maintain the most expensive piece of equipment they own, and they know it will cost money.