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Pricing Your Services
More than two ways to get the job done
When a customer asks you what your shop rate is, you can bet on it, that you are being priced shopped. With many shops there is a sign posted that indicates your rate per hour; a rate that you have determined based upon competition within your area.
One of the most frequently asked questions is, "How can I raise my rates when my competition is at the same hourly rate I am charging now?"
And if you are experiencing numerous customers asking that initial question about rates, most likely you cannot increase your rates substantially over that of your competition. But, let's take a look at the two underlying points about rates. The first is that you are probably wanting to increase your rates because you want or need to increase the profitability of your service department. The second is that the customer is probably asking the question because that is the only way they can compare one shop with another.
So if the going shop rate in your area is $45 an hour, you are not likely to be able to charge $60 an hour without getting a lot of comments/complaints from your customers. We can however resolve both of the underlying points by way of a couple of changes within your business.
Raising your shop rate is not the only way to increase revenue with your shop. A very significant way of increasing the revenue in your shop is by increasing the utilization of your technicians. Or stated in other terms, when the 40 hour work week is done for your technician, how many hours did they bill? Instead of looking at the number that is obvious to the customer, let's look at the number that is available only to you.
If at the end of the week, your technician has billed 25 hours, what did they do for the other 15 hours? Most definitely you have an interest in the answer to this question if you are paying your technician by an hourly rate plus a percentage of the labor. If the technician is billing 25 hours a week, and the shop rate is $40, that technician has brought in $1000. Unfortunately, they had the potential for a lot more. In an ideal situation, they could have brought in $1600!
We all know where the missing 15 hours of billable time went. The technician was talking with customers, looking for parts, calling for parts, and letting that customer go without writing a ticket because it took "only a few minutes" to fix their problem and "we'll get the customer next time".
What if we solved the problem by being better managers of our time? Our easy suggestion to achieve this begins with your purchasing two electric alarm clocks for each bench. Then with a trip to the local hardware store, purchase a rotary on/off switch to be mounted in the power cord of each of these clocks.
Now plug them in, set the dial on each to be 12 o'clock and turn the clocks off. When the technician takes the first service ticket off of the clip board, one of the clocks is turned on. The clock remains on until the job is completed. Now our technician gets a true picture of the time to be billed.
But what if a customer, perhaps a commercial account, walks in with a machine needing immediate attention? The technician turns off the first clock, and turns on the second clock. Then the first machine is removed from the bench and the immediate need machine is placed on the bench. A ticket is written and the necessary repairs are done. The second clock is turned off, and the ticket is completed. Now what has happened?
That customer that we had previously said we would, "get the next time" is leaving with a bill for the actual time that was spent with their machine. Most likely, the time on the second clock that we have now billed for, at $40 an hour, will represent anywhere from $10 to $40.
One dealer that implemented this system reported that their weekly hours billed by their technicians went up from 26 hours to 34 hours a week. This represents an increase in revenue of 33%! While it is unlikely there is a shop that could increase their hourly rate by 33%, a simple purchase of approximately $25 worth of equipment made a substantial improvement in the revenue of the shop.
There is another way that we can implement. We mentioned that the customer has asked what the hourly rate is because they have no other way of comparing one shop to another. Other than taking a machine to a shop and receiving poor service that would require a take back, how could they compare any two or more shops?
But notice that while they asked for the shop rate, they did not ask how long it would take to rebuild the self propel drive to their mower. So a shop that charged twice as much as another shop, but completed the job in half the time, would produce a labor bill that would be the same.
Let's look at doing something extra for the customer. From the experiences of this writer, in addition to a technician our shop implemented a student from the local vo-tech school. The student was paid on an hourly rate without any bonuses like the mechanic received. After the ticket was written, the student was the first person to see the machine.
Using the clock system we previously described, the machine was first pressure washed. The student then performed a list of basic services on each machine, sharpen the blade or chain, change the spark plug, change the oil and air filter, and adjust the carburetor. In addition to these steps, the student then used OEM cans of spray paint to touch up all of the scratches on the machine.
When they were done, the student made the appropriate notations for what he had done with the notation that there was "no charge" for the products we had replaced. The clock was turned off with the ticket and a very clean machine being passed to the mechanic for him to perform the necessary repairs.
It was amazing to see customers come in to pick up machines with the most frequent comment being, "That's not my machine. Mine does not look that good."
Never did a customer say, "I know you should have completed that job in one hour and you have billed for an hour and a half."
We figured that every other shop in town did repairs the way we used to do it. But now we were the only place in town that did a repair in a first class manner. And of course the profit was higher than what we used to get because part of the work was done by the student.
If increasing the profitability of your shop is your goal, raising the hourly rate is one way to get the job done. Unfortunately it is the way that everyone will notice. Utilizing the two ideas we have suggested can produce the same, if not better, results. Yes, there are more than two ways to get the job done. Enjoy the extra profit!
This article is copyrighted by Tom Shay and Profits Plus Solutions, who can be reached at: PO Box 1577, St. Petersburg, Fl. 33731. Phone 727-464-2182. It may be printed for an individual to read, but not duplicated or distributed without expressed written consent of the copyright owner.
Profits Plus Solutions, Inc.